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03/17/2016

Comments

James Brady

In the article from the “Economic Policy Institute” numerous world leading economists and Nobel prize winning economists from top universities like Princeton and MIT stated their concerns about the balanced budget amendment proposed by the US Government. A balanced budget amendment seems like a practical idea in order to cut deficit spending and stabilize the economy, but according to the article this is not true. Amongst the public the word deficit spending has a very negative connotation. Many Americans think that the United States government is trillions of dollars in debt and the only way to combat this debt is to cut spending and investment. However, as we learned in class spending and investment are the key factors that determine long run growth and that cause the economy to rise from economic lows. An increase of government spending and investment causes the aggregate demand curve to shift out. This outward shift of the demand curve causes unemployment to drop and GDP to rise which is good for the economy as a whole not bad.

The economy of a country is not the same as a private business. If private businesses are experiencing financial problems, they can cut expenses in order to increase their net income. However, a similar behavior used in an attempt to increase the welfare of global economies could actually do more bad than good because of the paradox of thrift. If everyone cuts back on their spending the economy actually shrinks. One person’s spending is another’s income and if people stop spending, then the other people who depend on their spending get laid off. An overall spending cap which would follow with the passing of this amendment would have a dual negative effect on both continued expansion and correcting recessions. The spending cap would limit congresses’ ability to decrease taxes and increase spending in order to raise the aggregate demand curve and correct the economy from a recession. On the flipside during times of expansion, increases in spending and investment which lead to higher GDP and lower unemployment would be deemed as breaking the ground rules of the amendment, leading to less spending and therefore less expansion. Global economies are a very hard topic to deal with but the writers of this article are the world’s leaders in their field, so the US government would be wise to listen to their words of wisdom.

Danielle Spickard

Many Americans associate a balanced budget or a surplus budget with being good, while they associate a budget deficit with being bad. There have been several amendments proposed to Congress that require a balanced budget. While this may seem like a solid plan, a group of leading economists explained in a letter to President Obama and Congress as to why such an amendment would be a “very unsound policy.” When we face a recession, consumer and investment spending both decrease, affecting the real GDP. In order to accelerate the economy, a solution is to increase government spending. However, doing so requires the government to spend more than the revenue it receives, thus causing a budget deficit. Already in place are “built-in stabilizers,” so that when the economy faces a recession, tax revenues fall and unemployment benefits rise. If the government was required to keep a balanced budget, the recession would be aggravated and not be able to be fixed by government spending. Furthermore, a balanced budget would prevent the government borrowing to invest in infrastructure, education, environmental protection, and so on. The letter argues that no other nation relies on a balanced budget mandate, and it is unnecessary to restrain the economy in this way. The budget has been balanced before under our current Constitution, and these leading economists have faith that with proper budget plans, we can again record surpluses and reduce the debt just as we did back in the 1990’s.

Jane Chiavelli

In this article, many economists urge U.S. policy makers, including President Obama and leaders in Congress, that a balanced budget amendment will do more harm than good. Their argument is that a balanced budget every year would deepen the affects of recessions.

In class, we talked about how deficits are not necessarily a bad thing. Deficits tend to occur when the economy experiences a recession where aggregate output is below potential output (a recessionary gap). In order to shift the aggregate demand curve so that the economy can return to potential output, one must increase aggregate demand. Expansionary fiscal policy, including an increase in government spending and/or a reduction in taxes, increases the aggregate demand curve and returns the economy to potential output. Expansionary fiscal policy reduces the budget balance. Therefore, it makes surpluses smaller and deficits larger. This is the exact circumstance why a deficit might be necessary to return to the economy to potential output.

If the U.S. government were unable to run deficits due to the balanced budget amendment, then the U.S. economy could not control the aggregate demand curve through expansionary fiscal policy. It would only increase the recessionary gap, causing higher unemployment and decreased consumer spending. Therefore, the balanced budget amendment has the potential to put the U.S. economy in a worse position than it intends.

