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Is a Balanced Budget Amendment “Delusional?”

Posted on: March 15th, 2012 by admin No Comments

By Barry Poulson, PhD, Representative Spencer Swalm and Representative Ed Casso

During the past year both the House and Senate failed to pass a resolution calling for a Balanced Budget Amendment to the Constitution. Resolutions proposing a Balanced Budget Amendment have failed numerous times in Congress over the past half century; in 1995 the Amendment passed the House and came within one vote of passage in the Senate.

Critics argue that this approach to fiscal discipline is ‘delusional’ because even if a Balanced Budget Amendment were incorporated in the Constitution politicians would find ways to evade these fiscal rules. But, these critics ignore the fact that 49 states have incorporated balanced budget provisions in their constitutions, and that with few exceptions these fiscal rules have effectively constrained the growth in state spending, enabling state governments to pursue a sustainable fiscal policy.

Congress, the President, and the American people understand that in the long run we must constrain the growth in federal spending in order to achieve a sustainable fiscal policy, and that this is a necessary condition to restore economic growth and prosperity.

It is because politicians have an incentive to increase spending at an unsustainable rate that balanced budget rules should be incorporated in the U.S. Constitution as well as state Constitutions.

This is a classic case of Arrow’s impossibility theorem. Assume that outcome A is current fiscal policies with unconstrained growth in deficits and debt; outcome B is a Democrat proposal to balance the budget by cutting defense spending; and outcome C is a Republican proposal to balance the budget by cutting non-defense spending. Democrats prefer outcome B to A, but prefer A to C. Republicans prefer outcome C to A, but A to B. Majority voting rules will result in voting cycles with no stable outcome, so the government is likely to muddle along increasing deficits and debt until the country experiences a fiscal crisis, such as that currently experienced in Europe.

The Founding Fathers may not have understood Arrow’s Impossibility Theorem, but they certainly understood the potential for unconstrained growth in federal spending to bankrupt the country. Thomas Jefferson stated that if there is one thing that he would have incorporated in the Constitution it is a Balanced Budget Amendment. “It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one half of the wars of the world.” Jefferson also anticipated how this flaw in the Constitution could lead to the current fiscal crises. “Unless the mass retains sufficient control over those entrusted with the powers of their government, those will be perverted to their own oppression, and to the wealth and power in the individuals and their families selected for their trust”.

The Founding Fathers provided a solution to this fiscal crisis by incorporating Article V in the Constitutions, giving the states as well as Congress the power to propose amendments to the Constitution. As James Madison states in Federalist #43, The Constitution “equally enables the general and the state governments to originate the amendment of errors, as they may be pointed out by the experience on one side, or on the other”.

It is clear that unconstrained growth in federal spending is precisely the failure in the federal government for which Article V was designed. Submitting budget decisions to the constraints imposed by a Balanced Budget Amendment would require that politicians forego their power of the purse. But the ability to slice and dice the federal budget, spending money to the benefit of special interests who can get them elected and keep them in office is the life blood of politics. In the absence of an effective balanced budget constraint this rent seeking game is biased toward continual deficit spending and accumulation of debt.

It is time to fulfill the Founding Fathers vision of a prudent federal government pursuing sustainable fiscal policies that will ensure our economic growth and prosperity. We can no longer wait for Congress to enact a Balanced Budget Amendment. The states can enact a Balanced Budget Amendment through an amendment convention under Article V of the Constitution. Federal fiscal policies could be constrained by the same fiscal rules that have proven effective in our state governments. To argue that this is ‘delusional’ is to ignore our constitutional history and more than two centuries of experience with balanced budget rules incorporated in state Constitutions.

Originally published in the Denver Business Journal, March 9-15, 2012