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Five Reasons Why A National Balanced Budget Amendment Is Lunacy

DA60 said:
Prove it please.
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That is easy, a balanced budget amendment divorces the relationship between government spending levels to the condition of the economy.

In order for any federal budget to really be balanced (or at least balanced per the amendment which may still mean deficits for whatever amendment reason) means that outlays are inherently contained to receipts by some math formula established by the amendment. There may be outs and conditions to break that but it would leave to politics what is wrong with the economy and when to be involved, not a very comforting thought. Technically that is already happening when politics meets economic reality, but the amendment proposal adds a layer of foolishness to the mix. So, in an economic downturn under such an amendment that means that receipts have downward pressure and as such so do outlays at the same time.

Because there is no known *economic stabilization principle* based on government spending less to handle the economic cycle being in a recession, or trough, or recovery period then it is easy by association to say there is no known *economic stabilization principle* that suggests a balanced budget amendment.

It is devoid of every mixed model economic principle I can find to link government outlays year on year to government revenues ignoring all other factors.

When we experience a recession for whatever reason and at whatever severity, that means that any decrease in outlays will amplify that economic downturn. (G) in GDP math goes down as well as the inherent inputs from the private sector doing the same. Amplifying the economic downturn is also the last thing any economic stabilization principle would suggest, confirming with perfection what I am saying.

Because government outlays should increase when the economy is in decline, a balanced budget amendment becomes nothing more than a political barrier. We have enough of those political barriers now, and they arguably have done little to contain spending no matter when economic times are good or bad.

As such, the amendment would make it almost impossible for the economy to improve over the short to medium term. All economic downturns would hurt worse with such a silly proposal. Adding even more evidence to support my statement.
 
DA60 said:
My economic stabilization principle is as follows (I call it the 'DA60 principle of governmental balanced budgets'): I suggest that a government should always balance the budget.

There...you now know that your above statement is no longer true (assuming it ever was).


Good day.
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You edited your post while I responded to the other version, please review my evidence in #76 above then tell us why you think your proposal can be backed up.
 
Thrilla said:
that primarily because it's a monetary theory ...or, in layman's terms " how our money actually works"

there's nothing radical or controversial about MMT.... the radical and controversial stuff generally come from economic policy and the politics inherent to those policies.


its important to understand the distinction... you'll be better informed and able to deal with specific policies as they arise.
for instance, just because the US can't ever go broke ( it's literally impossible), doesn't mean Congress should spend 100 billion dollars a day on saving endangered species or creating grass huts for homeless chickens...
federal spending still has consequences beyond monetary policy, and our politicians are still the ones addressing those consequences.

there are certainly some folks out there who will use MMT to argue for some endless list of desires they want enacted for their favored demographics.... no doubt about it..... but don't let them fools you into thinking it's all because of MMT... it's their politics guiding them, not the monetary theory.
no matter what monetary theory exists, or is in practice... politics is the the big daddy in life.
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I could not agree more.

The biggest issue with MMT I have is that economics is not just accounting. Whether an economy does well or poorly has to do with the behavior of the people in that economy.. not just whether there is "available money".

MMTer's love to wax rhapsodic about how there are no consequences to debt, or deficit. Up until you ask them.. "well why not spend 100 billion a day on "creating grass huts for homeless chickens".

Then suddenly "well there is a point that deficit and debt have consequences".. and then 5 minutes later.. its back to "but we can create money and spend without incurring consequences"

The second problem I have with the MMT as a guide to policy decisions is that MMTer's crow about how the US has spent into deficit and how we have such a debt and ask "well where is the negatives.. where is the inflations etc"..

However, what they are failing to consider is that while we have been spending.. we also have been spending time and effort at times in CURBING the deficit, in curbing the growth of debt versus GDP etc.

that's the problem.. the success that the US has shown is in part from NOT applying the philosophies of MMT.. its been from applying a more conservative policy of decreasing deficits at times, balancing budgets at times, etc.

