Moderate economists oppose Balanced Budget Amendment to Constitution

Dear President Obama, Speaker Boehner, Minority Leader Pelosi, Majority Leader Reid, and Minority Leader McConnell,

We, the undersigned economists, urge the rejection of proposals to add a balanced-budget amendment to the U.S. Constitution. While the nation faces significant fiscal problems that need to be addressed through measures that start to take effect after the economy is strong enough to absorb them, writing a requirement into the Constitution that the budget be balanced each year would represent very unsound policy. Adding additional restrictions, as some balanced budget amendment proposals would do, such as an arbitrary cap on total federal expenditures, would make the balanced budget amendment even worse.

1. A balanced budget amendment would mandate perverse actions in the face of recessions. In economic downturns, tax revenues fall and some outlays, such as unemployment benefits, rise. These so-called built-in stabilizers increase the deficit but limit declines of after-tax income and purchasing power. To keep the budget balanced every year would aggravate recessions.

2. Unlike many state constitutions, which permit borrowing to finance capital expenditures, the federal budget makes no distinction between capital investments and current outlays. Private businesses and households borrow all the time to finance capital spending. A balanced budget amendment would prevent federal borrowing to finance expenditures for infrastructure, education, research and development, environmental protection, and other investment vital to the nation's future well being.

3. A balanced budget amendment would invite Congress to enact unfunded mandates, requiring states, localities, and private businesses to do what it cannot finance itself. It also invites dubious accounting maneuvers (such as selling more public lands and other assets and counting the proceeds as deficit-reducing revenues), and other budgetary gimmicks. Disputes on the meaning of budget balance would likely end up in the courts, resulting in judge-made economic policy. So would disputes about how to balance an unbalanced budget when Congress lacks the votes to inflict painful cuts.

Republicans prepare the next noose !

 Like their crazy willingness to cause a new financial meltdown by refusing to extend the debt limit – which they did repeatedly under George Bush- the Congressional Republicans now propose a balanced budget amendment to the constitution as a part of the deficit “deal”.

  They claim it would be positive based on the reality that most states have such laws. Well now lets see.  In 2007/2009 when finance capital looted the economy, the U.S. government bailed out the banks and prevented a second great recession.  The U.S. government used deficit financing to keep 100,000 teachers in classrooms and over 25,000 police on the streets. They did this by deficit financing.  That is, they did not balance the budget.  If they had balanced the budget we would have had a second Great Depression. 
 

  ( Recall that they created the conditions for the great finance robbery by their prior fantasy that finance capital would regulate itself in a free market and we did not need a Glass-Steagal law any longer.)

  Republicans are holding the country hostage by refusing to raise the debt ceiling; they will only do so if the federal government caps domestic spending at a fixed percentage of GDP and passes a balanced budget amendment. Both of these policies would have disastrous long-term results for the U.S. economy.