Page images

The third objection which I have seen to a balanced-budget requirement is that if it is instituted, the Congress will achieve balance not by reducing spending, but by raising taxes.

While it is correct that balance could be achieved by increasing the tax burden, the odds are overwhelming that the Congress, faced with that choice, would elect to hold spending in line.

I know of no formula surer to sweep every incumbent out of Washington than for the President to propose, and the Congress to pass, a tax hike to finance reckless spending by the government. To say that this is a serious possibility is to believe that we politicians-well known for our survival instincts—will like lemmings go over the cliff of fiscal irresponsibility into the sea of oblivion.

Let me deal with one other argument which has from time to time been advanced: namely, that if a balanced budget requirement is fixed in the Constitution, it will be evaded or simply ignored.

I find it difficult to imagine that our political leaders, recalling the fate of a President driven from office because of violations of the law, will defy a mandate of the United States Constitution.

I have more faith in the good sense and character of the men and women of this Congress than that. I am sure that once in place, the mandate of the law will be obeyed.

There is at least one indication of awareness in the Congress today of the need to achieve a balanced budget. I wish to remind the subcommittee that the Con. gress is on record as favoring a balanced budget by Fiscal Year 1981, which begins 19 months from now.

During Senate debate on the Bretton Woods Agreements Act Amendments of 1978 (Public Law_95-435), I introduced an amendment which read:

"Beginning with Fiscal Year 1981, the total budget outlays of the federal government shall not exceed its receipts.”

The Senate adopted this amendment by a vote of 58-28, more than a two-thirds majority. On September 14, the House, on motion by Representative Grassley of Iowa, voted 286-91, to accept the balanced-budget amendment. The President signed the legislation on October 10, 1978. Thus a balanced-budget requirement is the law of the land.

Moreover, the Director of the Office of Management and Budget, Mr. James T. McIntyre, Jr., stated in testimony before the Subcommittee on Taxation and Debt Management of the Senate Finance Committee, on February 6 of this year, that the Administration plans either to comply with this legislation, or seek its repeal or amendment.

So I think the record is clear on that point. At the same time, Mr. McIntyre's statement points up the possibly temporary nature of the Byrd amendment: as he said, it could be amended or repealed.

It is for this reason that I have introduced Senate Resolution 45 and appear in its support today. The principle of achieving and maintaining a balanced budget is too important to be left guarded only by legislation subject to repeal or amendment in the ordinary way.

Given the great temptation to indulge in deficit spending year after year, and the disastrous economic consequences of this practice, it is far better to place the requirement for a balanced budget in the Constitution, where it can be removed only by the same deliberate process by which it will be placed in our organic law. At the same time, my proposal provides adequate flexibility in the event of emergencies.

I am convinced that the Congress now stands at a historic crossroad.

Either we put in place a mechanism to achieve fiscal responsibility, or we acquiesce in the continuation of the chronic and demoralizing cycle of inflation and recession which threatens to undermine our whole economic system.

The choice is ours.

[From the Washington Post, Mar. 6, 1979]

(By James Dale Davidson 1) The first success of the movement for a balanced-budget amendment has been to open debate about the conduct of government finances to popular participation. Now that 29 legislatures, of a needed 34, have called for a limited constitutional

* The writer is chairman of the National Taxpayers Union.

convention for the sole purpose of outlawing incessant deficit spending, leaders in Congress and other supporters of the prevailing orthodoxy have no choice but to defend their position.

That will prove more difficult than they suspect. They have not been prepared by recent experience to argue the case that deficit spending is beneficial. Now that they must do so, they will find that the arguments of 50 years ago, upon which the Washington spending consensus depends, no longer carry the weight of conviction. The feeling in Washington has been that the public cannot be relied on to comprehend complex issues, so politicians are obliged to do what they know is best while deceiving or mollifying the public as to the fiscal consequences.

Such an attitude leads the politicians to deceive themselves as well as their constituents. By pretending to seek balanced budgets while chronically failing to do so, they have suppressed or ignored the true reasons for far-reaching policy decisions. Thus they have trivialized their own thinking.

This is evident from the responses which have been forthcoming now that the defenders of deficit spending have been moved at a frantic speed to prepare their case. They could have entered the argument long ago. They did not, perhaps in hope that by ignoring the movement for a balanced budget they could make it go away. Since this has not happened, and the call for a limited constitutional convention is nearing success, the public is finally hearing the best arguments for deficits, along with an incredible variety of alarms about every aspect of the spending-reform movement. At this stage, readers of The Washington Post are well aware of many arguments which allegedly make it useless, dangerous or impossible to balance the budget. Unfortunately, there is not room at this writing to fully answer all of the objections. An attentive citizen would note, however, that the opponents refute many of their own points by arguing at cross-purposes. They claim, for example, that the budget cannot be balanced because the Congress lacks the forward vision to project revenue and expenditure accurately. With the next breath, they claim that the same congressmen, who lack the foresight to do their sums, can predict when the economy will fall into a tailspin and need the fiscal tools to "fine tune” the economy. That is like saying that someone who is too blind to wield an axe should be trusted as a surgeon.

The eficiency of debt in stimulating the economy is already declining markedly through over-use, as a recent Solomon Brothers study confirms. Beyond that when the budget is in balance there is no necessity that control of the money supply be tied to fiscal policy. The Federal Reserve Board has the power to regulate the money supply without a growth of government debt.