Jack Boyce

The concept of a balanced budget for federal government is one that seems to draw support from the American public, yet many do not understand the true ramifications of a balanced budget amendment. Leading economists warned against this amendment as an amendment of this form would cause major issue within the economy. Due to the nature of balancing the national budget and how costly it would be to do so, the economy would be constantly on the verge of or in a recession. According to the article, a balanced budget amendment would cause an increase in the national debt and lead to decreases in tax revenue and cause a rise in unemployment. These issues alone would limit the national government’s ability to function and lead the country out of troubled times. It would lead to funding problems, especially in regards to education and infrastructure, two major keys to the backbone of the US economy. These economists point the 90s as an example of the government’s fiscal policies leading to a national surplus, and how it was achieved without a balanced budget amendment. Additionally, a nation’s economy cannot be run as if it is a corporation or private firm. Privates firms are at liberty to do as they chose in order to cut spending or increase their budget. A nation cannot be run the same way. The nation’s economy is critical to the livelihoods of all citizens in that country, whether they understand that or not. If a country starts running its economy like a company, many people would feel hardship, especially in a country like the US. If a balanced budget were to be implement in today’s society, the economy would most likely be doomed to fail.

Katherine Dau

In “Balanced Budget Amendment ‘Very Unsound Policy’, Leading Economists Warn,” the author summarizes a recent letter protesting the aforementioned legislation. This legislation would create a constitutional amendment blocking the government ability to run a deficit. This would, in theory, save the United States from spiraling too far into debt. However, prominent economists among others warn of the acute dangers of such an amendment. In times of crisis, the Aggregate Demand curve for the national economy falls to the left, thus reducing both output and price level. At this point, tax income also decreases as the number of people qualified for taxes decreases. The best way to quickly recover from a recession is for the government to attempt to shift the aggregate demand curve back outward through government expenditure. However, in a time of crisis, with a falling tax base, the government would not be able to attempt to kick start a recovery. Not only that, it would most likely need to cut back on funding of things like education and infrastructure. This would slow recovery even further than doing nothing. Furthermore, macroeconomics is not a precise field. Each circumstance is slightly different and thus there can be no blanket solutions. The balanced budget amendment would not allow for the flexibility that is necessary in dealing with the world’s largest economy.

Ryan McDonnell

I think it is interesting that the four Nobel laureate economists felt compelled to write a statement to President Obama and Congress. It goes to show how important the issue is to them. I would agree that a balanced budget amendment would be bad because when we do need to borrow to make "vital investments," such as the article says, we would not be able to do so. Other people think that such amendment is necessary because of worries about the growing national debt. I would like to know what effect national debt has on the US and world economies, as well as international relations.

Mary Hampton McNeal

The phrase “balanced budget” has been tossed around a lot lately. As this article explained, a balanced budget amendment would require the government to spend only what it receives in taxes. If you buy into the idea that incurring a deficit is always bad, then this amendment would make sense. However, we have discussed in class how expansionary fiscal policy can help shift aggregate demand outwards in periods of economic contraction, which would not be possible with this amendment. A balanced budget amendment would not allow the government to practice expansionary fiscal policy, because doing so temporarily increases the deficit. This would make periods of economic recession longer and more brutal. As we have discussed in class several times this semester, the government is not a business or a household. The government is more like the biggest insurance company in the world, and as such it does not need to be constrained by an arbitrary spending cap.

plus.google.com/112908212571325157694

I agree that the balanced budget amendment should not be passed. As stated in the article, if the economy were in a recession and the government was in a deficit, it would not be allowed to spend, invest, or lower taxes in order to get the economy out of its recession. If there were a balance budget amendment, then during times of a recession, the government would not be allowed to apply fiscal policy to help get out of the recession. Monetary policy could be incorporated but if that failed, then there would be nothing to prevent the contraction of the economy and thus the balanced budget mandate would actually aggravate the recession, not fix it. There is a negative connotation associated with the word “deficit” in this country and a lot of the times a deficit is not necessarily a bad thing. Rather, it may be the result of the government’s attempts to expand the economy and to fight against an occurring recession.
Jack Miller

Julia Wilson

I think the most interesting part of this letter is that is argues that a balanced budget amendment could lead to negative outcomes in both the short run and long run. (Perhaps if there were short term negative effects that would lead to growth and positive long term effects, this would be understandable. However, this doesn't seem to be the case here.) In the short run, when there is a recession, the government runs a deficit in order to help the economy. However, if the government was unable to implement this fiscal policy due to an amendment, this could make a bad economy even worse: “To keep the budget balanced every year would aggravate recessions.” Additionally, in the short run, a balanced budget could lean in a decrease in investment spending, a key to economic long term growth, as it “would prevent federal borrowing to finance infrastructure, education, research and development, environmental protection, and other vital investments.” This would be very detrimental to our economy’s growth potentially. Also, since the government would no longer be borrowing as much for these investments, what other effects would this have? It seems that a cut in the US’s borrowing would have ripple effects. I image it would hurt other countries’ economies and would also increase domestic unemployment. The main question this article raised for me is: In what other ways would this balanced budget amendment affect the economy? Are there other less obvious negative effects?

