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Advancing Austrian Economics, Liberty, and Peace

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Making Economic Sense
by Murray Rothbard
(Contents by Publication Date)


Chapter 65
The Balanced-Budget Amendment Hoax

It is a hallmark of the triumph of image over substance in modern society that an administration which has submitted to Congress budgets with the biggest deficits in American history should propose as a cure-all a constitutional amendment mandating a balanced budget. Apart from the high irony of such a proposal from such a source, the amendment-mongers don't seem to realize that the same pressures of the democratic process that have led to permanent and growing deficits will also be at work on the courts that have acquired the exclusive power to interpret the Constitution. The federal courts are appointed by the executive and confirmed by the legislature, and are therefore part and parcel of the government structure.

Apart from these general strictures on rewriting the Constitution as a panacea for our ills, the various proposed balanced-budget amendments suffer from many deep flaws in themselves. The major defect is that they only require a balance of the future estimated budget, and not of the actual budget at the end of a given fiscal year. As we all should know by this time, economists and politicians are expert at submitting glittering projected future budgets that have only the foggiest relation to the actual reality of the future year. It will be duck soup for Congress to estimate a future balance; not so easy, however, to actually balance it. At the very least, any amendment should require the actual balancing of the budget at the end of each particular year.

Second, balancing the budget by increasing taxes is like curing influenza by shooting the patient; the cure is worse than the disease. Dimly recognizing this fact, most of the amendment proposals include a clause to limit federal taxation. But unfortunately, they do so by imposing a limit on revenues as a percentage of the national income or gross national product. It is absurd to include such a concept as "national income" in the fundamental law of the land; there is no such real entity, but only a statistical artifact, and an artifact that can and does wobble according to the political breeze. It is all too easy to include or exclude an enormous amount from this concept.

A third flaw highlights again the problem of treating "the budget" as a constitutional entity. As a means of making the deficit look less bleak, there has been an increasing tendency for the government to spend money on "off- budget" items that simply don't get included in official expenses, and therefore don't get added to the deficit. Any balanced-budget amendment would provide a field day for this kind of mass trickery on the American public. 

We must here note a disturbing current tendency for "born again" pro-deficit economists in conservative ranks to propose that "capital" items be excluded from the federal budget altogether. This theory is based on an analogy with private firms and their "capital" versus "operating" budgets. One would think that allegedly free-market economists would not have the effrontery to apply this to government. Get this adopted, and the government could happily throw away money on any boondoggle, no matter how absurd, so long as they could call it an "investment in the future." Here is a loophole in the balanced-budget amendment that would make any politician's day!

A fourth problem is that the various proposals make it all too easy for Congress to override the amendment. Suppose Congress or the president violate the amendment. What then? Would the Supreme Court have the power to call the federal marshals and lock up the whole crew? To ask that question is to answer it. (Of course, by making the budget balance prospective instead of real, this problem would not even arise, since it would be almost impossible to violate the amendment at all.)

But isn't half a loaf better than none? Isn't it better to have an imperfect amendment than none at all? Half a loaf is indeed better than none, but even worse than no loaf is an elaborate camouflage system that fools the public into thinking that a loaf exists where there is really none at all. Or, to mix our metaphors, that the naked Emperor is really wearing clothes.

We now see the role of the balanced budget amendment in the minds of many if not most of its supporters. The purpose is not actually to balance the budget, for that would involve massive spending cuts that the Establishment, "conservative" or liberal, is not willing to contemplate.

The purpose is to continue deficits while deluding the public into thinking that the budget is, or will soon be, balanced. In that way, the public's slipping confidence in the dollar will be shored up. Thus, the balanced-budget amendment turns out to be the fiscal counterpart of the supply-siders' notorious proposal for a phony gold standard. In that scheme, the public would not be able to redeem its dollars in gold coin, the Fed would continue to manipulate and inflate, but all the while this inflationist policy would now be cloaked in the confidence-building mantle of gold.

In both plans, we would be dazzled by the shadow, the rhetoric of sound policy, while the same old program of cheap money and huge deficits would proceed unchecked. In both cases, the dominant ideology seems to be that of P.T. Barnum: "There's a sucker born every minute." 

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