Budget Deficits: Can We Legislate Them Away?
On the surface, the passage of legislation requiring the United States to balance its budget annually would seem an ideal solution to the fiscal problems facing the country. After all, although frequently non-binding, 49 states have at least the tenets of such a requirement. So do a number of countries around the world.
Article V of the U.S. Constitution lays out the process for passing a budget amendment. If two-thirds of both chambers of Congress pass a proposed amendment, and three-quarters of the states ratify the measure, it becomes constitutional law. Opponents believe the will does not exist to pass such an amendment; however, 85% of those who participated in a recent poll say otherwise.
Opponents of a balanced budget amendment argue that a mandated balanced budget would severely hamper the government’s ability to utilize Keynesian economics during periods of economic contraction. However, there is a cost to government intervention in an otherwise natural cyclical phenomenon: an increase in governmental debt at precisely the wrong time within the business cycle.
Not only is it the exact opposite of what the more efficient private sector does (Keynesian theory centering around governmental countermeasures replacing waning private sector demand), but even if beneficial in the short term, adds substantially to the national debt. Many economists believe if left alone, the markets will adjust themselves accordingly and we can only justify the cost/benefit ratio of artificial measures when we view them within the narrow scope of a political prism.
What do the U.S. and Denmark Have in Common? A Debt Ceiling
In 1917, the U.S. Congress created the debt ceiling in conjunction with the Second Liberty Bond Act as a way to put restraints against excessive future spending. Congress has since increased the debt ceiling over 100 times since its inception, and given the burgeoning national debt of nearly $17 trillion, the debt ceiling has been one in name only.
Although politicians talk tough about their unwillingness to unconditionally increase the debt ceiling, history suggests otherwise, and rightfully so. Hitting the artificial constraint means that, regardless of any positive economic factors, the government will be legally unable to fully pay its bills. Such a move would jeopardize something considered sacrosanct for over 200 years: the full faith and credit of the United States.
Former Treasury Secretary Timothy Geithner proposed a simple solution to the recent contentious battles over the limit — eliminate the debt ceiling. After all, only Denmark and the United States operate with one, and only Denmark uses it correctly.
Thorny Problems, Simple Solutions
Although the processes would take time and consensus, the U.S. government could resolve these issues, were there merely the political will to do so. They could mandate an annual budget, ratify a balanced budget amendment, and eliminate the in-name-only debt ceiling, and solve the immediate problems swiftly – if they chose to do so.
As Ross Perot once said, “The budget should be balanced, the treasury should be refilled, the public debt should be reduced and the arrogance of public officials should be controlled.” Truer words have never been spoken.
Office of Management and Budget. Historical Tables. (2013). Accessed October 8, 2013
PoliFact Georgia. Isakson: Democrats failed to submit budget in past 1,000 days. (2012). Accessed October 8, 2013
Khimm, Suzy. Congress is addicted to stop-gap budgets. (2012). Washington Post. Accessed October 8, 2013
National Conference of State Legislatures. State Balanced Budget Provisions. (2013). Accessed October 8, 2013
Peter G. Peterson Foundation. Balanced Budget Amendment: Pros and Cons. (2012). Accessed October 8, 2013
National Archives. The Constitutional Amendment Process. (2013). Accessed October 8, 2013
Fox News. Fox News Poll: Voters say debt is immediate problem. (2013). Accessed October 8, 2013
The Committee for a Responsible Federal Budget. Debt Ceiling Primer Updated October 22, 2012. (2012). Accessed October 8, 2013.
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