Wednesday, March 16, 2011
GOP Senators will introduce a balanced budget amendment
This is the Doomsday Amenmdment. We knew it was coming when the GOP and their Tea Party backed ideology swept into Congress. If it passes (and luckily, there's probably not a big chance, but you never know), we are doomed to years and years of below trend growth and massive increases in poverty across the land.
A balanced budget was achieved in 1937 when we were coming out of the Depression and it sent us right back into a depression. It took a World War to get us out! Isn't that prospect nice?
Now we are about to do the EXACT SAME THING. Read it and weep.
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4 comments:
Aha. War and military conflict are the exceptions. What is it about GOP members abandoning any of their "sane fiscal rules" once spending is about to build tanks and missiles? Anyway this amendment will mean nothing because the US will then be in a permanent state of military conflict. Hello? The GOP can't disappoint his sponsors by cutting back on military spending. And spending is spending whether it happens for air craft carriers or high-speed railway.
Make sure your passport is in order. :)
Seriously, though, a constitutional amendment has to go through a long and arduous route before passage. IMHO, final passage is unlikely once the debate begins. In fact, it may smoke out of the sectoral balance folks, and MMT might even be discussed in polite society.
The Amendment Process
There are essentially two ways spelled out in the Constitution for how to propose an amendment. One has never been used.
The first method is for a bill to pass both houses of the legislature, by a two-thirds majority in each.
Once the bill has passed both houses, it goes on to the states. This is the route taken by all current amendments. Because of some long outstanding amendments, such as the 27th, Congress will normally put a time limit (typically seven years) for the bill to be approved as an amendment (for example, see the 21st and 22nd).
The second method prescribed is for a Constitutional Convention to be called by two-thirds of the legislatures of the States, and for that Convention to propose one or more amendments. These amendments are then sent to the states to be approved by three-fourths of the legislatures or conventions. This route has never been taken, and there is discussion in political science circles about just how such a convention would be convened, and what kind of changes it would bring about.
Regardless of which of the two proposal routes is taken, the amendment must be ratified, or approved, by three-fourths of states. There are two ways to do this, too. The text of the amendment may specify whether the bill must be passed by the state legislatures or by a state convention. See the Ratification Convention Page for a discussion of the make up of a convention. Amendments are sent to the legislatures of the states by default. Only one amendment, the 21st, specified a convention. In any case, passage by the legislature or convention is by simple majority.
The Constitution, then, spells out four paths for an amendment:
• Proposal by convention of states, ratification by state conventions (never used)
• Proposal by convention of states, ratification by state legislatures (never used)
• Proposal by Congress, ratification by state conventions (used once)
• Proposal by Congress, ratification by state legislatures (used all other times)
It is interesting to note that at no point does the President have a role in the formal amendment process (though he would be free to make his opinion known). He cannot veto an amendment proposal, nor a ratification. This point is clear in Article 5, and was reaffirmed by the Supreme Court in Hollingsworth v Virginia (3 US 378 [1798]):
http://www.usconstitution.net/constam.html#process
Politicians will advocate anything that will get them a vote. At the end of the day they won't mess with any program that costs them a political contribution.
I'd bet that the result of this will be a change in the accounting at the federal government to make it look like there is less debt without doing anything of substance to our trillion dollar deficit. And then the real economy has a way of sorting out endless growth in medical expenses for example. 20% a year growth never continues indefinitely in any industry because it is mathematically impossible. Other unrealistic assumptions used in CBO projections that cause these government models of future outlays to become boogey monsters usually turn out to be shadows on the wall.
We are now being told that the most important thing is to not remove the fiscal and monetary support too soon. Christine Romer, a top advisor to the President, argues that we
made a great mistake by withdrawing stimulus in 1937.
Just to review, in 1934 GDP grew 17.0%, in 1935 it grew another 11.1%, and in 1936 it grew another 14.3%. Over the period unemployment fell by 30%. That is three years of progress. Apparently, even this would not have been enough to achieve what Larry Summers has called “exit velocity.”
Imagine, in our modern market, where we now get economic data on practically a daily basis, living through three years of favorable economic reports and deciding that it
would be “premature” to withdraw the stimulus.
An alternative lesson from the double dip the economy took in 1938 is that the GDP created by massive fiscal stimulus is artificial. So whenever it is eventually removed, there
will be significant economic fall out. Our choice may be either to maintain large annual deficits until our creditors refuse to finance them or tolerate another leg down in our economy by accepting some measure of fiscal discipline.
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