Balanced Budget Amendment Research Articles

A Balanced-Budget Constraint in Modern Stochastic Macromodels

Currently (September 1985), a constitutional balanced-budget amendment is pending in the U.S. Senate. Thirty-two states have passed resolutions calling for a constitutional convention to enact such an amendment. In 1963 Senator Harry Byrd, Sr. asked Budget Director Kermit Gordon what balancing the budget would do for the country. Gordon replied that, probably would add about 2.5 million people to the rolls of the unemployed, delay the recovery about four years, and knock 10 percent off U.S. output [16, 284]. The Keynesian conventional wisdom of the 1960s was that fiscal and monetary policy should focus on the benefit-cost tradeoffs between inflation and unemployment (stabilization), along with tradeoffs implicit in resource allocation and the distribution of income. Given these objectives, there should be no independent consideration of the budget deficit of the federal government [24]. As Abba Lerner argued in his early statement of Keynesian principles of functional finance, the instruments to prevent unemployment and inflation are available until it is recognized that the size of the national debt is relatively unimportant [17, 302]. As outlined by Walter Heller [15] and others, the stabilization role of fiscal policy, together with monetary policy, in the 1960s was to provide the appropriate degree of stimulus or restraint to achieve a target level of real output. Since the mid-1960s such a role for fiscal policy has been challenged, first by the Friedman-Phelps [14; 27] accelerationist hypothesis and then by the Lucas-Sargent [19; 29] policy ineffectiveness proposition. The accelerationist or natural rate theory, especially as advanced by Milton Friedman, argues that stabilization policy should be geared toward rules and control of nominal variables such as the inflation rate. Friedman's analysis also implies the futility of using aggregate demand policy to achieve fixed output targets. Friedman's analysis suggests the possibility that with monetary policy geared to price stabilization and with sustainable real output gains not attainable via aggregate demand policy, fiscal policy instruments may be adjusted to achieve a balanced-budget without cost. Buchanan and Wagner [7] rely on Friedman's analysis to support their call for a constitutional balanced budget amendment.'

State Support for Constitutional Balanced Budget Requirements

Analysis of state passage of legislative resolutions calling for a convention to propose a balanced budget amendment to the U.S. Constitution reveals no tendency for states passing the resolutions to have constitutional balanced budget requirements or debt limits of their own. States passing the resolutions tend to have more conservative electorates.

Rent-seeking, distributional coalitions, taxes, relative prices and economic growth

The results clearly indicate that much of the considerable variation in the pace and pattern of economic growth between the various American states is explainable by institutional arrangements amenable to revisions through public policy. The findings suggest that long run economic growth would be best served by constraining distributional coalitions, be it through constitutional restraints (e.g., balanced budget amendments, the item veto), statutory changes (e.g., subjecting coalitions like labor unions to the antitrust laws), or some other means (e.g., labor and capital fleeing distributional coalitions, such as in the movement of workers and plants to nonunion areas).

A theoretical analysis of the case for a balanced budget amendment

A balanced federal budget is not a best outcome for all situations, and a constitutional amendment to require annually balanced budgets is not well defended on grounds that it is. However, the case for a balanced budget amendment may have some merit on other, subtler grounds. This article outlines a set of such grounds.

The Balanced Budget Amendment: An Inquiry into Appropriateness

The Balanced Budget Amendment: An Inquiry into Appropriateness

Article III Problems in Enforcing the Balanced Budget Amendment

Article III Problems in Enforcing the Balanced Budget Amendment

A Convention for Proposing Amendments: The Constitution's Other Method<xref ref-type="fn" rid="fn1"><sup>*</sup></xref>

When introducing S.817, the Constitutional Convention Implementation Act of 1981 (Hatch-DeConcini), Senator Orrin Hatch (R-Utah) said, I emphasize again the basic purpose for including the convention of amendment in Article V-the need for the States to be able to amend the Constitution in the face of an intransigent national Government.1 He described the other method of amending the Constitution provided for in Article V, the convention method, as of the basic elements for preserving some semblance of balance between the national and State governments. This version of legislation to provide procedures for a convention to propose amendments is more state-oriented than the previous bills (S.215, 1971 and S.3, 1979), and that fact suggests a slight change in recognition of the virtues of the American federal system. Support for a convention to propose a constitutional amendment has surfaced several times in this century, although with no direct success. The first effort, on behalf of direct election of senators, led to the Seventeenth Amendment. The second, a response to the Supreme Court's apportionment decisions in 1962-1964 (including Baker v. Carr, Lucas v. Colorado, and Reynolds v. Sims), produced nothing. In both cases the number of state petitions came very close to the two-thirds required by Article V of the U.S. Constitution. Since 1975 a campaign organized by the National Taxpayers Union has produced thirty of the requisite thirtyfour applications for a convention to propose an amendment to mandate a balanced federal budget. The drive for a balanced budget amendment to the U.S. Constitution is one answer to the question, how can we limit (federal) government spending? Such an amendment has been introduced in the 97th Congress, as Senate Joint Resolution 58, and among its sponsors are Senator Strom

Democracy in Deficit: The Political Legacy of Lord Keynes

Democracy in Deficit opened the door for much of the current work on political business cycles and the incorporation of public-choice considerations into macroeconomic theory. Even in the area of monetarism, Buchanan's landmark work has greatly influenced the sway of contemporary theorists away from the nearly universally held belief of Keynesian theory. Democracy in Deficit contributes greatly to Buchanan's lifelong fiscal and monetary rules to guide long-term policy in macroeconomics. The book serves to bolster Buchanan's central beliefs in the necessity of a balanced-budget amendment to the US Constitution and in monetary rules rather than central bank discretion.