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    Balanced Budgets, Fiscal Responsibility, and The Constitution: (Cato Public Policy Research Monograph No. 1)
    Balanced Budgets, Fiscal Responsibility, and The Constitution: (Cato Public Policy Research Monograph No. 1)
    Balanced Budgets, Fiscal Responsibility, and The Constitution: (Cato Public Policy Research Monograph No. 1)
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    Balanced Budgets, Fiscal Responsibility, and The Constitution: (Cato Public Policy Research Monograph No. 1)

    By Richard Wagner and Robert D. Tollison

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    In this monograph, Professors Wagner and Tollison examine the important question of whether the United States should adopt a constitutional amendment requiring the government to balance its budget. Arguing that the government should be explicit and responsible about how much it spends and how it spends it, they determine that the balanced budget idea is fiscally sound and democratically necessary.

    LanguageEnglish
    PublisherCato Institute
    Release dateJan 1, 1980
    ISBN9781935308614
    Balanced Budgets, Fiscal Responsibility, and The Constitution: (Cato Public Policy Research Monograph No. 1)
    Author

    Richard Wagner

    Richard Wagner is the former editor of Ad Astra, the journal of the National Space Society. He lives in Northhampton, Massachusetts.

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      Book preview

      Balanced Budgets, Fiscal Responsibility, and The Constitution - Richard Wagner

      PREFACE

      Thirty states have now called for a constitutional convention to consider an amendment that would require the federal government to balance its budget. This is only four states short of the number required by Article V of the U.S. Constitution to convene a convention. Besides this approval by 60 percent of the states, various polls have shown that between 70 and 80 percent of all Americans favor such an amendment. Only in the federal legislature—where the deficit spending originates—has the idea of a balanced budget amendment been received coolly. It is possible that Congress will not always be so reluctant. Between 1901 and 1911 thirty states called for a constitutional convention to consider the direct election of senators. Only one more state was needed at that time to convene a convention. Fearful of appearing not to be leading the nation, Congress responded in 1912 by proposing the seventeenth amendment, which was adopted in 1913. Congress may similarly overcome its reluctance to embrace the balanced budget. Whatever Congress does, however, we will surely be hearing a lot about balanced budgets in the coming months.

      The balanced budget amendment raises an issue of economic principle. Some people suggest that a balanced budget amendment would be the height of fiscal folly, for it would hamstring the government's ability to use budgetary policy to promote prosperity. Others argue that a balanced budget is one necessary element in a program of fiscal responsibility, to which we must adhere if the budgetary affairs of the state are to be consistent with the promotion of our common prosperity. Besides examining this issue of economic principle, it is also important to explore some points of practice. Even though one might recognize that a balanced budget is desirable in principle, one might be concerned about how this principle would be put into practice. After assessing the balanced budget amendment in terms of economic and fiscal principle, this monograph considers various issues of practice that would inform an actual balanced budget amendment.

      I. FROM FISCAL RESPONSIBILITY

      TO CHRONIC DEFICITS

      Surpluses, Deficits, and Our Changing Budgetary History

      During the century and a half before the Great Depression, budget deficits were essentially limited to times of war and recession. Budget surpluses were typical in other periods, and they were used to reduce the national debt that had accumulated during the times of war and recession.¹ Between 1795 and 1811, our national debt was reduced by nearly half, from $83.8 million to $45.2 million. Moreover, budget surpluses tended to be quite large, for they averaged about $2.5 million annually in a budget in which total expenditures averaged only about $8 million.

      The War of 1812 brought deficits once again. Between 1815 and 1836, eighteen surpluses in twenty-one years had reduced the national debt from $127 million to $337,000. We experienced a major depression during 1837-43 and then, four years later, the Mexican-American War. The 1850s saw eight years of surplus, but then came the Civil War. By the end of 1865, our national debt was $2.7 billion. By the end of 1893, twenty-eight consecutive years of budget surplus had reduced the national debt to $961 million. During this period, about 25 percent of all public expenditure was devoted to debt amortization.

      After the Spanish-American War, the national debt was reduced—though slowly in comparison with our earlier experience—from $1.4 billion to $1.2 billion by 1917, when we got involved in World War I. The $25.5 billion of national debt in 1918 was reduced by eleven consecutive years of surplus to $16.2 billion by 1930. Then came sixteen years of deficit with the Great Depression and World War II, leaving a national debt of $169.4 billion in 1946.

      While the Great Depression and World War II brought us a decade and a half of deficits, this pattern did not depart from our previous experience during recessions and wars. Between 1947 and 1960, there were seven years of surplus and seven years of deficit. With $32 billion of deficits and $31 billion of surpluses, the budget can be said to have been roughly balanced over this period. This period differed from similar periods earlier in our history in that no conscious effort was made to reduce the previously accumulated national debt, though it might also be noted that we fought a war in Korea during this time. Looking back, we can see the Truman and Eisenhower years as an interregnum that separated the former period of general opposition to budget deficits from the post-1960 period epitomized by budget deficits under all circumstances.

      Since 1960, budget deficits have become a way of life. During this period we have had only one year of budget surplus, 1969, and this was only $3 billion. The remaining budgets during this two-decade period were all in deficit, and the total deficit accumulated during these two decades exceeds $400 billion. It appears that a watershed in our fiscal history was reached around 1960.

      Constitutional Erosion and Chronic Budget Deficits

      This shift from balanced budgets to

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