How bad ideas become part of conventional wisdom

Some bad public policy ideas take hold because decision-makers become convinced they will work. Other times, bad ideas gain momentum because politicians who should know better are too scared or lazy to make the case against them.

In what looks like a textbook example of the second scenario, all three Democrats representing Iowa in the U.S. House are now on record supporting some form of constitutional amendment to require a balanced federal budget.

Most Republican members of Congress have long been on record supporting a constitutional amendment to balance the budget, even though they have also voted for many bills that increase the deficit, such as unpaid-for tax cuts, supplemental war funding resolutions, or prescription drug coverage for Medicare.

The case for the balanced budget amendment sounds simple. Most families have to live within their means, and most state governments must balance their annual budgets, so why shouldn't the federal government?

The analogy to family budgets is flawed for various reasons.

A family that takes out a student loan to send a child to college, for example, might end up with a large "deficit" for that year - that is, it will spend more than it earns that year.  But a college education is a solid long-term investment that is likely to translate into significantly higher earnings over the child's working career.

Similarly, a family that obtains a mortgage will almost certainly have a "deficit" for that year, but it will also have a house to live in.

Families also build up savings in good economic times and draw them down when times are tight to cover expenses that exceed their current incomes.

The proposed constitutional amendment would bar the federal government from such practices.  The federal government couldn't borrow to finance investments that boost future economic growth, such as infrastructure improvements.  And if it ran a surplus one year, it couldn't draw it down the next year to help balance the budget if the economy turned down.

In fact, even if a family financed a new house or a college education entirely out of savings - with no loans and no mortgage - that would still be prohibited "deficit financing" under the terms of the balanced budget amendment, because it is still a case of spending more in that year than the family earned in that year.

Business owners also borrow to finance capital investments or long-term improvements they couldn't afford if they had to live solely on their cash flow.

While most states are required to balance their operating budgets, they borrow for capital investments, which would be prohibited under a federal constitutional amendment.

More important, forcing the federal government to balance its operating budget would be terrible for the national economy. Bleeding Heartland has discussed this before, but don't take my word for it. The forecasting firm Macroeconomic Advisers LLC predicts that a balanced budget amendment would make recessions "deeper and longer," for various reasons summarized more succinctly here. Last summer, Robert Greenstein and Richard Kogan explained how a balanced budget amendment would threaten "significant economic harm," destabilize the banking system, and possibly force cuts in Social Security benefits.

When the U.S. House passed the so-called "Cut, Cap, and Balance Act" last July, Iowa's five representatives split on party lines: Republicans Tom Latham (IA-04) and Steve King (IA-05) voted for the bill, while Democrats Bruce Braley (IA-01), Dave Loebsack (IA-02), and Leonard Boswell (IA-03) voted against it.

However, when the House considered a constitutional amendment to balance the federal budget last November, Boswell and Loebsack joined Latham and King in voting yes. In a statement, Boswell said the amendment "would help take politics out of the budgeting process and make everyone face reality." But professional economic forecasters view the proposal as introducing tremendous volatility and uncertainty to U.S. budgeting.

Only 25 House Democrats, mostly members of the "Blue Dog" caucus like Boswell, supported the Republican constitutional amendment proposed last November. But when the so-called "progressive" Loebsack went along with this bad idea too, he left Braley out on a limb.

As Republican Ben Lange formally launched his 2012 campaign against Braley in Iowa's first Congressional district, he highlighted the fact that Braley "was the only member of the Iowa delegation to vote against a balanced budget amendment to the U.S. Constitution."

Braley has been talking like a deficit hawk since late 2010. He has often highlighted his concerns about the deficit when discussing other national policies, such as the U.S. military intervention in Libya.

As the founder of the House Populist Caucus (to which Boswell and Loebsack belong), Braley should know better than to elevate deficit reduction as a national priority. In tough economic times, it's more important for the federal government to help create jobs and support services for Americans who are suffering. Pay-as-you-go requirements may be helpful for most legislation Congress considers, but bringing down the unemployment rate is the best long-term deficit reduction strategy. If a balanced budget amendment had been in place in early 2009, Congress could not have passed the stimulus package all three Iowa Democrats supported.

But that argument isn't easy to convey in a political sound bite. Nor is the Macroeconomic Advisers forecasting firm's case against the balanced budget amendment.

Braley clearly doesn't want to spend the next six months defending a stand against requiring the federal government to "live within its means." Instead, this week he announced that he is co-sponsoring a Republican balanced budget amendment. Excerpt from a May 16 press release by Braley's Congressional office:

Washington, D.C. - Rep. Bruce Braley (IA-01) today announced that he has signed on to bipartisan legislation that would amend the US Constitution to require the federal government to balance its budget, so government spending cannot exceed revenue.

