2010 March 02 Tuesday
Time For A Balanced Budget Amendment

An article in the Wall Street Journal about whether Germany will bail out Greece mentions that the Germans have imposed a constitutional cap on the size of their federal government's deficit. The United States should do the same.

Germans grumble at the prospect of shoveling money at Greece at a time when Berlin is preparing to knuckle down with stiff austerity measures of its own.Germany has imposed a constitutional debt cap that requires the government to reduce its structural deficit to no more than 0.35% of gross domestic product by 2016, equivalent to spending cuts of 10 billion ($13.56 billion) annually from next year.

"Germany is the only country which has written into its constitution during the difficult economic and financial crisis a debt cap rule," Ms. Merkel said Sunday. "This means we know solid budgets are indispensable for the future the sustainability of our country."

The US has reached a state of fiscal insanity. While running a 10% of GDP budget deficit the US Congress is debating a huge new entitlements program for health care. The idea of finding ways to do savage cost cuts does not figure prominently since the goal is to expand coverage. We need to change the political calculus in Washington DC in a drastic way. Only a severely hobbled ability to run deficits will do the job.

Watch the recent Peterson-Pew Commission On Budget Reform. Former directors of the Congressional Budget Office propose less powerful approaches to the problem of chronic deficits. I find the whole discussion woefully inadequate. We need bigger guns to kill this problem. A constitutional amendment is the only gun big enough.

Absent a constitutional amendment I expect the US won't take needed measures until foreigners become unwilling to buy more US Treasury bonds and a full blown sovereign debt crisis suddenly hits. I'd like to avoid that outcome. Time for a solution that can work.

A balanced budget amendment can have clauses in it for emergencies. A supermajority of Congress (60% or perhaps 66%) could enable a larger deficit. Absent a supermajority vote we'd need a mechanism for how to cut spending. Would Congress be required to include language in any spending legislation specifying what to cut if revenue gets more than, say, 1% below spending? How to make a balanced budget amendment work?

Share |      By Randall Parker at 2010 March 02 10:31 PM  Economics Squanderville Thriftville


Comments
sg said at March 3, 2010 12:47 PM:

Emergency budget deficits should require unanimous consent. If there is a true emergency, that should be easy to achieve. If it isn't, then it is not an emergency.

kurt9 said at March 3, 2010 2:53 PM:

Reagan talked about the need for a balanced budget constitutional amendment, all the time while log rolling with the congressional democrats to run up the then largest deficits at the time. Everyone wants a balanced budget amendment when it is not inconvenient for them.

Mercer said at March 3, 2010 5:01 PM:

The EU has budget standards for its member countries which Greece and Italy were able to get around. The US could do the same with any amendment. I think talk of an amendment is just a way for congress and other people to avoid being concrete about how they would cut spending or raise taxes. The congress already evades it's clear responsibility in the constitution to declare war. Medicare is the federal program that is growing rapidly. People should propose how to limit it's growth instead of talking about budgetary gimmicks.


sg said at March 5, 2010 6:18 AM:

We need a Rule of Law amendment.

Too many laws are not enforced or selectively enforced, like immigration.

Ross said at March 6, 2010 8:47 AM:

The progressive era reforms of 16'th and 17'th ammendment, in conjunction with the Federal Reserve act, need to be undone. The 16'th allows the government unlimited access to your wallet via the income tax. The 17'th ammendment allows Senators to become populists...the 17'th is probably the most pernicious degradation of the consitition because Senators no longer represent States, but instead represent special interest money. The Federal Reserve act put private individuals in charge of manufacturing money, where said money can be used to pervert the legislative machinery (see the 17'th). It all works together wtih the 16'th ammendment allowing taxation to back up the Federal Reserve. The recent tarp bailout is a perfect example, where the Tarp funds, e.g. your tax dollars, were used to back up private banks.

The solution to the mess in Washington is to undo the corruption that was built in by a corrupt progressive generation. The progressive era did nothing of value, and did great damage.


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