Viewpoint: A Balanced Budget Amendment That Might Actually Work

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The current debate over national economic policy has drawn to standstill in recent months, amid falling unemployment, budget deficits, and the sundry scandals that have consumed much of Washington. But just because the problems of unemployment and the unsustainability of our long-term budget appear less severe than they did a year ago doesn’t mean they don’t deserve to be addressed.

The conventional wisdom is that nothing is getting done on either of these fronts because the Republican Party isn’t interested in compromise; or, as my colleague Rana Foroohar recently suggested, because conservatives are simply out of ideas that don’t include radical budget slashing or tax cuts for the rich. Politics has surely dampened the appetite for compromise on the Republican side of the isle, but it turns out the GOP is not entirely lacking in fresh ideas. A new book called Balanceby right-leaning economists Glenn Hubbard and Tim Kane, offers some policy proposals that ought to be taken seriously, even by those who don’t agree with all their premises. At the very least, some of these ideas could be used as blueprints for the rare politician seeking some acceptable grounds for compromise.

Balance is a work of economic history: Its goal is to examine why great powers decline, and how the United States can avoid a similar fate. From Rome to the Ottoman Empire, Hubbard and Kane argue that the real cause of superpowers decline was not because of outside threats but because of decay from within. Though certainly not an original insight, it’s an important one because too many of us view economic development as a zero-sum game played between competitors. Over the past fifty years, the popular imagination has held that first the Soviet Union, then Japan, and now China were competitors for a limited supply of global wealth rather than potential partners working towards shared prosperity.

(MORE: Austerity Strikes Back: Budget Hawks Regroup After the Reinhart-Rogoff Affair)

Unshackling ourselves from a declinist mindset that states that the U.S. cannot compete with an ascendant nations like China is an important first step toward sober-minded decisions about policy. Hubbard and Kane clearly point out that America remains, by nearly any measure, the most powerful and productive economy in the world, and that it’s not even really close.

But the central concern for Hubbard and Kane is whether or not we’ll be able to maintain that dominance. If we can’t, Hubbard and Kane argue, it will be because economic realities have moved beyond our political system’s ability to deal with them. Hubbard and Kane write:

“Great powers are rarely brought down by outside adversaries; they destroy themselves from within . . . As political institutions fail to keep up with economic changes, elites respond by concentrating political power, increasing public spending, and eventually taking on an unbearable burden of debt that brings down the entire system. If America’s global economic power comes to an end in our lifetime, it will surely result from a loss of fiscal balance that forces the nation down this well-worn path. Indeed, it is now perfectly clear that our political system is struggling to contend with an economic and fiscal reality for which it was not designed.”

Perhaps the main theme of the book is that the structure of our political system is set up in such a way that our leaders cannot behave rationally. A gerrymandered Congress only serves the very extreme polls of the political spectrum because most representatives’ only professional threats are primary challenges. This causes Republicans to dogmatically resist any tax increases and Democrats to do the same regarding cuts to entitlements. The result, of course, is ballooning deficits and budget showdowns that threaten to destabilize the economy.

But there’s more than just redistricting reform that could help to short-circuit this cycle: Hubbard and Kane endorse a balanced budget amendment that could help as well.

Liberals tend to dismiss a balanced budget amendment as a measure that sounds good to the average voter but is actually naive and dangerous. They argue, correctly, that a law requiring the federal budget to be balanced each year would force governments to cut spending during recessions, the very moments when it is counterproductive to do so. And almost everyone agrees that if governments are forced to slash spending at the very times in which businesses and households are doing so, recessions will only be made deeper.

(MORERepublicans Seem to Be Out of Economic Ideas — Here Are Two Suggestions)

But Hubbard and Kane point out that a balanced budget amendment wouldn’t necessarily require budgets to be balanced in a counterproductive way. An amendment could be structured so that the government would merely have a balanced the budget over an extended period of time, say five or ten years. That way, the government could run deficits, even deep ones, during recessions, and it would have plenty of time to make up for it during the subsequent boom years. Keynesian economics, after all, has always advocated running surpluses in good years and deficits in bad. It’s just that governments have never been particularly good at the the former.

