THE FISCAL EQUIVALENT OF A CHILD SEAT

7/19/11

Today’s (i.e., Tuesday, 7/19’s) lead editorial in the Wall Street Journal argues against a balanced budget amendment, even such an amendment with, as proposed by certain segments of the GOP, a 2/3 majority requirement for tax increases. Some of the editorial’s arguments are decent, such as the contention that such an amendment will be used as justification for ever increasing taxes and that the Constitution is best left as uncluttered as possible. Others are predictable and somewhat hypocritical, such as that such an amendment will hurt the Journal’s cherished under all circumstances “defense” budget. On balance, though, the argument against a balanced budget amendment is wearing thin.

I used to share the Journal’s fear that a balanced budget amendment would be used as a fig leaf for big spending by disingenuous and dissolute politicians, a la “Gee, I didn’t want to raise taxes, but the Constitution says I must.” While that’s still a well justified fear, there is an argument for such an amendment that supersedes that fear, to wit, that the only effective barrier to the growth of government is a balanced budget requirement embedded in the Constitution. As things now stand (i.e., without a balanced budget requirement), government is essentially free. New programs can be voted for in order to mollify certain constituencies while not having to stick other constituencies with the bill; we simply borrow the money to distribute to the groups to which the sponsoring and otherwise supportive politicians wish to pander. The beneficiaries feel passionately about “their” program while others are at best indifferent toward the program. The old principle of concentrated benefits’ prevailing over dispersed costs kicks in. However, without a requirement that anybody actually pay for a program, the costs are not even dispersed; they are non-existent, other than interest on the debt incurred to hand money to those favored by assertive and aggressive pols. At current rates, such interest is negligible. So resistance to expansion of government is tepid at best.

So we have a situation in which public goods are essentially free. Microeconomics tells us that demand is unlimited for free goods. No wonder government has grown at the rate that has landed us in the financial, and some might say spiritual, mire! If, however, someone had to pay for new government programs, and those programs could be assigned a cost in tax dollars, terms most taxpayers can understand, we would finally have some real opposition to the growth of government. Spending would be subjected to cost/benefit analyses in which the cost is real, rather than zero.

While crafting a balanced budget in the heat of debt ceiling negotiations may not be advisable, such an amendment, carefully considered, seems necessary if we are to return to anything resembling fiscal sanity in this country. This is especially true when, as now, one gets the distinct impression that grown-ups are no longer in charge in Washington.