Thursday, February 14, 2013

In the Water, In the Air: Thursday, February 14, 2013.

Thursday, February 14, 2013.  Balanced budget amendments and austerity; faction versus fiscal responsibility.

BALANCED BUDGET AMENDMENTS AND AUSTERITY: Joe Weisenthal at Business Insider Politics cautions against a balanced budget amendment, calling it "an amendment that would destroy the economy."  Why?  "A balanced budget amendment would require austerity on a historic level." In trying to bring the deficit to zero, "we'd never get there, because the ensuing GDP contraction, would devastate the economy and cause tax revenues to shrivel."

Note that none of the above arguments even rest on the easy/standard Keynesian argument that a Balanced Budget Amendment would prevent the government from dealing with a recession using counter-cyclical fiscal policy. That is of course true, but it dramatically understates the arguments against such an amendment.
(Joe Weisenthal, Business Insider Politics, Last Night On Live TV, A Politician Called For An Economic Disaster — And Hardly Anyone Noticed, Feb. 13, 2013.)

As an aside, it's not entirely true that balanced budget amendments would eliminate deficit spending at all.  The balanced budget amendments that have gotten farthest--i.e., the two separate amendments that most recently passed  in the House and the Senate (neither one of which passed in both houses of Congress)--included provisions to waive balanced-budget requirements upon a three-fifths vote in each house.  Only time would tell whether that escape hatch would prove more politically expedient in any given year than actually arriving at a political agreement on any particular balanced budget proposal.

In any event, the problem Mr. Weisenthal describes would not plague the Solvency Amendment.  This is because the operating principle of the Solvency Amendment is different than the operating princple of balanced budget amendments.  In particular, the Solvency Amendment does not prohibit deficit spending; rather, it modifies our default budgetary conditions.

Currently, we spend in deficit unless and until we can politically coordinate to establish a balanced budget.  Under the Amendment, we would instead have a balanced budget by default, and deficit spending would be permitted only if we politically coordinate to establish it.  The Amendment does not change the range of possible budgetary outcomes, but rather changes the presumptions underlying our budgeting process.  Whereas deficit spending is currently our path of least resistance, the Amendment makes balanced budgets our path of least resistance.  And when it comes to finally reconciling our country's spending and revenue-side policies, that will make all the difference.

BEWARE FACTION: James Huffman, dean emeritus and formerly the Erskine Wood Sr. Professor of Law at Lewis and Clark Law School (full disclosure: one of my professors), writes about some unintended consequences of the Supreme Court's 1964 decision, Reynolds v. Sims, which enforced the principle of "one man, one vote" not only in the "lower" houses of state legislatures (i.e., those houses analogous to the U.S. House of Representatives), but in the "upper" houses as well (i.e., those houses analogous to the U.S. Senate).  In doing so, the capacity for rural counties to govern themselves may have been undermined at the state level, in the way that representation by state in the U.S. Senate is designed to prevent at the Federal level.

In the course of describing this loss of local governance in rural communities, Dean Huffman discusses the idea that "the winners of elections owe allegiance only to those who voted for them, no matter how close the margin of victory":
Consider the claim made by supporters of President Obama’s call for higher taxes on the wealthy in response to those wishing to preserve all of the tax rates enacted under President Bush. “The people have spoken. We won the election. You lost. Case closed.” Had Mitt Romney won the election, Republicans would have offered a similar response to opponents of spending cuts and entitlement reform.
. . . Notwithstanding the sometimes wildly fluctuating views of the electorate, as evidenced by pre- and post-election polls, elections have increasingly come to justify claims of total victory for the winner. The winner sees no need for compromise, making it the loser’s role to obstruct such triumphalism in every way possible, and hope to prevail in the next election. Little wonder that bipartisan solutions have become elusive, and that those willing to compromise are condemned by their partisan peers as unprincipled, and unworthy of public office.
(James Huffman, Defining Ideas, The Disenfranchisement of Rural America, Feb. 13, 2013 (emphasis added).)

Yes.  Although James Madison and the founding fathers may have seen faction in politics as a means of promoting self-regulation in government, it is proving to be the bane of responsible fiscal policy.  If the role of the relative "loser" in our national politics is to obstruct, there will always be obstruction.  Moreover, because of the wide agreement that must exist in our current system among the House, the Senate, and the President before any balanced budget proposal can make progress, that obstruction has almost always been sufficient to thwart any budget-balancing efforts--whether coming from the left or the right.

There is, however, a way to prevent faction from derailing our country's fiscal balance...

Have you heard about the Solvency Amendment?

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