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Balanced Budget Amendment “Very Unsound Policy,” Leading Economists Warn

March 16, 2016 at 11:00 AM

A balanced budget amendment to the Constitution would be “very unsound policy” that would adversely affect the economy, a group of leading economists including four Nobel laureates explain in a letter today to President Obama and Congress, which the Economic Policy Institute and the Center on Budget and Policy Priorities spearheaded.  Several constitutional amendments requiring a balanced budget have been introduced in Congress, and the Senate Judiciary Committee is holding a hearing today on the issue.

“A balanced budget amendment would mandate perverse actions in the face of recessions,” the letter notes:

In economic downturns, tax revenues fall and some outlays, such as unemployment benefits, rise.  These built-in stabilizers increase the deficit but limit declines in after-tax income and purchasing power.  To keep the budget balanced every year would aggravate recessions.

A balanced budget amendment also would prevent federal borrowing to finance infrastructure, education, research and development, environmental protection, and other vital investments.  Adding arbitrary caps on federal spending — which some balanced budget proposals include — would make the amendment even more problematic, the letter says.

The signatories include Nobel laureates Peter Diamond, Eric Maskin, Christopher Sims, and Robert Solow as well as former Federal Reserve vice chair Alan Blinder and Social Security Advisory Board chair Henry J. Aaron.

The letter concludes:

A constitutional amendment is not needed to balance the budget.  The budget not only attained balance, but actually recorded surpluses and reduced debt, for four consecutive years after Congress enacted budget plans in the 1990s that reduced spending growth and raised revenues.  This was done under the existing Constitution, and it can be done again.  No other major nation hobbles its economy with a balanced budget mandate.  There is no need to put the nation in an economic straitjacket.  Let the President and Congress make fiscal policies in response to national needs and priorities as the authors of our Constitution wisely provided.

Click here for the full text.