George Will Writes Terribly Ignorant Argument In favour Balanced Budget Amendment

George Will

It sounds like the GOP is going to bring back up the idea of attaching a Balanced Budget Amendment to the constitution.

In a series of tweets this morning, the National Review’s star DC reporter Robert Costa basically explained that the idea is to toss a bone to the far right (by proposing a BBA) and perhaps bring Obama to the centre on spending. Nobody actually thinks there’s any chance of said amendment getting through Congress anytime soon.

This new move towards a BBA was anticipated a bit by George Will, who pushed for one in a column earlier this week, basically arguing that politicians are irresponsible, and only a constitutional amendment could force them to behave.

He starts by knocking over what he see as the “various” counter arguments.

Says Will:

The arguments against a constitutional amendment to require balanced budgets are various and, cumulatively, almost conclusive. Almost. The main arguments are:

The Constitution should be amended rarely and reluctantly. Constitutionalizing fiscal policy is a dubious undertaking. Unless carefully crafted, such an amendment might instead be a constant driver of tax increases. A carefully crafted amendment that minimizes this risk could not pass until Republicans have two-thirds majorities in both houses of Congress, which they have not had since 1871.

Furthermore, requiring a balanced budget would incite creative bookkeeping that would make a mockery of the amendment and the Constitution. For example, New York, which like 48 other states (all but Vermont) has some sort of requirement for a balanced budget, once balanced its by selling Attica Prison to itself: A state agency established to fund urban redevelopment borrowed $200 million in the bond market, gave the money to the state and took title to the prison. The state recorded as income the $200 million, declared the budget balanced, then rented the prison from the agency for a sum adequate to service the $200 million debt.

All of those points are fine, as it goes, but they’re far from the complete range of arguments against the idea.

The biggest problem with a Balanced Budget Amendment is that it would destroy the economy. Yes, destroy.

The size of the deficit is mostly a function, at any given time, not of spending or taxation policies, but of economic growth.

This can easily be demonstrated by looking at a chart comparing deficits as a % of GDP vs. unemployment.

deficit unemployment

For over 60 years, throughout various policy regimes, the deficit has moved in tandem with employment. Taxation and government policy have never had much to do with how big the deficit is.

To close the deficit by law (rather than by growth) would require extreme austerity. And furthermore, that austerity would be increasingly required as the economy gets worse. So things start going downhill, the government tries to cut spending to counteract the declining tax revenues, the economy gets weaker, and soon you’re on a spiral to deflationary, depressionary hell.

Cutting spending to reduce deficits doesn’t work in practice. Japan has seen this play out, as its government has flirted with various austerity attempts during its log slog. Each time there’s been an attempt to reduce deficits… deficits have gone up.

The top Nomura economist Richard Koo has made this point (and this chart) a centrepiece of his economic work.

Richard Koo slides 9

Photo: Richard Koo

So it’s a terrible idea.

But that’s not really what’s interesting here.

What’s interesting is the fact that the most basic reason to oppose this idea — that it would demolish the economy — isn’t even well understood by the BBA’s proponents, who only see minor technical reasons (there’d be loopholes!) to oppose.

It’d be fine if George Will and everyone else wanted to say that the above analysis is wrong, and that the economy would be just fine if it had to balance the budget every year. That’d be a fine to debate to have. But at least be aware that this is the main issue.

This problem isn’t confined to just Will.

The same ignorance was seen when Joe Scarborough wrote about how Paul Krugman was all alone in thinking that the deficit was not an urgent issue, which was just untrue. Lots of people agree with Paul Krugman on the question.

Clearly in DC, the deficit debate is so one-sided, that many people aren’t even aware there are counter-arguments or people who could be opposed, for economic reasons, the wisdom of shrinking the deficit.

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