The proposal, known as the Business Cycle Balanced Budget Amendment (H.J. Res. 81), was written by Michigan Republican Rep. Justin Amash (MI-03).  It would base annual federal spending on the previous three years of government revenue.  In the event of a national emergency such as war or natural disaster, a two-thirds vote of Congress could exempt temporary spending for specific reasons from the limits.  The legislation also provides that the amendment be phased in over 10 years following ratification.

Braley said, "It's a simple concept that would revolutionize the way our government does business.  States must balance their budgets; families must balance their checkbooks.  Why shouldn't the federal government?

Braley continued, "The bipartisan balanced budget amendment I've signed onto today will rein in the federal deficit while ensuring America isn't left vulnerable in a national emergency.  It's the game-changer we need to get our fiscal house in order, protect our economic recovery, and set the stage for future prosperity."

Rep. Justin Amash said, "This bill is simple, bipartisan, and common sense, and I'm proud that Bruce has joined me in this effort.  Our long-term prosperity depends on the federal government reining in debt, and that starts with balancing the budget."

Braley defended his new position in a conference call with journalists on May 16:

"I'm now convinced it's the only viable way we could get something meaningful done," Braley said. "Until we put in place some reforms and changes that force Congress to confront the reality of its obligations under the Constitution, we're just going to see more of the same." [...]

The Center on Budget and Policy Priorities, a fiscal think tank, says that had it been in place in 2012, the existing federal budget would have had to be $1.3 trillion smaller, a situation it said would have meant drastic spending cuts to domestic programs if politically popular entitlements had been left off the table.

Braley called the estimate a "mischaracterization" that doesn't take into account the Amash amendment's gradual approach.

I strongly recommend reading that Center on Budget and Policy Priorities analysis by Richard Kogan. Here are a few excerpts:

Under the [Amash] proposal, the spending cap for any year would equal the average level of revenues for the three prior fiscal years, adjusted for inflation and population growth since those years. As a result, whenever the economy weakened and pushed tax revenues down - and whenever Congress cut taxes - the spending cap would drop automatically and force still deeper budget cuts.

To waive the cap would require a two-thirds vote of the House and Senate, even in the midst of a recession. (The two-thirds requirement would also apply during wars and other military conflicts.) In other words, a determined minority such as the Republican Study Committee (a group of strongly anti-government House Republicans) would have the votes to ensure that massive budget cuts be instituted regardless of the state of the economy or to demand other concessions in return for their votes.

To secure budget cuts of this extraordinary magnitude, Congress would almost certainly have to severely cut or dismantle programs like Social Security, Medicare, and Medicaid. To illustrate: if Congress fully protected Social Security, Medicare, and Medicaid but total expenditures had to be $1.3 trillion lower in 2012, all other programs would need to be cut 70 percent, on average. Everything else - veterans' health, basic research, education, law enforcement, transportation, defense, and the safety net for low-income children, parents, and elderly and disabled people - would be at serious risk.

Moreover, the proposal places no limitation whatsoever on tax cuts. To the contrary, it invites antigovernment crusaders to propose unlimited tax cuts because, the amendment is designed to guarantee that all tax cuts - no matter how large or how tilted toward high-income households, powerful corporations, or other special interests - would eventually be paid for by cutting government programs. [...]

Rep. Amash has reportedly argued that his proposal would embody countercyclical fiscal policy and thereby dampen economic booms and busts rather than exacerbate them. But this claim is incorrect. To test it, we examined what would have occurred had the Amash cap been in place since 1950.

* During the ten recessions that have occurred since 1950, deficits averaged 2.3 percent of GDP while the economy was contracting. A standard balanced budget amendment would have required a balanced budget during those years; that is, it would have required spending cuts and tax increases averaging 2.3 percent of GDP.[3] The Amash spending cap would have permitted deficits averaging 0.2 percent of GDP during those years and hence would have required spending cuts totaling 2.1 percent of GDP. The result in either case would have been fiscal policy that was highly damaging to the economy.

* In the first year following the formal end of a recession, the economy typically has started growing again but has not climbed fully out of the hole, and unemployment insurance costs continue to be much higher than normal while revenues are still much lower than normal. The standard balanced budget amendment would have required program cuts and tax increases averaging 4.0 percent of GDP in the first year after the post-1950 recessions, while the Amash proposal would have required program cuts averaging 2.6 percent of GDP.[4]

In early 2009, the U.S. economy was suffering a net loss of more than half a million jobs each month. Although that recession was the most severe since World War II, the stimulus package didn't come anywhere close to two-thirds support in the U.S. House or Senate.

It's sad that a smart guy like Braley would sign on to the Amash approach, and that Loebsack would be an original co-sponsor of that constitutional amendment. Bad ideas gain momentum when good people aren't willing to make the case against them. As more Democrats hop on the bandwagon, political pressure increases on the Democrats who would rather not facilitate "starve the beast" on steroids.

I was amused by one Iowa Democrat's response to a tweet by Bruce Braley bragging about his "#commonsense" support for a balanced budget amendment:

@BruceBraley I think your Twitter account's been hacked. Some nutter claiming you support balanced budget amendment on it.

