I have devoted several recent posts to discussing the desirability of a Balanced Budget Amendment to the U.S. Constitution as well as the specifics of how to set it up in an effective yet flexible manner.
The Wall Street Journal’s Greg Ip has a pertinent article along this line in today’s paper, “Don’t Celebrate the End of Austerity” in which he argues that the recent congressional deal for the current 2016 budget year, which I and many others have criticized as being fiscally irresponsible, will finally contribute to economic growth after five years of overly “austere” budgets.
This raises the critical question: is it possible to speed up economic growth without the stimulus of deficit spending? Would a BBA create a stranglehold on spending which would slow down the economy? I feel very strongly that fiscal responsibility and economic growth are compatible and, in fact, contribute to each other in the long run. Here is what we should do:
- First of all, either through Congressional action or with a Constitutional Convention, a BBA needs to be proposed, and then ratified, to put our fiscal house in order before our rapidly growing debt rises to ruinous levels. A flexible BBA would include a five year phase in period, after ratification, to give Congress time to prepare for it. There will be some pain in achieving this initial balance but it needs to be done and the sooner the better.
- Secondly, a flexible BBA would also allow for a 2/3 majority of each House to override strict balance. This feature could be used not only for a wartime emergency, for example, but also for occasional recessionary periods where stimulus is needed.
- Finally, keep in mind that the real goal is not a BBA per se, but rather to put our debt on a downward path over time as a percentage of GDP. This is what a flexible BBA will accomplish.
Once initial balance is achieved, it will be relatively easy to hold new debt down to manageable levels. Our current fiscal problem will then be largely solved and we can continue building a stronger, freer and more prosperous future for our country.