Tony Du

It comes as no surprise that so many leading economists warn against implementing the Balanced Budget Amendment. Such an amendment is myopic- a constitutional amendment to balance the budget is neither necessary nor a good idea. The letter from the Economic Policy Institute and the Center on Budget and Policy Priorities notes how Congress was able to not only balance the budget but record a surplus through budget plans in the 90s. Perhaps more importantly, mandating a balanced budget amendment contradicts general macroeconomic principles. An economic recession is the worst time to cut government spending, as deficit spending stabilizes and pushes the economy towards recovery; limiting government spending does little but worsen the situation.

Caleigh Wells

The idea of a balanced budget, as we discussed on Thursday, has always seemed to me to be something for which to strive. This is likely because personal finance and local governments are held to a higher standard that seeks to maintain a balanced budget, and because politicians vying for nominations often promise to have plans to decrease the US debt, thereby aiming for a more balanced budget. Not until class on Thursday and reading this article did I understand the potential consequences for requiring a balanced federal budget.

By not allowing the government the freedom to fill recessionary and inflationary gaps in the short-run, long-run recovery becomes significantly more difficult. The concept of balancing a budget is important and, theoretically, worth striving for when the economy is in conditions that do not require saving. However, mandating that behavior indefinitely, even when players in the economy require short-term assistance, seems to lack a forward-thinking outlook to when that might occur, as well as any sight of history where the government has behaved in a way that it could not if that restriction were implemented, and it turned out successful. The article is well-written and explains this point extremely well. I would be curious to know what a rebuttal to his hypothesis would look like, since to me he seems to make perfect sense, but I admit that I only know his side of the story.

John Broderick

Before taking economics classes, I would have said that having a balanced budget sounds like a good thing to help the economy. Which is why I believe that if someone were to preach a balanced budget in their campaign for president then they would get support from those who aren't educated in the area. After last week's classes it became evident that if we were to cap government expenditure it would put the economy at great risk.

When we looked at the model for aggregate supply and aggregate demand, we took into consideration a recessionary gap. If there were to be a recessionary gap without any fiscal spending then the short term economy would be under a lot more stress. When the economy spends more during these times it pushes the aggregate demand up to possibly keep the economy stable during the beginning stages. We saw a lot of fiscal spending during the most recent recession, which helped give many jobs to people who would otherwise be unemployed. The investment on education also helps the economy in the long run by producing more and more capable workers.

Even if the economy wasn't in a recession what would happen when there was a natural disaster with millions in damage. The people don't pay out of pocket to fix the public damage but they rather depend on the taxes that they pay. Without this spending many public services wouldn't be done that would help areas affected by the disaster. I believe the most important spending is in education. A great deal of government spending goes towards education so if there were to be an amendment that mandated the government spending there would definitely be some cuts to education. One should also consider where the government spends a lot of its money. Health care, pension, and defenses are some of the nations biggest expenses. If we were to restrict spending to having a fixed budget these key areas of spending would suffer greatly.

I agree with the economists that say if we were to cap the government spending we would face many difficulties.

Ian Gipson

In the current political climate, the federal budget certainly receives a great deal of attention, and this article does a fantastic job of addressing what is certainly a rash idea. As with anything, taking things to an extreme is rarely advantageous. Of course, a balanced federal budget can be a great thing in many situations and can demonstrate responsible allocation and efficient agencies and programs. However, requiring a balanced budget can be negative in as many ways as it can be positive. As the authors of the letter to the president and congress lay out, in the event of economic downturn, as well as other situations like war efforts, a balanced budget can hinder the ability to respond. It severely limits the extent to which expansionary fiscal policy can be employed, and can slow recovery or even potentially exaggerate the downturn. Compounding on top of the issues that come during a contracting economy, there would also be a slowing of federal investment spending. As the authors point out, even in times of stability it would be far more difficult to achieve the funding necessary to improve the education system, maintain infrastructure, or encourage research and development of future technologies. Though a balanced budget is by no means a negative thing. Striving for a balanced budget certainly can yield improvements like optimizing branches and programs that run inefficiently or better focussing funds towards research projects that are producing results. In the end, the article does a great job of not arguing against achieving a balanced budget, but rather arguing against mandating one as there are times when deficit spending can be necessary.

