The Case Against a Balanced Budget Amendment

The recent debt ceiling “crisis” in Washington focused a great deal of attention on our national debt. Currently the United States owes a debt of more than $14,000,000,000,000, a number so staggering it defies understanding. America has maintained a self-imposed limit on borrowing (the “debt ceiling”) which, because it is self-imposed, we have increased dozens of times over the years.

One idea thrown into the debate over the most recent increase to the debt ceiling was the so called “cut, cap and balance” proposal. The general idea was that the increase in the debt ceiling would be linked to an amendment to the U.S. Constitution requiring a balanced budget. The proposal passed the House but was defeated by the Senate. Which led many commentators and politicians to wonder who could possibly oppose a balanced budget amendment? The answer is really anyone with even a basic understanding of economics, as I will attempt to explain.

A balanced budget amendment has problems of both a political and economic nature. Politically, it is a “pass the buck” move by current politicians who want to look like they are taking responsibility without actually having to take responsibility. The amendment does not specify HOW the budget will be balanced. Someone else will have to decide, for example, whether to slash defense spending or social security benefits, or raise taxes. The favorite metaphor used by supporters of the balanced budget amendment is that American families have to live within their means so the government should, too. (Note: this overlooks the large amount of debts Americans incur for housing, cars, etc., but that is another issue). Well, supporting a balanced budget amendment is the equivalent of the head of that household looking at the income and expenses and saying “I have solved our budget problem, from now on we will not spend more than we earn,” without providing any explanation of how the family will accomplish this goal. Someone else will have to decide what bills don’t get paid.

Economically it is a bad idea to require a balanced budget because governments are not just like a household. Rather, we have decided that the government plays an important role in providing a safety net for society. When the economy stumbles, as it has recently, the government takes in less in taxes but there is a greater need for government spending. A balanced budget amendment would, therefore, require the government to either raise taxes or cut benefits, or both, during a recession thereby making the recession worse. The problem also happens in reverse if there is an economic boom. The government takes in more taxes and spends less on social programs, meaning there is excess revenue.  Economic booms lead to higher prices, known as inflation, because the increase in economic activity creates wealth faster than it creates goods – people doing well spend more money. A balanced budget amendment would require the government to cut taxes or increase spending during a boom, which would fuel even higher inflation. In other words, a balanced budget amendment forces the government to take the exact opposite action appropriate for the economy in either a surplus or deficit situation.

The current debt is drastically too high, and there should be broad consensus to cut that debt. But a balanced budget amendment is absolutely the wrong way to go about it. If you still don’t believe me I will offer this final thought. Herbert Hoover was known as the “great humanitarian” for his work in Europe after World War I. He coordinated private relief efforts for the war torn continent. But he steadfastly believed government could not spend more than it earned – he was wed to the idea of a balanced budget. When the stock market collapsed during his presidency he did not use the resources of the government because it required deficit spending. As the economy sank into the Great Depression his reputation as a humanitarian sank with it. In fact, the shanty towns that sprung up for the homeless and downtrodden earned another nickname in honor of the President, “Hoovervilles.”

Politics as Volleyball

Political Volleyball

My last post discussed the sometimes confusing and changing meaning of political labels. The terms “conservative” and “liberal” mean different things in different contexts. If we are talk about the size of government, a conservative would favor less government and a liberal more. But if we talk about certain specific social policies a conservative favors more political restrictions and involvement and a liberal wants less government. The labels themselves do not tell us very much, we need to know the context.

With this post I want to tackle another issue I have long found strange, the role of logic in political decisions. I don’t mean whether Congress is logical or not, I mean the relationship of a logical framework for analyzing a position with an individual’s political views. It is often said that politics makes strange bedfellows. I think this example can help show just how strange we can be when it comes to our political beliefs.

I am going to start with two different sets of three logical arguments. The first set of arguments goes together and supports a general viewpoint of individual freedom.  The second set of three goes together and, broadly speaking, supports a viewpoint of government action. The logic statements are:

Individual Freedom

1.       I should have the right to make this type of important decision for me and my family.

2.       The government is not well suited to make this type of decision, should not micromanage and it is an abuse of power to interfere here.

3.       The individual right being discussed is a long-held right and it would be confusing and disruptive to try and restrict it now.

Government Regulation

1.       The so called “right” potentially harms innocent bystanders and it is appropriate to restrict or deny this right to protect them.

2.       The government has a moral obligation to protect the vulnerable who cannot protect themselves.

3.       Times change and we should not be held captive to old ideas.

Look at those two sets of logical arguments and decide which set appeals to you when discussing the issue of gun control. Most of us are quickly drawn to one set of arguments or the other. If you think it is appropriate to restrict gun ownership you probably start with the idea that more guns leads to more gun deaths and many victims are innocent victims – individuals who played no part in the decision for someone to obtain a gun (children who played with a gun and accidentally get shot, bystanders caught in the crossfire, etc). Conversely, if you are opposed to gun control you might argue the right to own a gun has long been law of the land and individuals are in a better position to make this important decision than the government.

Now, looking at the two sets of logical arguments again but this time decide which set of arguments is persuasive to you when thinking about the issue of abortion. Again most of us can quickly and easily find the set of arguments that speaks to us. But something very interesting happens – most people now switch sides. Social conservatives will usually opt for the individual freedom arguments on gun control but pick the government regulation arguments on abortion. Likewise, social liberal will identify with the government regulation arguments on gun control and the individual freedom arguments on abortion. In fact, I have often thought about these issues as a giant game of volleyball. The teams separate into two sides and the referee yells “abortion”. Team conservative yells out the logical arguments for government regulation and team liberal responds with the arguments for individual freedom. After a few minutes the ref blows a whistle and yells “gun control”. The teams switch sides and make the same arguments only in reverse. Team liberal shouts out the arguments for government regulation and team conservative volleys back with the individual freedom arguments. Of course this is not true for everyone. There are likely lots of people who support restrictions on both gun ownership and abortion or support freedom of choice on both issues. But I suspect the vast majority of Americans fall into one of two “contradictory” camps – restricting abortion/allowing guns or restricting guns/allowing abortion.

I think most of us would describe ourselves as logical creatures. We believe we logically consider an issue, analyze various positions and reach a logical conclusion. But, for a great number of us, I strongly suspect we decide these matters not on logic but on emotion. We have an emotional reaction to the issue and then pick a logical framework which supports our position. The framework can freely shift as the issue changes, and, for most of, this seeming contradiction does not cause any inner turmoil. It is yet another example of how confusing politics can be and how difficult it can be to have a rational discussion.