This is why recessions have been so much shorter since the end of the war. Since then, it has been almost half that at eleven. Hence, budgets move toward balance in expansions because tax revenues rise and government spending falls while they move toward deficit in contractions because taxes fall and spending rises: Consider this, too. "Congress has never sent [a balanced budget amendment] on to the states for ratification [and] Congress should not do so now, despite the relatively high … More generally, it is a budget that has no budget deficit, but could possibly have a budget surplus. The idea of an unbalanced-budget amendment is not new. Balanced-budget provisions have been added to the constitutions of most U.S. states, Germany, Hong Kong, Italy, Poland, Slovenia, Spain and Switzerland, among others. Why the federal budget can't be managed like a household budget. The economic expansion of the 1990s caused the budget surplus and not the other way around: I have seen a number of people confuse the line of causation between the economic expansion of the 1990s and the budget surplus. One idea that has been discussed not only in Congress, but on prime time news networks is the passage of a Balanced Budget Amendment. Say further that the private sector is done picking its team but the government wants one more player. I've argued on many occasions that one of the big lessons we need to learn from this recession is that state-level balanced budget requirements are highly destabilizing. Even more ancient sources are supportive of an unBBA. Balanced budget amendment: Here's why it's a bad idea Philip Joyce The U.S. government teeters on the brink of an unprecedented, self-inflicted debt default , … Advantages of a balanced budget amendment Over the past several decades, the federal government has tended to run a budget deficit. My areas of specialty are international economics (particularly exchange rates), macroeconomics, history of economics and contemporary schools of thought. In this sense, the government is not dependent on credit markets to remain operational.” Federal Reserve Bank of St. Louis, “A sovereign government can always make payments as they come due by crediting bank accounts — something recognized by Chairman Ben Bernanke when he said the Fed spends by marking up the size of the reserve accounts of banks.” L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City and a Senior Scholar at the Levy Economics Institute. Follow. Balanced Budget Amendments Are a Bad Idea. “Congress has never sent [a balanced budget amendment] on to the states for ratification [and] Congress should not do so now, despite the relatively high levels of current government debt and the budget challenges that the nation faces in the future,” testified Senior Fellow Henry Aaron to the House Judiciary Committee recently. In summary, deficits can have a negative impact on the private sector, but only if the economy is doing extremely well–in which case, there really isn’t any reason (short of war) to have the deficit. They don’t realize this, of course, but that doesn’t make it any better. Let's get real here. There are so many reasons why this is a bad idea, but I’ll limit myself to five. Why balanced-budget law is bad idea. Download the full testimony here. In addition, spending can fall below 18 percent of GDP, as it did during the last three years of the Clinton administration, partially thanks to the robust economy at that time. 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