Dangers of a Balanced Budget Amendment
Political gimmick has potentially disastrous consequences for the nation
November 23, 2011
A balanced budget amendment—a version of which was recently voted down by the House of Representatives—is a terrible idea. Although it sounds good in theory, requiring Congress to balance the budget each year would eliminate one of the most effective means we have of ensuring that the economy works as effectively as possible and thereby it would lower growth, increase unemployment, and cause greater levels of poverty and inequality.
The main problem with a balanced budget amendment is that it assumes that the country will never experience a recession. Whenever the economy slows down, tax revenues decrease, spending on things like unemployment insurance goes up, and the budget deficit grows. Although people tend to think that large deficits are a cause of a bad economy, high levels of government spending are needed to ensure that a weakened economy does not contract even more. This was the major lesson of the Great Depression, and it remains true today. A balanced budget amendment would take away the government's ability to use tried-and-true forms of "countercyclical" fiscal policy and force spending cuts just when stimulus is needed most. Recessions would be longer and more severe, and our long-term growth prospects would be worse.
As if this were not enough, a balanced budget amendment would be a national security disaster. Wars cost money and, absent significant tax increases, the government must run deficits to pay for them. The largest deficits in American history were caused by government spending during World War II, and it would be foolish to pass a law that would prevent the government from engaging in similar behavior in the future.
Members of Congress know that a balanced budget amendment is entirely unworkable, and many lent their support to the most recent bill only because it makes them appear fiscally responsible. Such actions represent the height of cynicism given that measures like letting the Bush tax cuts expire would reduce the deficit more effectively and sustainably than the radical step of amending the Constitution.
- Read about how the super committee failure will affect you.
- See a collection of political cartoons on the economy.
- Read Robert Schlesinger on the upside down 2012 politics of the economy and the deficit.