Lastly the real problem with MMT as a guide to policy is the potential for catastrophe. Now though MMTers will crow about the lack of consequences to debt and deficit.. when they are pushed they will admit that there is a point where over spending and debt will be very harmful (usually its either hyperinflation, or crowding out of private sector).

Now you ask them.."well where is the magical number of debt or deficit where this occurs"... well they have no actual number. (and the reality is that's because its about human behavior and beliefs rather than accounting).

So what makes more sense? To control spending so that you DON"T accidently hit that amount that causes catastrophe?

Or spend away until you cause catastrophe and go "oops.. that was too much?"
 
OrphanSlug said:
That is easy, a balanced budget amendment divorces the relationship between government spending levels to the condition of the economy.

In order for any federal budget to really be balanced (or at least balanced per the amendment which may still mean deficits for whatever amendment reason) means that outlays are inherently contained to receipts by some math formula established by the amendment. There may be outs and conditions to break that but it would leave to politics what is wrong with the economy and when to be involved, not a very comforting thought. Technically that is already happening when politics meets economic reality, but the amendment proposal adds a layer of foolishness to the mix. So, in an economic downturn under such an amendment that means that receipts have downward pressure and as such so do outlays at the same time.

Because there is no known *economic stabilization principle* based on government spending less to handle the economic cycle being in a recession, or trough, or recovery period then it is easy by association to say there is no known *economic stabilization principle* that suggests a balanced budget amendment.

It is devoid of every mixed model economic principle I can find to link government outlays year on year to government revenues ignoring all other factors.

When we experience a recession for whatever reason and at whatever severity, that means that any decrease in outlays will amplify that economic downturn. (G) in GDP math goes down as well as the inherent inputs from the private sector doing the same. Amplifying the economic downturn is also the last thing any economic stabilization principle would suggest, confirming with perfection what I am saying.

Because government outlays should increase when the economy is in decline, a balanced budget amendment becomes nothing more than a political barrier. We have enough of those political barriers now, and they arguably have done little to contain spending no matter when economic times are good or bad.

As such, the amendment would make it almost impossible for the economy to improve over the short to medium term. All economic downturns would hurt worse with such a silly proposal. Adding even more evidence to support my statement.
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I'd agree completely.

I've looked at several proposals for a balanced budget amendment and have not found a workable idea that would give the flexibility needed.
 
David_N said:
Building off of my other thread: http://www.debatepolitics.com/gener...publicans-and-balanced-budget-amendments.html
John T Harvey has some really good things, and this piece on the lunacy of "a balanced budget amendment" is quite a show stopper.
Forbes Welcome

This is obvious. People don't seem to understand this though, and fear monger.

Deficit spending is needed so the private sector can save as well.

Why would anyone want the government taxing dollars and spending less then it's taxing? Also, why would people want the private sector to take on more debt?

I don't even need to explain the success of Keynesian recession management.

I will let Harvey explain this one:
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3 reasons to dismiss this as nonsense

1 - the author only references one economist's material in the whole article and its not only a 15 year old chart but its for Japan.
2 - The author only uses charts, mostly old ones and mostly irrelevant ones.
3 - The only real reference he makes is a chart and info by Jan Hatzius from Goldman Sachs. the author completely misunderstands what is being said in two different points.
The inverse relationship of personal savings and government deficit and that every dollar of deficit has to be offset by private surpluses but they miss the words "purely from an accounting standpoint"
You obviously bought into this hook line and sinker with your statement that deficit spending is needed so the private sector can save well.

What a rubbish article.
 
JohnfrmClevelan said:
What??? You don't even agree with the mechanics of banking and money creation, which are completely apolitical.
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Not so.. I agree with the mechanics of banking and money creation. I already posted such in the economic forum.

What I don;t agree with is your extrapolation of the mechanics to banking and money creation.. into an economic policy.

You make the fatal error in thinking that economics is accounting..when economics is about human behavior.
 
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