Why the balanced Budget Amendment is not Balanced — Laurens R. Hunt

Why the balanced Budget Amendment is not Balanced


The term Balanced Budget amendment is misleading.  This is a full US Constitutional addition; it is not simply another US House and Senatorial vote.  That means that 2/3 (must be 67 or more US Senators voting Yea) in order to pass it.  Then it gets sent to the states where ¾ (38 out of 50 or more) agree to ratify it.  What balanced stipulates is that all annual US budgets as assigned by the US Congress must be revenue neutral.  There are several steps required to getting there.


The first is known as a committee vote.  In the US House it starts with The Ways and Means Committee where the agreement must be approved by the committee Chairman and someday Chairwoman.  In the US Senate it is the Budget Committee.  Individual spending appropriations are established under the US Senate through a Congressional Budget Authority (CBA) with the minimum of a 60 vote majority in favor in this case.  Bicameral adjustments between the US House and Senate are known as budget reconciliations, which then become combined into what is known as an omnibus bill with respective budgetary appropriations under multiple government agencies.  A short time frame for approval is still several months, and sometimes can be year or more.  Adding a balanced budget provision will also require a vote by The US Judiciary (Supreme Court).


This will lengthen the process for sure often times resulting in a whole additional debate on whether the full omnibus budget is considered constitutional or not.  Although the Supreme Court is charged with interpreting the US Constitution there are repeated criticisms about the court legislating from the bench.  Do we really want the US Supreme Court to add to the budget approval process?  We just had the fiscal trauma of the fiscal cliff voted on roughly 2 years ago along with the debt ceiling debacle in August 2011.  As costly and timely as all of this has been The US Supreme Court has not till date been an added layer in the final step of the process where under balanced budget mandates it will be.  The US has had its very first ever credit downgrade due to the exceedingly contentious debt ceiling negotiation nearly 2 years ago.  Adding the Supreme Court to this discussion means one more step in the process leading to more economic uncertainty and hence more cost.


The longer the delay in budget appropriations the longer revenues are strained and lost because this costs thousands of jobs and hurts business growth.  We know plenty about this currently with the fiscal cliff and budget sequesters fight where mandatory budget cuts kick in automatically.  For those who only want to talk about spending amounts they neglect to note that lost revenue can in fact be more costly than additional spending or appropriations.  In other words budget outlays cannot be lessened by enough to offset the lack of income revenue.  Also no deficit spending is permitted under this arrangement.


Zero deficit spending during a recession is a sure recipe for putting the country into an outright depression.  This can quickly result in a loss of over a trillion dollars in revenue and very easily as well.  During the final 3 months or quarter of 2012 the economy slowed to nearly negative growth because of the extended uncertainty and anticipation resulting from this current fiscal cliff fight (it is reported to be a tiny gain but still very worrisome).  2 quarters or more of economic GDP (Gross Domestic Product) contraction are what define a recession.  The one US credit downgrade has not been known to increase short or long term interest rates, but future downgrades will no doubt drive up the cost of borrowing harshly stifling business growth.  With no debt financing allowed during a declared recession revenues will be greatly lessened, and almost no amount of budget cuts will be enough to offset this loss in revenue for a revenue neutral budget deal.  Hence the budget outflows will continue to exceed the inflow where a balanced budget will simply never occur.  This will add more pressure on the individual states because they will have to adjust their budgets without future help from the US Government, which has never been done the extent that there are no appropriations granted to the states.  This will drive up property taxes displacing families and shutting down local businesses.  These loses will lead to future credit downgrades driving up interest rates further and causing deeper erosion in the value (purchasing power) of the US dollar because foreign nations will pull more and more of their international and business investments out of the US dollar.  This is a whole additional layer. The economic model is that when interest rates go up the US dollar also strengthens and then the dollar is worth more in purchasing power, not less.  This would mean that a rise in commodity, food, and energy prices would reverse where these items then cost less each month for the home owner and renter.  Here instead higher interest will sour the value of the dollar all the more because they will be rising as a result of no investor confidence.  A deteriorating dollar will lead to higher commodity prices, likely double digits which would indicate hyperinflation.  This all but choke off all purchasing power on the part of the consumer and severely limit any business growth.  Businesses will not borrow at even the lowest interest rates because there will be no growth potential.  Some of this is plenty prevalent right now since the financial meltdown nearly 5 years ago.


Much of the economic loss from this most recent crisis is already not retractable or reversible.  If this current trend continues more and more of our business financing will be based on bailout agreements and not investment.  Higher interest rates will simply be all about the inflated costs of these artificial funding streams.  Liquidity (flow of money) will continue to tighten, and there will be a permanent credit crunch where even the wealthiest and most credit worthy of borrowers can no longer do so.  This is why there is so much now being spent on stimulus packages and retaining near 0 interest rates.


The economy has now become reliant on the corporations initiating their own investments rather the consumer going out and spending.  Therefore job creation is at best weak, and it is staying that way.  Investment in public sector jobs restores communities.  This includes expanded mass transit, facelift of road surfaces and bridges with full realignment of plumbing and sewage.  Building upgrades and updated construction to satisfy necessary fire code standards are part of this.  Building more hybrid cars with more electrical outlets for them are other jobs in demand.  Non-manufacturing and non-construction jobs including more teachers, guidance counselors, nurses, paramedics, and police being hired for emergency personnel and the public schools are other professions very much needed.


This is true in individual municipalities and well as entire countries throughout each of our 50 states.  This would amount to a few million more permanent paid jobs throughout the full US every year.  Disposable income would be a few hundred billion dollars more annually with a reliable cash inflow stream because these jobs will be permanent.  The demand and need for them is only intensifying.  This is why debt financing needs to be available during recessions and economic expansions alike.  This does require government spending, but consumer demand will add to the federal revenue eventually erasing the deficit and ultimately resulting in budget surpluses because the economic growth will be sustainable and able to last.  A Balanced Budget Amendment will just entangle the budget appropriation process making it all the more political and confusing for consumers and producers alike.  A balanced budget amendment is the worst possible policy prescription for the budget deficits and our cumulative national debt.


The mentality of this Tea Party is to end all government spending. The US Senate Tea Party Leaders such as Rand Paul of KY, Mike Lee of UT, and Ted Cruz of TX will have us believe that any and all government spending is bad for business.  They are not even stopping at austerity.  They want all government spending to stop.  The trouble with this way of thinking is that it fails to recognize that our corporations rely on government contracts and government expenditures in order for business to be able to operate.  This is why I have emphasized earlier that fewer budget expenditures and outlays will not be revenue neutral.  The loss of cash inflows and revenues will invariably outpace any purported savings from lesser spending, thus making our deficits even larger adding all the more to our accumulated national debt.


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