Wednesday, July 29, 2015

A Few Thoughts on a Balanced Budget Amendment

Our member of congress and a few regular letter writers have been making noises about a balanced budget amendment to the constitution.  I think the letter writers are sincere, and I’m impressed by the amount of work some of them have put into trying to prove their point.  For people who distrust almost anything scientific, they have a remarkable ability to hook together arguments that give the impression of methodical research and logical formulation.  I’d like to think that our member of congress is just posturing for the next election cycle, doing her best to appeal to the most conservative of her followers.  However, her performance over the last decade suggests that she probably doesn’t know very much, so her posturing is what she really believes.  

Anyway, I started to write an article about why a balanced budget amendment would be a bad idea, but my enthusiasm for it waned to nothing.  The few who read these articles already know what a bad idea it is, and those who think otherwise are not going to be persuaded by anything I say here.  What about a letter to the editor?  The most frequent writers to our local paper about anything to do with the federal government or climate change are so thoroughly convinced of how right they are that absolutely nothing can engage them in conversation, much less inspire a change in understanding.

Even many of my closest colleagues want a simple understanding and a simple answer to keeping government spending under control, as if just raising the issue is enough to suggest that it is out of control.  The most popular suggestion is that the federal government should be forced to balance its budget the way a responsible person balances theirs.  It sounds good, but the analogy has some fatal flaws.  Look at it this way.

Suppose you earn $75k a year, a little higher than the median for our area.  Do you own a home?  What do you owe on the mortgage?  Because you are cautious, let’s say $150k.  How about a car, boat, or r.v.?  Do you owe anything on furniture or appliances?  What about school?  Did you take out a vacation loan or anything like that?  Then there is credit card debt to add in.  Let’s say, because you are cautious, that you owe another $75k in long and short term debt.

So, now you have $75k in income against $225k of debt.  Your debt load is 3 times your income.  Nevertheless, you balance your budget, and even lay aside a little something for savings.  What you mean is that you can make your monthly payments and have something left over.  The federal government debt load is around 1 times national income, so your household budget doesn’t look like a very good role model by comparison.  Of course you plan on paying down your debt over time, but, if you are like many other responsible persons, you will replace one debt load with another for most of your life.  It’s just not a good analogy.  Drop it.

Maybe we just need to quit deficit spending.  That sounds simple enough.  But what’s a deficit?  It depends on how much debt a nation can carry, how confident a nation is in future income growth, whether one is in a booming economy or recession, whether at war or at peace, whether it is systemically corrupt, the structure of its commercial and tax codes, etc.  It depends on the rate of inflation, and how inflation is measured.  It depends on the money supply.  It depends on a lot of things that are not so simple.  Deficits are squishy things that resist easy definition.

A simple balanced budget amendment could not factor in the complexities of what balance means.  Trying to word an amendment to accommodate  today’s complexity could not anticipate the conditions of tomorrow.  The result of any such amendment is hard to anticipate, but it would surely limit the ability of the federal government to meet the needs of the nation, and drive America toward second tier status.  That’s the part my very conservative friends don’t get.  They are certain that the only thing standing between an America of unlimited opportunity and economic well being is a federal government that is “out of control.”

So I have given up on writing an article about the proposal for a balanced budget amendment.  No!  You won’t see one on these pages.  The End.




P.S.  The same thing goes for the goofy debt limit legislation that forces congress to argue needlessly, but heatedly, every few months.

2 comments:

Anonymous said...

your comments on the average household debt is right on and most households don't have the power print more dollars if needed so default is a real threat for most households while impossible for the government.

Country Parson said...

Default is possible with nation states, and it has happened. It could happen to Greece. As for printing money, it's another not so simple thing. At least in the U.S it is the Federal Reserve Bank rather than Congress or the Executive that has the most to say about how many dollars are in circulation. Other nations with independent central banks are much the same. You probably already know all of that, and I've just covered old ground. Thanks for posting.