Elliotemadian

'Balanced Budget Amendment “Very Unsound Policy,” Leading Economists Warn' from the CBPP summarizes its purpose in its title. In contemporary times, politicians are frequently quoted stating something in the realm of "If a family has to leave within their means, why shouldn't our government?" These anthems are met with cheers from disenchanted Americans who are tired of the increasing national debt and their perception that our government is wasteful and ineffective. While these disenchanted Americans aren't necessarily incorrect in their thinking, this article reminds readers why we have an electoral college system rather than an election by popular vote.
These leading economists explain every facet of the impossibility that is a balanced budget act. They explain how reducing the borrowing ability of the government would aggravate recessional years as the federal government would "require states, localities, and private businesses to do what it cannot finance itself." These smaller jurisdictions would already be hurting from the recession, and wouldn't be able to receive government intervention in the form of infrastructure or other investments. These economists also make a good point that these amendments frequently require "super-majorities" which would be practically impossible to attain and which would render many battles as to just what is "balanced" to court systems, moving the economic policy making power to the judicial branch.
The concept of the balanced budget may seem, at first, a highly logical necessity to combat the ever-expanding national debt. However, that seems to be a fairly microeconomic perspective. When considering deficit spending and borrowing that is conducted by the Federal government one must consider that this spending is most likely being conducted in conjunction with lowered taxes in order to alleviate the strain of a recession on the rest of the country. As the article last week mentioned, a laissez-faire attitude does not seem to be working in regards to pulling our nation out of the 2008 recession, and that author made an excellent argument for the necessity of increased deficit spending on infrastructure and education. This repeated opinion from leading economists cannot be taken with a grain of salt. While, depending on who you might ask, the government may very well be making poor decisions with its deficit spending, the resounding opinion is that this type of spending is necessary to prevent major depressions and perpetuated recessions.

Jim Grant

It seems very clear that a Balanced Budget amendment would be very risky and would prove to be very unsuccessful. The amendment is a great example of people trying to solve a problem that doesn’t exist. As we discussed in class, through deficit spending to countries like China, the United States is able to keep stability and lets the economy grow. The amendment comes from the fear of debt, when the debt is not as pressing of an issue as people perceive it to be. The article states that the inability to spend on deficit could cause a recession and in the event of one would make it worse. If we experienced a recession and were unable to borrow money, our entire economy would collapse turning recession to full depression. It would be in the world’s best interest if one of the biggest players didn’t hit rock bottom, so as a result China accepts our debt with open arms because it gives them business and allows them to grow as well.
A balanced budget amendment is not only naïve, but ill-advised and uninformed. Such an amendment would harm the economy in the attempts to protect it and it doesn’t surprise me that a whole host of economists sprang foreword to warn of the problems this amendment would cause.


Caroline Birdrow

While this article reports on a valid (and correct based off of what we have discussed in class) argument, the author does fail to fully address counterarguments. Some individuals, especially certain politicians, would fervently oppose an argument against balance budgets, no matter how logical and accurate it is. They are steeped in their own political and ideological views, unable to disentangle the opinions of others from pure logic. The article does quote the letter to President Obama and Congress as having explained that other large and influential nations do not balance their budgets. What they are seeming to ask is, “Why should we?” This, however, was not a sufficient response to critics. I was convinced by Professor Casey’s lecture that balanced budgets are not the solution to a recession. However, if others are to be convinced, articles like this need to adequately address their counterarguments and engage in thoughtful discussion towards establishing agreement. Otherwise, this sort of logic always will be met with opposition, and true economic theory never will be put into practice.

Yo Han(John) Ahn

The concept of reaching a balanced budget has always seemed to be the absolute objective for the federal government. The rhetoric of, "We just need to someone who can balance the budget," has commonly been used in the discussion of political affairs pertaining to the national budget. However, leading economists are opposed to an amendment that would mandate the government to balance the budget for a whole host of reasons–to which I fully agree with. In "Balanced Budget Amendment “Very Unsound Policy,” Leading Economists Warn," a group of leading economists critique such an amendment for its unreasonable and anticipated adverse effects. In particular, during recessions unemployment benefits rise for the welfare of people affected by the period. This would increase the deficit but for profoundly good reason. The amendment would also prevent the government from borrowing for the purpose of investing in education, research and development, infrastructure, environmental protection, and other extremely critical causes. Not to mention the restraints the amendment would impose if the government would ever be in a position to enact expansionary fiscal policy. The economists conclude by explaining that a balanced budget is not a necessary for the U.S. but that the economy will perform accordingly to the needs and abilities of our nation.

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