NCPA - National Center for Policy Analysis

Why Balanced Budget Should Not Be the Primary Goal

February 17, 1997

Congressional Republicans have decided that the balanced budget amendment is their number one priority. But their near-total concentration on this one goal has tended to push all other initiatives aside. As a result, Paul Gigot of the Wall Street Journal complains that the amendment "has become a substitute for thinking."

Instead of confronting President Clinton with proposals for dealing with national problems that do not involve bigger government, Republicans reflexively fall back on the amendment as their sole approach to controlling the growth of government.

Unfortunately, even if the amendment becomes part of the Constitution, there is no assurance that it will reduce the size of government. One need only look at the states and the cities, where virtually all are required to balanced their budgets annually. Some have big governments, some have small.

There is no evidence that a balanced budget requirement affects the size of government one way or another. As Gigot put it, the case for the amendment is an argument about accounting, not a philosophy of government. "It's a dodge from making the case for what the federal government should, and shouldn't do," he wrote.

Another problem with the balanced budget amendment -- and indeed the whole obsession with balancing the budget -- is that it is turning Republicans away from the issues they won on in the 1980s. They were at pains then to argue that the size of government was the problem, that it needed to be downsized through tax and spending cuts. The emphasis was on an amendment that would limit taxes and spending, not just balance the budget.

Today, however, Republicans have talked themselves into believing that all manner of good things will happen if they can just get the government's annual revenues to equal its outlays. In particular, they have promised significant reductions in interest rates, even though there is virtually no evidence to support this promise.

  • A thorough 1984 Treasury Department study found that the factors affecting interest rates were too many and too complex to be explained by the deficit alone -- increasingly the view of most academic and Wall Street economists.
  • For example, Albert Wojnilower of First Boston has said "there is no worthwhile connection between budget deficits and interest rates."
  • And a recent president of the American Economic Association, Prof. Robert Eisner of Northwestern, has called the link between deficits and interest rates "an illusion."

If they are right, the promised benefits of a balanced budget amendment may also be illusory.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, February 17, 1997.

 

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