On A Balanced Budget Amendment And Civic Virture
The American tradition of deficit spending goes back to the Revolutionary War, when the colonies financed their rebellion with borrowed money. Shortly after the constitutional system replaced the Articles of Confederation, the federal government took on the debts incurred by the states, an act that sent the new nation’s debt soaring, by most estimates, to a third or more of GDP.
Founding Fiscal Hawks
That era had its own fiscal hawks, and providing a way to pay down the debt was hotly debated at the constitutional convention. In 1798, Thomas Jefferson wished the Constitution had “an additional article taking from the federal government the power of borrowing.”
The founders’ bills were paid off just in time to start the whole merry-go-round again when the Civil War broke out. Although some historians attribute the Union victory to its superior creditworthiness — the South faced far higher borrowing costs — the accumulated debt nearly bankrupted the winning side, and took another half century to retire.
Abraham Lincoln himself wondered how the U.S. would ever pay back the money borrowed to finance the Civil War, fretting that the conflict “has produced a national debt and taxation unprecedented, at least in this country.”
And in the late years of the 19th century, a worried Congress adopted laws restricting the purposes for which the self-governing territories of the West could take on debt, limiting their borrowing to no more than 1 percent of the value of taxable property within their borders.
It was inevitable that the worries would eventually lead to efforts to amend the Constitution. The first came in 1936, when Representative Harold Knutson, a Minnesota Republican, introduced an amendment to limit federal borrowing. It and its successors have all failed, although several proposals in the 1980s and 1990s passed in one chamber of Congress.
Beyond political support, however, the real problem with a balanced-budget amendment is that it would fail to do what its supporters claim: Keep the nation’s fiscal house in order.
Consider Section 1 of a current bill [Bob: the full text of the bill may be found below the fold]: “Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a rollcall vote.”
Sounds impressive, until one parses it. We all think we know what a fiscal year is, but legislatures have redefined the term constantly for budgeting purposes. To take the most obvious example, the federal fiscal year begins on Oct. 1. But until 1976, the federal fiscal year began on July 1, and Congress has often extended the fiscal year through a continuing resolution. Businesses are allowed in some circumstances to use a 53-week fiscal year.
Subject to Manipulation
Some experts argue that the fiscal year should be 18 months to allow for smoother budgeting. In short, the amendment is built on a concept both ill-defined and subject to manipulation.
Likewise, consider the rule that outlays must not exceed receipts. Another section defines “total receipts” as “all receipts of the United States Government except those derived from borrowing” — in essence, taxes, tariffs and fees. “Total outlays” are “all outlays of the United States Government except for those for repayment of debt principal.”
Here’s a quick and easy way for a future Congress to game those definitions: Set up an independent, nonprofit, nongovernmental corporation that issues bonds, for the avowed purpose not of raising revenue but of giving Americans a place to invest their money safely. We might call our new agency the Federal National Bond Association, or Fannie Bae.
Fannie Bae’s bonds would not be quite as cheap as Treasuries, but as Treasuries would no longer exist, these would presumably be the next best thing, because of their implicit federal guarantee. Most of the money Fannie Bae raised in the market would then be turned over to the Treasury, which would place it in a trust fund. (A small part would be kept to run Fannie Bae.) The funds are now just like Social Security — a “receipt” within the meaning of the amendment — and “outlays” may therefore rise by that amount.
Now, you might protest that the establishment of Fannie Bae would seem to vitiate the purpose of the amendment. But the federal government gets around constitutional provisions all the time. (Remember the congressional power to declare war?)
Maybe the courts would strike down Fannie Bae, but to imagine them doing so is to accept the likelihood that federal judges would have final say over fiscal policy. As Walter Dellinger, a solicitor general in the Bill Clinton administration, warned recently in the New York Times, “the process of enforcing” such an amendment “would be uncertain and perilous.”
Counting the Receipts
Although one is tempted to respond that this quality, alas, does not differentiate the proposed amendment from any other provision of the Constitution, the more provisions we add, the greater the possibilities for, let us say, unpredictable interpretations.
Furthermore, for the amendment to operate, someone — presumably the Congressional Budget Office — would have to figure out each year what the total receipts and total outlays probably will be. Every corporation has to do the same thing, but the prospect of such review proved too much for even the fiscal watchdogs of the Wall Street Journal editorial board: “We doubt the historic 1981 Reagan tax cuts within the Kemp- Roth bill, once subjected to Congress’s revenue-neutrality accountants, could have survived the balanced budget mandate.”
This objection hints at the biggest problem with the proposed amendment: It seeks to enshrine as fundamental law a single theory about the relation of fiscal policy to the operation of the U.S. economy. And this would be a grave mistake.
In microeconomics, the theory of supply and demand is rigorously worked out and often tested. Despite soft spots, it remains the heart of every introductory economics class, precisely because it is concise, understood and essentially correct.
