The Balance Budget Amendment is stupid
I’m just listening to Sen John Hoeven (R-ND) about the Balance Budget Amendment. He’s talking about the need to get Washington to have fiscal discipline. 49 States, he says, have Balanced Budget Amendments. His own state of North Dakota does, and when he was governor, he had to tell people “we don’t have the money for that this year…” But, he says, if we take it to the people, we can find out what people want. And of course if so many states have it, it must be what the people want.
Now this all sounds nice except if you think about it.
States differentiate, in their budgets, between expenditures and capital investments, much like a business does. There are the normal operating costs that go along with where you’ve committed you’re money, and if you are a business, capital investments, where normally you borrow money to build your business. States quite sensibly make this distinction. That why they can have a balanced budget for their operating costs, and deficits for investments.
It’s important to remember that for business, deficits are important very often. Even in personal finance, it’s better to have some money saved or invested than to get rid of all your debt at one moment. Over the long run, those investments will be more helpful.
But the Federal government doesn’t distinguish between capital investments and operating costs. They’re all the same. So to say that the Federal government needs to have a balanced budget either means that we will have extraordinarily high taxes so that it can invest in the things that it does invest in – health, military, social security, education, etc – or it means that we will invest in hardly anything.
And both of those options means we would just be plain stupid.
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