Constitution Fiddling, Part 2

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Last time, I wrote about why a constitutional amendment to balance the budget was bad economics because the ability of the federal government to react to swings in the business cycle would be neutered.

Some of you weren’t around in the 1950s and 1960s and think that’s OK. Well, let me warn you, a 5- to 6-year business cycle is not good for business prosperity or job security.

Be that as it may, an amendment really wouldn’t work, anyway. Here’s what you can expect if it ever happens.

For openers, if you believe politicians would adhere to a balanced budget dictate, you are probably abusing a controlled substance. Both parties have long histories of offering up lots of goodies when they’re in power, and there are lots of ways to get around this particular dictate.

A first prediction is they would chang the accounting system to redefine what a drficit is. For example. when the private sector makes a capital expenditure, the accounting system spreads, or amortizes, the cost over 20 or 30 years. The current government accounting system records an expenditure the year the money is actually spent. By switching to amortization, the government could push billions in current expenditures into the future (on paper) and still be in balance.

Second, lots of business us “off balance sheet” accounting. The government already does some of this, too. The Post Office is no longer part of the federal budget. The Federal Reserve Bank is another example. So is Fannie Mae, the financial institution created to promote home ownership. Obviously, this can lead to some unintended consequences, as we learned when the housing bubble burst.

But accountability is not always a high priority in Washington.

There are plenty of other ways to skirt a balanced-budget amendment, but they also have unintended consequences. We could “privatize” the Food and Drug Administration, and saddle food and drug companies with more fees to pay for it. But would food or drugs be safe if companies write all the checks?

The same it true for the Federal Aviation Administration and Transportation Safety Administration. Would air travel be safe if airlines foot the regulatory bill?

Toll roads are another option, but thos toll booths are a big nuisance.

And we could make the Federal Emergency Management Agency a giant insurance program, but Californians already know how expensive earthquake insurance can be.

Finally, expect Washington to dump a lot of problems at the doorsteps of Sacramento or Orange County. State and local governments already rely on Washington handouts to balance their budgets, but that would dry up fast. And, when it comes to unfunded federal mandates in areas such as crime control, rpisons, immigration, water, power, pollution, etc., you ain’t seen nothin’ yet.

If you’re a politician, and amendment would cause problems, but they wouldn’t be insurmountable. Heck, President Bush paid for a couple of wars outside the budget.

But it would lead to lots of shenanigans.

As I warned last time, beware of simple solutions to complex problems.

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