Title: The Balanced Budget Amendment and Economic Thought.
Abstract: The last decade has seen a continuing effort to amend the Constitution to limit spending by the federal government, require an annually balanced federal budget, or both. The proposed amendment would have a big impact on the economy, and many economists have spoken out on the subject, mostly in opposition, but some in support. Two related concerns lie behind the movement. First, many people believe that federal spending is excessive. It grew from 3% of total output in 1929 to 13% in 1947 (its low point between the high defense spending of the war years and the domestic spending of the post-war years). The post-war peak was 24.9% in 1982. In 1984, it stood at 24% of output. Opposition to large government stems from (nineteenth century) liberal political philosophy. The economists who support the amendment generally share that philosophy. But part of their justification is more narrowly economic, based on concerns about economic efficiency. High taxes sap incentives, distort economic choices, and waste resources on tax reduction schemes. On the spending side of the budget, the size of the income flows controlled by government encourages us all to compete for our share, wasting resources in the process. The second concern underlying the amendment is deficit spending. The federal government ran surpluses in seven of the fourteen years after World War II, from 1947 to 1960, but it has done so only once since then, in 1969. Meanwhile, the size of deficits has grown, from an average of 1% of output in the 1960's to 5% today. Opposition to deficits arises mainly from their link to high spending. Deficit finance allows the society to spend while avoiding the hard political issue of who will pay. Some economists are also opposed to the use of deficit spending to help cure unem-
Publication Year: 1985
Publication Date: 1985-01-01
Language: en
Type: article
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Cited By Count: 1
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