News
7:22 am
Tue November 26, 2013

Effectiveness Of Proposed Balanced Budget Amendment Unclear

State officials gathered in Lima Monday as the Governor signed a resolution asking Congress to pass a balanced budget amendment or allow the states to call a constitutional convention.

Governor John Kasich says the resolution he sought tackles a bipartisan issue.

The resolution passed the General Assembly mostly along party lines. Economists are split over the effectiveness of an amendment. Ohio Public Radio's Karen Kasler reports.

Conservative economist Richard Vedder is a distinguished professor of economics at Ohio University in Athens, and makes the basic case for a balanced budget amendment.
“We are endangering future generations by massive deficit spending and the debt reduction proposals and the balanced budget amendment seem to be sort of a crude way of dealing with the issue, they are usually effective as state governments have shown time and time again with their own budgets.”

While the idea of a balanced budget amendment has been popular with conservative thinkers and politicians for many years, Vedder admits his is the minority view and isn’t widely embraced by economists.  A group of economists that included five Nobel Laureates signed on to a letter to President Obama and Congress in 2011, saying a balanced budget amendment was – quoting here – very unsound policy.  Jim Thomson is the chair of the Finance Department at the University of Akron.
“I think the big problem with most balanced budget amendments are that they tie the hands of the federal government a little too tightly. Deficits don’t just come about because of spending fluctuations. Deficits come about often because the economy slows down.”

Wendy Patton is an economist with the liberal think tank Policy Matters Ohio. She says federal deficits have been going down as the economy recovers, which she says is the way the system is set up to work. And she warns if that’s interrupted, there could be job losses and big cuts in programs that help communities.
“We would see the federal government prioritizing expenditures on the FBI, on veterans’ benefits, on things they have to spend money on. Ohio would be cost support in water treatment plants, in equipment for police officers, in schools, in research and development.”

Patton says the government spends during a recession while consumers and business don’t, and she says that keeps recessions from becoming depressions. But one economist thinks the US would be better off now if a balanced budget amendment had been in place during the last recession. Todd Nesbit is a senior lecturer at Ohio State University and is affiliated with the Mercatus Center, a free market think tank.
“Even in the short run, I think that we would have made better decisions overall on how our elected officials were actually spending a lot of the money, doing a better job of really, truly understanding what are the opportunity costs? If we spend more money over here, that means we can’t do this other project here. Which one is actually going to provide us the greatest benefit to our entire society on this?”

But Nesbit cautions that while he thinks a balanced budget amendment is good in principle, it needs to be thoroughly thought out. And that’s the problem for most economists – how to live with strict spending caps and plan for an uncertain future.  James Newton runs Economic Perspectives, an independent economic consulting firm in central Ohio. He takes the often heard argument – that a family has to balance its budget, so the government should to – and turns it around.
“There are lots of families that do not, in a single year, find themselves in a position where what they spend and what they bring in in income is exactly the same. It’s a matter of is the amount of debt that you take on, is that difference between income and spending narrow enough that it’s comfortable? It’s that way for a family – it can just as easily be that way for a nation.”

Ohio is the 20th state to pass a balanced budget amendment resolution. Backers need 34 states to pass it for it to move forward.