This sort of proposal, which would allow the federal government to step in and provide support for the economy during recessions, but require that it pare back stimulus during the boom times, could go a long way toward allaying fears on the right that America’s entitlement programs will soon grow far too expensive. In a way, a balanced budget amendment could be thought of as a backup plan in case that does happen, and the government at the time doesn’t possess the political will to deal with the situation.

In my view, the main flaw with Hubbard and Kane’s book — and arguably with the economic thinking of the political right in general — is that it concerns itself solely with the fate of America, and not with the fate of Americans themselves. Those on the left who refuse to cut entitlement spending do so because they fear that Americans have no other way to secure a dignified retirement or access to basic healthcare, not because they don’t understand that runaway government spending can pose a threat to economic growth. The question for Hubbard, Kane, and other conservatives is how to ensure that economic growth — which may indeed result from the streamlined regulatory and tax environment they advocate — benefits all Americans, and not just the few?

At the same time, the left side of the spectrum has to admit that problems of rising income inequality and stagnant middle wage income growth can’t simply be solved by asking the rich to pay more in taxes. As we’ve seen in recent years, there’s only so much wealth redistribution that Americans will tolerate.

America’s economic future will not be made secure by one budget agreement or one constitutional amendment. But the performance of our government would be greatly improved if the two sides of the debate were more willing to look across the aisle and attempt to understand the true concerns of their opponents. And a balanced budget amendment might just be the incentive that could bring a significant number of Republicans to the table.


I don't like the Balanced Budget Amendment because it's impossible to predict the future, much less to control it.

According to this essay, Professor Hubbard ascribes the decline of the Roman Empire to economic collapse.  One could argue that the real cause of Rome's decline was the succession of civil wars beginning with Sulla's march on Rome in the Social Wars.  Later, would-be Emperors marched on Rome with Legions pulled from the frontiers, both weakening the frontiers and destroying their legions in battles with those of other contenders. 

Sulla also shows the difficulty of controlling --- or even predicting --- the future.  Sulla's march on Rome brought armed Legionnaires into the city limits.  No general had ever brought his Legions within the city.  Many were to follow.

I'm not arguing that economics didn't play an important part in the collapse of Rome.   I am arguing that it wasn't the only or even the most important part.

tom.litton 1 Like

The article presents a political problem -- societies decay from within because their political systems aren't set up to handle modern economics, then presents a economic solution -- a balanced budget amendment.  

The problem isn't that we can't solve the economic problems.  We know them, and there are several relatively well known solutions (to both the political and the economic problems).  The problem is that we will choose not to solve them.  

I believe we will do so because the loudest people only care about beating the other side, and everyone else do not care.  If you want proof, just read the comments of the political based articles.  Or just look at the number of comments for the political based articles vs the policy based articles like this one.


@tom.litton Tom, the loudest people only care about themselves and will hurt others willingly as well as by negligence to advance their own interest. That's true in politics, corporate life and society at large. The concept of long range economic planning got a bad reputation with Russia's 5 year plans, but that's what we need here today, along with two more national political parties so that the concept of compromise once again enters the political arena. 

As for how to get out of this economic trap of huge, albeit declining, deficits and slow growth that benefits few, allow to suggest a multi-prong approach: first, a multi-year infrastructure repair budget utilizing only US citizens and green card holders; second, prosecuting representatives of the various organizations and individuals who caused the near depression, this to prevent the moral hazard issue from being resurrected as it already appears to be; third, stricter control of the granting of entitlements since the same people abuse these programs over and over, there too some prosecution would help; fourth, reform the military and its  pay scale which now eats up some 70% plus of the military budget, the same for the VA and government retirement plans; lastly, introduce a wealth tax and reform gift and estate tax so that it falls on the recipient's amount and lastly, agree to create an emergency fund when certain economic parameters are met and use that fund for disasters including economic severe downturns.