One byproduct of the recent budget debates is a renewed call on the right for a balanced-budget amendment.
One of their favorite arguments is, if it’s good policy for states, why not lock the federal government into the same horse collar? They argue this with a straight face despite knowing full well that most state couldn’t begin to balance their budgets without handouts from Washington.
The balanced-budget amendment makes a good 30-second sound bite, but beware of simple solutions to complex problems. This one is too good to be true, literally.
Let’s try an analogy.
Most would agree that setting the speed limit at 70 mph is a good idea. Most would also admit that they don’t see the harm in doing 80 on a sunny day on the straight, flat stretch between Bakersfield and Fresno, where even the Peterbilts tailgate shamelessly.
Ask the same folks what they think about driving 70 during an ice storm through the Grapevine and you’d get a very different opinion, even though it is arguably legal and we’ve all been passed by some yahoo who will do it.
Well, how would you feel if the speed limit was written so that you were required to drive 70 – in sun and in ice?
You get the picture. Some rules work only if they have some wiggle room built in. This brings me to Joseph.
You remember Joseph, the economist in the Old Testament.
I’m not trying to introduce religion here, just using a simple parable from our youth to illustrate my point.
Anyway, to paraphrase, Joseph told Pharaoh to run a surplus during the seven good years and then run a deficit during the seven lean years. By that wisdom – and it is wisdom – the US should have run a surplus in 2002-08. Then, when the economy tanked in late 2008, deficit spending on a stimulus package would be just what Joseph prescribed.
What happened instead from 2002 to 2008? Republicans say we had a spending problem during those good years. Democrats say the problem was the Bush tax cuts. Both are true. The bottom line is, we all got greedy and forgot the parable of Joseph and the Pharaoh.
So, let’s admit there are times when a balanced budget is a good idea, but there are also times when the economy should be running a surplus or a deficit. You should challenge those who call for a balanced-budget amendment, because it would outlaw surpluses in the good years as well as deficits in the lean years. And both are lousy economics.
So where do we go from here? President Truman wished for a one-handed economist who could give him simple answers. Unfortunately, real life is too complicated for simple answers. On the one hand, cutting the deficit too fast or too far while we are in a recession is risky. On the other hand, getting a start isn’t such a bad idea.
And since both over-spending and unwise tax cuts got us here, a solution that reverses both is needed.