Republican Balanced Budget Amendment: The Worst Idea In Washington
Bruce Bartlett takes a look at the Balanced Budget Amendment all 47 Republicans signed their names to and pronounces it “quite possibly the stupidest constitutional amendment I think I have ever seen. It looks like it was drafted by a couple of interns on the back of a napkin.”
I think “stupid” is the wrong word. “Dangerous” is more like it. And maybe “radical.” This isn’t just a Balanced Budget Amendment. It also includes a provision saying that tax increases would require a two-thirds majority in both houses of Congress — so, it includes a provision making it harder to balance the budget — and another saying that total spending couldn’t exceed 18 percent of GDP. No allowances are made for recessions, though allowances are made for wars. Not a single year of the Bush administration would qualify as constitutional under this amendment. Nor would a single year of the Reagan administration. The Clinton administration would’ve had exactly two years in which it wasn’t in violation.
Read that again: Every single Senate Republican has endorsed a constitutional amendment that would’ve made Ronald Reagan’s fiscal policy unconstitutional. That’s how far to the right the modern GOP has swung.
But the problem isn’t simply that the proposed amendment is extreme. It’s also unworkable. The baby boomers are retiring and health costs are rising. Unless you have a way to stop one or the other from happening — and no one does — spending as a percentage of GDP is going to have to rise. This proposal doesn’t interrupt those trends. It simply refuses to acknowledge them — or, to be more generous, it rules them unconstitutional. This is the equivalent of trying to keep your kid cute by passing a law saying he’s not allowed to grow up.
Another problem: In a recession, tax revenue plummets and GDP stops growing, but spending has to be sustained, or even increased, to a) give people unemployment insurance and Medicaid and other services they need and b) keep the economy from contracting violently. This amendments includes no provisions for recessions, meaning that when the economy contracted, the government would have to contract as well. That is to say, we’re still not out of one of the deepest recessions in American history, and every Senate Republican has co-sponsored a constitutional amendment to make future recessions worse. It’s just breathtaking.
A world in which this amendment is added to the Constitution is a world in which America effectively becomes California. It’s a world where the procedural impediments to passing budgets and raising revenues are so immense that effective fiscal management is essentially impossible; it’s a world where we can’t make public investments or sustain the safety net; it’s a world where recessions are much worse than they currently are and the government has to do more of its work off-budget through regulation and gimmickry. I would like to say something positive about this proposal, say there’s some silver lining here. But there isn’t. This is economic demagoguery, and nothing more. It’s so unrealistic that it would’ve ruled all but two of the last 30 years unconstitutional, which means it’s so unrealistic that there has not yet been a Republican president who has proven it can be done. And that doesn’t just suggest it can’t be done: It suggests that when Republicans are actually in power and have control of the budget, they know perfectly well that it shouldn’t be done. They’re just pretending otherwise for the moment.
By: Ezra Klein, The Washington Post, April 1, 2011
Spending Cuts, Jobs, Growth: The GOP Austerity Delusion
Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.
What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.
It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.
It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.
Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.
So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.
How’s that story working out so far?
Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.
But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.
Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.
That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.
And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.
But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.
Which brings me back to what passes for budget debate in Washington these days.
A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.
In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 24, 2011
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