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|