On his blog, Roun McNeal, recently gave our humble blog a shout-out, which is appreciated, in a post about a balanced budget amendment. Specifically, he proposes linking a balanced budget to individual Congressmen and Congresswomen’s ability to remain in office. He suggests:
Hence, the only novel idea I have really come up with, fire them all if they run up the debt. I am very serious, and I am not speaking electorally. I’m talking about Total Recall. Enshrine in the Constitution a rule that automatically removes every sitting member of Congress and disqualifies them from further service in the event that our books go so far in the red as to violate the Balanced Budget Amendment, however it be written. The primary obstacle to imposing order upon our growing public debt is the Congressional re-election incentive to think short-term. Think about it: if the penalty for Super-Committee failure had been the wholesale recall of Congress (instead of some measly $1.2 trillion) would a deal have been cut? Our Congressmen need a more pronounced personal incentive to consider our fiscal house in the long-term. Putting all their jobs at risk sounds right.
Now I tend to be somewhat of a fiscal hawk. I think we can and must get our fiscal house in order to remain strong and relevant going forward. However, I am not a fan of a balanced budget amendment, especially one the further skews incentives members of Congress already have to think about reelection over the best interests of the country. At its heart, such an amendment assumes balanced budgets to be preferable to any other policy option at all times; thus, making it a Constitutional issue. It simply is not worthy of such high regard. Fiscal responsibility is important and is definitely something on my mind when I go to the ballot box, and the ballot box is where it should be handled. Voters should make the decision on how the country’s preferences are ordered at any given time.
Beyond the question of Constitutional appropriateness of a balanced budget amendment, is the question of economic appropriateness. In theory, any balanced budget amendment would include a process for not having a balanced budget (both deficit and surplus); practically of course a balanced budget would almost always exist (even when a surplus was due) because of political stagnation. Also a balanced budget requirement ignores the budgetary impact of inflation. If the government can borrow (i.e. sell treasuries) for a 1% yield and inflation is around 2% per annum, it is extremely logical to borrow money since the real borrowing cost is negative (interest rate minus inflation).
Overall a BBA is probably not preferable policy. It could easily increase the partisanship in Congress by forcing significant budget fights every year. There is no clear mechanism for determining the level of spending available in a given year. Pro-cyclical fiscal policy becomes more likely. And it becomes almost impossible to manage the national debt. The sentiment behind the policy is respectable, that being responsibility, but as a mechanism, I find a BBA to be lacking.