[/caption]Carol Forsloff - Republicans cite the need for a balanced budget and ask for its inclusion in the Constitution, but the leading economists that include five Nobel laureate professionals oppose it.
When individuals think about balancing their personal budgets, they likely remember that adage to pay off debt as an important criterion for becoming financially stable. On the other hand, individuals experience crises that are completely unexpected, so experts advise to have a “rainy day fund” especially for those events. This advice is to ensure that folks don’t have to tap into money set aside to meet ongoing needs.
Yet those emergencies may come abruptly when cash funds are depleted, and when that happens folks have to make difficult choices. Consider what might happen if there was no way out of that financial predicament except to use funds set aside for necessities. This can impair the potential of saving for an emergency when basic needs are not met. For those who have a series of emergencies, such as a devastating illness or the consequences of an environmental disaster or losing a job, the multiple impacts on the budget may cause further deterioration of the individual financial condition so that establishing good financial balance can become more and more difficult.
Personal financial planning is akin to the national budget in some of these simple ways, but is very complex in others. Imagine a personal budget where regardless of emergencies or the needs of dependent family members, one cannot access any funds except those especially designated for use in certain expenditure categories. That is in some small way how a balanced budget amendment works as funds would be allowed for only those mandated. So what do financial experts think about a balanced budget for the country?
A group of leading economists, including five Nobel Laureates in economics, publicly released a letter to President Obama and Congress opposing a constitutional balanced budget amendment. The letter outlines the reasons why writing a balanced budget requirement into the Constitution would be "very unsound policy" that would adversely affect the economy. Adding arbitrary caps on federal expenditures would make the balanced budget amendment even more problematic, the letter says. The Economic Policy Institute and the Center on Budget and Policy Priorities organized the letter.
These economists contend that by cutting such important funds as unemployment benefits to keep the budget balanced would aggravate recessions. It would prevent borrowing to finance special needs for infrastructure and other necessities for the well being of everyone. A balanced budget amendment would mean Congress could enact mandates that aren’t funded and require state and local governments to take care of these mandates without the money to do so. It would invite the intervention of the courts to decide on disputes to resolve issues on the meaning of budget balance and when there is a requirement to balance it and not enough votes to inflict the difficult measures. Furthermore, as the economists point out, the budget was balanced in the 1990’s without a Constitutional amendment and to balance the budget too quickly could be dangerous in the present economy.
Economist Robert Shiller wrote an article for the New York Times on the balanced budget concept. He referred to “the balanced-budget multiplier and of raising taxes and government expenditure by the same amount, dollar for dollar..., such a policy would be one-for-one expansionary...”In other words, the more we spend, the more we need to infuse the economy with more income. Income for the government comes through taxes. Otherwise Draconian measures are needed now and even in the future, from which the recession might not recover.
An article online at the Economist spells out what many economists are saying about having a balanced budget amendment: “But the idea of enshrining this Congress' pathologies into the constitution is terrifying. Let's see Congress design some quality fiscal rules using the normal legislative process first, and then we can talk about adding those to the constitution.”
