House Judiciary Committee Chair Bob Goodlatte’s proposed constitutional amendment requiring a balanced budget, which the House will vote on tomorrow, has many serious drawbacks:
It would hurt the economy. By requiring a balanced budget every year, no matter the state of the economy, the balanced budget amendment (BBA) proposal would risk tipping a weak economy into recession and making recessions more frequent, longer, and deeper, causing very large job losses and hurting long-term growth. That’s because it would force policymakers to cut spending or raise taxes just when the economy is weak or already in recession — the opposite of good economic policy.
Before 1929, the budget was balanced or close to it in most years (except during major wars), while from 1933 on, the federal government fought recessions by allowing deficits to grow when the economy was weak and then shrink as it recovered. The latter approach worked better, with fewer recessions, longer expansions, and better growth, as the table shows:
|“Balanced budget” period (1854-1929)||“Fight recessions” period (1929-2017)|
|Average number of recessions per decade||2.8||1.6|
|Average length of economic expansions||25 months||63 months|
|Average annual real economic growth per person||1.4%||2.0%|
Policymakers don’t need to balance the budget every year to put the budget on a sustainable path. Even with modest-sized deficits, it’s possible to stabilize or reduce the debt as a share of gross domestic product, which is the best measure of sustainability over the long run.