Skip to comments.Unsustainable model: Economist says 'balanced budget' adage doesn't work
Posted on 01/22/2017 7:13:32 PM PST by Tolerance Sucks Rocks
BILLINGS -- As bipartisan crowd-pleasers go, few get Montanans nodding more approvingly than calls for a balanced federal budget, which is why U.S. Sen. Steve Daines recently offered a bill forcing his peers to go unpaid unless they reign in spending.
As I travel around Montana, as I did in December wrapping up a 56-county tour, when I talk about this bill, its a bill that will literally bring applause from across the state, Daines told The Gazette.
The state of Montana balances its budget. The federal government should do the same, or so goes the narrative that literally every member of Montanas delegation has adopted for 35 years.
Elected officials need to be accountable to the folks they serve and that starts with getting our fiscal house in order. Montana families balance their budgets, its unreasonable that Congress cant do the same, Daines said in making a balanced budget bill his first of the year for the consecutive year.
One year ago it was Montanas senior Sen. Jon Tester, a Democrat, proposing the U.S. Constitution be amended to require a balanced budget. Daines' bill, the Balanced Budget Accountability Act, doesnt go as far as changing the Constitution.
Families across Montana balance their budget every day, and they deserve a government that does the same, Tester said in an email. Whether its balancing the checkbook at the kitchen table or in Congress, fiscal responsibility is a Montana value. We cannot keep voting for budget resolutions like last weeks that add $9 trillion to the debt and swipe the credit card of our kids and grandkids.
The resolution to which Tester refers doesnt actually bind the Senate to increasing the debt $9 trillion over the next 10 years. That bill was about clearing the way for the repeal of the Affordable Care Act and recognizing that if the Senate doesnt act in the future, the debt will in fact increase $9 trillion in 2026.
That just like families do it that politicians use when calling for balanced budgets is dishonest, dangerous pablum, said Richard Kogan, economist for the Center on Budget and Policy Priorities.
Families balance checkbooks, but they spend much more than they earn in year. Average household debt in the United States in 2016 was $90,000, according to the Federal Reserve. Included in that debt were home mortgages, student loans, auto loans and credit cards.
If a family has an emergency, out comes the credit card, or the second mortgage. Life would be a lot different for American families if they truly didnt spend more than they made in a single year.
Balancing the checkbook doesnt mean you balance the budget that way, Kogan said. If thats what it meant, no family would ever take out a mortgage or a car loan, or a student loan. They would never have any credit card debt and of course thats nonsense.
There was a time when Congress did balance the federal budget, never spending more than it took in except to fund wars, Kogen said. Those times were particularly rough economically, because when the United States went into recession, which was about every two years, the federal government didnt respond with things like unemployment, or food stamps. There was also no Social Security.
Consequently, when the U.S. economy emerged from recession it wasnt strong enough to really get growing again before the next financial crisis.
After balancing the budget through the first two years of the Great Depression and witnessing no improvement in the economy, Congress and President Franklin Roosevelt starting spending more money to counter the Depression than the government was taking in.
Part of the reasoning for going with an unbalanced budget was that the U.S. economy was expected to grow, which it has with few exceptions for more than 60 years. Some of that growth is made possible because federal spending has made coming out of tough financial times easier, Kogan said. The amount of time between recessions when from two years, to five to eight.
Thats not to dismiss the concerns the American public has about federal debt and the likelihood, as Tester puts it, of passing that debt to the nations children and grandchildren.
Sure enough, we have debt and the debt people worry about going to their children and grandchildren, thats a genuine instinct. Thats a thoughtful concern, Kogan said. Theyre not nuts, and families and countries have gone bankrupt.
But the United States isnt going bankrupt even as its debt rises. Thats because the assets of the United States are also increasing. The U.S. is worth more than it owes.
Or so this author and economist seem to say.
IMO, $20 trillion says we're in deep doo-doo.
Most US Gov’t spending comes nowhere close to looking like an Investment that will have a positive return.
That's comforting. We're not bankrupt because we can always hold a liquidation sale.
A 20% import tariff balances the budget tomorrow.
The writer graduated from the Krugman school of third grade math.
We have managed to stay ahead of the costs of debt for two reasons.
1. There has been unprecedented increases in productivity for the last century.
2. The United States has been shown to be the most stable and safe country in the world. (You might argue about Europe, but Europe’s stability has been far less than the U.S. (WWII) and post WWII the stability has been made possible by the U.S. Military.
We cannot be certain that those two factors will continue for the next 20 years.
Not so fast!
FairTax is the answer to our economic woes!
Keynes was wrong.....except for his observation that in the long run we are all dead
This article is based on a false premise, a family can have a mortgage and *still* have a balanced budget, as long as they are making their mortgage payments (which is interest and part of the principle). So having a balanced budget amendment doesn’t prevent the US from borrowing in emergency situations. It just requires the government to make plans for paying back the loan when it does borrow.
reign in spending
A fair tax is good but it does nothing to promote domestic industry like a tariff would. Both the NRST and a tariff could replace the income tax.
FairTax is the answer to our economic woes!
I hope that’s the conclusion reached when hammering out his tax plan...
Our government has been reigning in spending for decades. The term the author means is rein in spending as in pulling the "brakes" on a horse.
Even the Keynesians don't argue for perpetual deficits. They want to run deficits during recessions and surpluses during the good times. We are far, far past that.
The FairTax (NRST) is a “border adjustable tax” in that imported goods WILL be taxed at the same rate as domestic goods.
In effect, the FairTax IS a tariff, much the same as a VAT is a tariff.
Our trading partners will impose their VAT on our goods and we’ll impose the FairTax on their goods, and there will be a level playing field in respect of imports and exports.
Under the FairTax our exported goods will be much more competitive in foreign markets because the FairTax ELIMINATES the “Tax Cost of Government” (as much as 25% of the retail cost of a US manufactured good) on ALL manufactured items; US goods will be exported TAX FREE!
Our foreign trading partners REBATE the VAT on exported goods which means they are essentially untaxed when they arrive in the USA.
FairTax fixes that problem!
Our trading partners impose their VAT on our imports, and we impose the FairTax on their stuff. EVEN STEVEN!
Besides there are are 14,000 tariffs on the books now. It is just that the duty schedule is such they bring in <1%. All President Trump needs to do is raise the duties on existing tariffs which he could do without congress.
My old hometown newspaper. As far left as the NYT.
Wrong. Once the gummint starts handing out monthly prebate checks, that will be the beginning of a swift end to freedom.
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