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Economists Disagree Over Balanced Budget Amendment

Wednesday, November 27, 2013 at 9:26 AM

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State leaders left the Statehouse this week to travel west to Lima to sign a resolution calling for a federal balanced budget amendment. Ohio Public Radio’s Karen Kasler reports that’s a hotly debated topic in economic circles.

The resolution passed in Ohio calls for Congress to come up with an amendment requiring a balanced federal budget, or to allow the states to convene a Constitutional convention.

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,” Vedder said. “And (while) the debt reduction proposals and a 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. 

Jim Thomson, the chair of the finance department at the University of Akron, says a balanced budget amendment doesn’t allow for the flexibility a government should have in spending.

“I think the big problem with most balanced budget amendments...is that they tie the hands of the federal government a little too tightly,” Thomson said.

Wendy Patton is an economist with the liberal think tank Policy Matters Ohio. She says during a recession the federal government can spend when consumers and businesses can’t, and that keeps recessions from becoming depressions. She says a balanced budget amendment could result in 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 the things they have to spend money on,” Patton said. “Ohio would be cost support in water treatment plants, in equipment for police officers, in schools, in research and development.”

But one economist thinks the U.S. 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 do 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,” Nesbit said. “If we spend more money over here, that means we can’t do this other project here.

But most economists are still wary. 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,” Newton said. “It’s a matter of is the amount of debt you take on, is that difference between income and spending narrow enough that it’s comfortable?”

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

Tags

Economy, Government/Politics

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