A Tool to Force Officials to Do the Right Thing : Balanced budget: An amendment would end an $800-million-a-day ‘welfare’ program of interest payments. : “We have a balance of $84.32 in the bank . . . which makes us $4.5 trillion richer than the federal government.”
Few question the economic assumption that the United States has a deficit problem of major proportion, a problem that will continue to harm our economy until corrected.
What is at question is whether a constitutional amendment is the proper vehicle for dealing with the deficit.
Can the deficit be handled without a constitutional amendment?
In theory it can. President Clinton made significant but modest steps, but that came only in his “honeymoon period” and with a Congress of his own party. But even this limited measure was greeted by the financial markets with drops in interest rates that stimulated the economy.
That unusual confluence of factors will not often be repeated. Attempts to deal with the problem with laws have had only limited success. The most dramatic example was the Gramm-Rudman-Hollings act, which would have moved us gradually toward a balanced budget. But the problem with this approach is that such laws can be amended. In 1991, the year when we were to have a balanced budget under Gramm-Rudman-Hollings, we had a deficit of $270 billion. On a subsequent plan, we ended up $357 billion short.
As the total debt mounts, the deficit becomes more difficult for public officials to deal with. Public officials faced with the choice of pleasing the public or serving the public too often decide to please the public.
There is an old joke that there were so many heroes at the Alamo because there was no back door. Congress needs such a situation , where there is no easy way to escape. We need the constraint of a constitutional amendment to force us to do what we know is in the national interest. A constitutional amendment gives office-holders political cover for doing our unpleasant and unpopular duty.
How serious is the deficit problem?
Extremely serious. First, the deficit is sharply retarding economic growth. The New York Federal Reserve Board study shows that the lack of savings in our nation, almost entirely because of the deficit, resulted in a loss of 5% growth in our national income during the 1980s. The Congressional Budget Office calculates 1% loss means 650,000 jobs. Then 5% is roughly 3.25 million jobs lost, many in the highly paid manufacturing sector. Unless we signal to the financial markets that we are serious about the deficit, the loss during the coming decade will be at least as great, if not greater.
A 1992 General Accounting Office study suggests that if we continue to simply “muddle through” on our present course, the nation will experience either no growth or small growth by the year 2020. But if we balance the budget by 2001, by 2020 there should be an increase in inflation-adjusted income per capita of approximately 36%.
Second, the deficit alters fiscal policy in an unreasonable way. Neither conservatives nor liberals would intentionally adopt a policy of spending a larger portion of our tax dollars on interest and a decreasing portion on goods and services. Yet that is what we have stumbled into. In inflation-adjusted dollars, for example, education expenditures dropped 1% while gross interest spending went up 97% from 1981 to 1993. The federal government now spends eight times as much on interest as on education, twice as much as all the poverty programs combined. Interest is an $800-million-a-day “welfare” program that takes from people of modest means and gives to the more fortunate and, increasingly, the more fortunate beyond our borders.
Third, continuation on the present course will lead to monetizing the debt--that is, printing more money to “solve” our problems. The GAO forecast simply says that an “economic and fiscal catastrophe” awaits us if our policies are not changed. but does not spell out the catastrophe. But except for strenuous steps taken as a result of a major war, no industrial nation has faced the economic debt burden that we are expected to face without debasing currency, that is, simply putting the printing presses to work printing more and more dollars, which are worth less and less. That would devastate Social Security, retirement trust funds, people’s savings and the economy.
How would the balanced-budget amendment work?
Two years after the last of 38 states required to ratify it acts, or in 1999 (and that may be changed to 2001), whichever is later, income must match outlays by the federal government unless there is a 60% vote of both the House and Senate to agree to a deficit. That gives us greater flexibility than Thomas Jefferson wanted, but makes it difficult to have a deficit. To make sure that Congress and an administration do not play games, it also takes a three-fifths majority to authorize an increase in the national debt. That precludes any “off-budget” manipulation.
A constitutional amendment is not a cure-all. It is simply a procedure for forcing us to take the difficult steps our popularity-prone public officials now duck.
