SANTA CLARA, Calif. — To many of us, the balanced-budget amendment is a seductive proposal. It tempts us with a promise to sweep away a very messy problem: the government’s chronic budget shortfall. But, tempting as the proposal is, an amendment to our Constitution is a serious commitment.
We ought to consider the proposal very carefully before we put on that big white dress and walk down the aisle.
The proposal’s allure comes from what might seem like good, old-fashioned common sense. Did our Founding Fathers just make a mistake in not requiring Congress to balance the budget each year? We all have to balance our budgets, so why shouldn’t the government? Well, that’s not exactly right. We don’t actually always have to balance our budgets — we borrow money once in a while. In my own family, my husband borrowed to go to college. There he was, studying engineering, eating mac & cheese and racking up his first, personal budget deficits. He spent more than he earned.
Later, like many families, we borrowed to buy our house. I suppose we’d still be renting if we’d had our own personal balanced-budget “amendment” making us spend only what we earn each year.
Looking around me, I see many businesses with “budget deficits.” Some are borrowing to get going, and others are exhausting their reserves to make ends meet. And, I see families who, hard hit by the recession, manage with little.
In these bad times, most of them get along by running their own family budget deficits. Some spend more than they earn by using up their savings. Some, who’ve already used up their savings, spend more than they earn by borrowing from friends and family. Others are worse off. Running a budget deficit in bad times is sometimes what lets a family eat.
A private version of the balanced-budget amendment would have been bad for my own family, it would be bad for business, and it sure would be bad for those families struggling in the recent slump. Being able to borrow to build a better future or to get through hard times is a good thing, not a bad thing, for businesses and families.
But how about when it applies to the government? Would a balanced budget amendment to our Constitution be good for the economy as a whole? No, it wouldn’t. Just like a family or a business, the government needs to be able to borrow during hard times.
In tough times, the country’s income falls, so the government’s take —the tax bill — falls too. As taxes fall short of spending, a deficit is created.
If the government had to balance its budget immediately, then it would have to cut spending or raise taxes during hard times. That would worsen the downturn. That is, a balanced budget amendment would force the government to kick the economy when it’s down.
Temporary government budget shortfalls aren’t the real issue. Chronic shortfalls are. After running deficits in hard times, the government must run surpluses — it must save — in good times.
Fixing the chronic problem means cutting back when the economy is strong. The balanced budget amendment doesn’t do that. It doesn’t tell Congress or the president how to rein in spending in good times — or how to pay for spending. The amendment would hurt the economy, and it lacks the most basic tenet of sound budgeting: deciding what’s important.
There are choices to be made and, like families and businesses, our country must wrangle over the choices. Then, we can fix the problem by voting for people who are honest about the choices, not for politicians selling a phony quick fix. There’s no crash diet for long-term budget health. And, the balanced-budget amendment is no knight in shining armor.
• Popper is an associate professor of economics at Santa Clara University’s Leavey School of Business.