Why A Permanent Balanced Budget Is Policy Nonsense
July 27, 2011 2 Comments
A balanced-budget, instead of being countercyclical (spending is increased in a recession to expand the economy), is pro-cyclical (spending is cut in a recession and increased in a growing economy). Countercyclical policies counters inflation, unemployment and slow growth, while pro-cyclical makes deflation and inflation worse, increases unemployment in a recession, reduces growth in a recession and pushes growth when it is not needed.
A balanced budget amendment takes economic policy out of the hands of government—not a good result by making business cycles worse. Policies become exactly backward to what they should be. Nevertheless, you can reduce government debt through spending and revenue changes, but not just spending without gutting publically-favored social safety net programs.