If only.

I assume that Boswell would vote for the Amash amendment if it comes to the House floor. Not only did he vote for last year's version of a balanced budget amendment, he's facing a tough race against Latham in the new IA-03. He won't want to distinguish himself from Latham on this issue.

I am seeking comment on a balanced budget amendment from Christie Vilsack, Steve King's Democratic challenger in Iowa's new fourth Congressional district.

UPDATE: Vilsack's campaign responded that she "believes we must balance the budget and that we can accomplish that without an amendment by working together and tackling the issue head-on." Also, "The last time our nation had a balanced budget was when President Clinton and Republicans joined together to make the tough choices, without jeopardizing Medicare, Medicaid, or education - that's what we need to do again." Good for her for resisting the easy but dangerous road of endorsing a constitutional amendment.

Share any relevant thoughts in this thread.

UPDATE: Braley touted his support for the Amash balanced budget amendment in a guest op-ed for the Cedar Rapids Gazette on May 20. Excerpts:

Combine a balanced-budget amendment with another tough reform called the "No Budget, No Pay" rule, which would cut off pay for members of Congress if they don't produce a budget on time, and we might really see Washington get things done for a change.

The basic concept of a balanced budget is one that's easy to understand, but the challenge is how you write it to make sure America isn't left vulnerable in a national emergency.

What if our nation suddenly goes to war? What if there's a major natural disaster requiring costly rescue efforts and recovery, like the 2008 Iowa floods and tornadoes or Hurricane Katrina? What if some other unforeseen emergency circumstance requires sudden, temporary action by Congress?

These concerns have kept me from endorsing a specific balanced budget plan.

Until now. [...]

The Amash proposal packs a punch, requiring the federal government to balance its budget every year. Yet in times of crisis, it allows a two-thirds vote of Congress to pass a yearlong emergency exception for specific reasons such as natural disasters or wars.

That's a threshold high enough to prevent abuse, but reasonable enough to encourage bipartisan cooperation when our nation is truly threatened.

The proposal also stipulates that any revenue collected in excess of government spending be used first to reduce the debt of the United States.

Further, the Amash proposal would phase in the balanced budget requirement during the 10 years following ratification, requiring the deficit to be closed by a minimum of 1/10th each year. Just like a smoker quitting nicotine, this reasonable implementation period would provide a more stable transition from runaway deficit spending to a balanced budget.

Make no mistake, the Amash balanced budget amendment only works if Congress stops playing games by spending money off-budget. No more trillion-dollar spending that we don't pay for. No more new Medicare drug benefits that we don't pay for. And no more stimulus spending - unless two-thirds of Congress agrees to a yearlong exception. [...]

The balanced budget amendment is the game-changer we need to get our fiscal house in order, to provide stability for our economic recovery, and to keep the United States from repeating the mistakes of Greece and other European countries struggling with too much debt.

I would never have thought that the founder of the Populist Caucus and a key sponsor of the "Cash for Clunkers" concept would support giving conservative Republicans a veto on any future economic stimulus bill. Backing the Amash constitutional amendment may be good politics for Braley, but it would be terrible policy.

  • Blowing in the wind.......

    The move by all of the Iowa congressional democrats to support (and even co-sponsor) the balanced budged initiative is applauded by many on both sides.  Braley said it best when he basically stated this is the ONLY way toward fiscal responsibility, and to do otherwise is in fact business as usual which is not serving the country well.  This attitude and committment deserves a standing ovation by all of us in Iowa that want common sense returned to government.

    What this does do however is leave Christie Vilsack twisting in the wind and very much alone with her recent denouncing of this democrat endorsed balanced budget initiative in the Register.  Between this, and embracing the radical Occupy vision (as layed out in the Iowa Independent), and the really laughable budget savings proposals she proposed ($100 billion in database savings....really?), Vilsack has endured a very rough start to what seems to be a very weak campaign.

    • the federal budget was balanced

      in the late 1990s without any constitutional amendment. One key element there was the low unemployment rate.

      A balanced budget amendment is a great way to wreck government services and make every recession worse. Vilsack should be commended for not jumping on an easy sound-bite solution to the federal deficit.

      • recklessness....

        ..the problem now is the perception of spending being completely out of control at this point.  Just last week we had the Iowa woman in the paper that had 16 years of college, $185,000 in subsidized student loans, and nothing to show for it (in her own words "no marketable skills").  She even wanted MORE loans.  Combine that with a federal government pushing Post Office decisions down the road that should of been made YEARS ago, aged F-16 fighter location decisions now delayed, the rampant waste in the federal food stamp program, 80% taxpayer subsidies for programs like DART in Des Moines and wildly expensive Amtrak proposals...and so MANY more things, people have just had it.

        Braley clearly knows that....good for him and all of our other congressmen for knowing that.

Login or Join to comment and post.