Macroeconomics is of a very different character. It is a field rich with theories difficult to test. One difficulty is trying to model the entire economy, and no matter how many variables are held constant, there is always something important unaccounted for. This helps to explain why economists are all over the map. Keynesians and supply-siders alike can all present data favoring their theories. That is why politicians and the economists whose work they rely on should approach the subject, as Harvard economist N. Gregory Mankiw has put it, with humility.
So the balanced-budget amendment, whatever its political popularity, possesses the following difficulties: It is poorly written and easy to circumvent; it invites judicial control of the appropriations process; and it pretends to know more than we can confidently say we do about how the economy works. For an amendment to the Constitution, those are just too many deficits.
There is another reason to damper one’s enthusiasm for the BBA…
We can pass the BBA, but it will mean nothing because, as John Adams warned us:
While our country remains untainted with the principles and manners which are now producing desolation in so many parts of the world; while she continues sincere, and incapable of insidious and impious policy, we shall have the strongest reason to rejoice in the local destination assigned us by Providence. But should the people of America once become capable of that deep simulation towards one another, and towards foreign nations, which assumes the language of justice and moderation, while it is practising iniquity and extravagance, and displays in the most captivating manner the charming pictures of candour, frankness, and sincerity, while it is rioting in rapine and insolence, this country will be the most miserable habitation in the world. Because we have no government, armed with power, capable of contending with human passions, unbridled by morality and religion. Avarice, ambition, revenge and licentiousness would break the strongest cords of our Constitution, as a whale goes through a net. Our Constitution was made only for a moral and religious people. It is wholly inadequate to the government of any other….
We are now the other kind of people.
A New Great Awakening to civic virtue is necessary and that can only come from a return to Western Morality, an understanding that, if one desires to live in freedom, one must rise above one’s base instincts which lead one to protect one’s own immediate condition first.
All of this is to say that I do not think the passage of a well-written BBA will be the great thing, ‘THE Fix’, many on the Right think it will be. We are no longer, as a whole, a virtuous people. Therefore, we cannot count on our elected representatives to obey it, in actual fact or in spirit, because we have elevated to elected office people who, on the whole, in the majority, are not virtuous. Add to this that we, those who are charged with pulling guard duty for freedom and liberty, have become sloven in our virtuous habits, often only invoking virtue when it’s easy and certainly not when it means we will have to give up the unearned largesses we enjoy.
We have taken the great gift bequeathed to us by The Founding Fathers, one that was blessed by Providence, and befouled it with our petty Narcissism and tribalism.
As I’ve written here many times in a warning to the Left: a hard rain’s gonna fall. But, we had better understand that we rainmakers are going to get soaked, too — and that we deserve to.
The full text of the proposed Balanced Budget Amendment as proposed before the Congress:
H. J. RES. 1
Proposing a balanced budget amendment to the Constitution of the United States.
Resolved by the Senate and House of Representatives of the United States of America in Congress assembled (two-thirds of each House concurring therein), That the following article is proposed as an amendment to the Constitution of the United States, which shall be valid to all intents and purposes as part of the Constitution when ratified by the legislatures of three-fourths of the several States:
“Section 1. Total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless three-fifths of the whole number of each House of Congress shall provide by law for a specific excess of outlays over receipts by a rollcall vote.
“Section 2. Total outlays for any fiscal year shall not exceed 18 percent of economic output of the United States, unless two-thirds of each House of Congress shall provide for a specific increase of outlays above this amount.
“Section 3. The limit on the debt of the United States held by the public shall not be increased unless three-fifths of the whole number of each House shall provide by law for such an increase by a rollcall vote.
“Section 4. Prior to each fiscal year, the President shall transmit to the Congress a proposed budget for the United States Government for that fiscal year in which total outlays do not exceed total receipts.
“Section 5. A bill to increase revenue shall not become law unless two-thirds of the whole number of each House shall provide by law for such an increase by a rollcall vote.
“Section 6. The Congress may waive the provisions of this article for any fiscal year in which a declaration of war is in effect. The provisions of this article may be waived for any fiscal year in which the United States is engaged in military conflict which causes an imminent and serious military threat to national security and is so declared by a joint resolution, adopted by three-fifths of the whole number of each House, which becomes law. Any such waiver must identify and be limited to the specific excess or increase for that fiscal year made necessary by the identified military conflict.
“Section 7. The Congress shall enforce and implement this article by appropriate legislation, which may rely on estimates of outlays and receipts.
“Section 8. Total receipts shall include all receipts of the United States Government except those derived from borrowing. Total outlays shall include all outlays of the United States Government except for those for repayment of debt principal.
“Section 9. This article shall take effect beginning with the later of the second fiscal year beginning after its ratification or the first fiscal year beginning after December 31, 2016.”.
[Originally published on 05 August 2011]