You also have heard that a convention, once convened, would celebrate a sort of witches' Sabbath by “dismantling” the Constitution (according to Sen. KenDedy), repealing the Bill of Rights, and, as one writer in The Washington Post recently charged, unleashing "conflicts that would make the other political crises since the Civil War look puny."

We invite anyone who has been persuaded by these alarms to consider a more sober interpretation. Not aly is it highly unlikely that a convention could get out of hand, but there are also actually more checks upon an amendment emerging from a convention than is the case with a congressionally proposed amendment.

If the convention decided to turn America into the Land of Oz, any amendment it proposed would not only have to be ratified by 38 states. It would also be subject, as congressionally initiated amendments are not, to review in the courts for having strayed beyond the call. The sum of these considerations is such that a reasonable observer would have no more basis to object to a constitutional conveation than to the Congress itself. It is effectively sitting as a perpetual convention whose constitutional deliberations are neither limited nor subject to court review. And our view of the matter is hardly idiosyncratic. The deans of Harvard Law School and The University of Chicago Law School; the American Bar Association, former senator Sam Ervin and many other constitutional experts conclude that the convention route can be a safe, limited, method of proposing specific amendments.

The true significance of a convention call to balance the budget and its true danger from the point of view of Congress, is not that it would do something preposterous but that it is a repudiation of the current way of doing business. If our movement should succeed it would be, as The Wall Street Journal said, “a colossal vote of no-confidence in the United States Congress. The people would be saying that they have finally decided that Congress can't be trusted with money."

That is exactly the point. There really is a difference between the eareer interests of congressmen and the public interest. As everyone who is alert to politics knows, the first commitment of most politicians is to themselves. Beyond everything else, most congressmen wish to be re-elected. As a matter of pure logic, they improve their chances by resorting to deficit spending. It enables them to make the benefits of increased spending immediately evident to special constituencies while disguising the costs in the form of borrowing and inflation which are diffused over large numbers of the rest of society. Under such conditions, the incentives of the politicians clearly point toward ever-increasing spending with continued inflationary deficits.

Even the classic Keynesian formulation of deficits in lean years and surpluses in good years has proven impossible to follow in practice. The corollary to the deficits, the off-setting surpluses, can never be achieved because they involve making the political costs of the budget more evident than the benefits. Thus, since 1969, the dollar total of deficits over the one surplus has been at a ratio of 100 to 1. This does not reflect "flexibility needed to deal with changing economic conditions,” as proponents of unfettered spending propose. It reflects the degeneration of the system because of perverse incentives which lead individual congressmen to make spending decisions which are favorable to their career interests but bad for the public.

Furthermore, as Edward R. Tufte has documented in his book, "Political Control of the Economy,” the ups and downs of the economy which politicians claim unfettered deficit spending is needed to counter, are at least partly caused by political manipulation in the first place. In addition to the business cycle (which may be ultimately caused by expansion of the money supply), we must consider the “electoral-economic cycle” which is clearly caused by politicians seeking to heat up the economy prior to elections.

A balanced-budget amendment would have other good consequences beyond merely making government more accountable. A balanced budget would

reduce “crowding out.” When deficit spending leads government to borrow massive amounts of money, it soaks up available capital, raising interest rates and reducing stock prices. A balanced budget would lower borrowing costs throughout the economy, stimulating investment, raising stock prices and promoting faster real growth.

Furthermore, an end to deficit spending would lead to less waste of resources by government. Currently, much wasteful spending is excused because it is considered part of a needed "stimulus for the economy.” Without a balanced-budget requirement as a check on federal spending, Congress rarely asks, “Is this program worthwhile, or is it the best use of the taxpayers' money, or should we reduce taxes?As Otto Eckstein puts it: "If the political process must levy the taxes to pay for the expenditures, there is likely to be a more careful scrutiny than if the expenditures can be clothed in the virtue of deficit-creating stimulus packages."

Beyond all these consideration is the greater good—the almost universally acknowledged fact that balancing the budget would reduce inflation. That is something we must do, not merely to save money but to preserve the civic virtues of democracy. These cannot be maintained through long-protracted inflation. The experience of many countries proves this.

As Thomas Mann wrote: “There is neither system nor justice in the expropriation and redistribution of property resulting from inflation. A cynical 'each man for himself' becomes the rule of life.” Under such conditions when the majority is deprived, defrauded, and frightened, politics can take frightening turns. We dare not attempt to prove that America would be an exception to the rule that protracted inflation weakens and eventually destroys free institutions.

That is why we must heed the advice of responsible people of all parties, and enact a constitutional amendment outlawing inflationary deficit spending.

[ocr errors]
[blocks in formation]

(Rounded to the nearest billion dollars] Totals at the end of fiscal years:

Totals at the end of fiscal years: 1900..

1 1942. 1901.

1 1943.. 1902.


1944. 1903.

1 1945. 1904.

1 1946. 1905.

1 1947 1906.

1 1948 1907..

1 1949. 1908.

1 1950. 1909.

1 1951 1910.

1 1952. 1911.




1954. 1913..


1955. 1914.

1 1956. 1915..

1 1957 1916.

1 1958. 1917.

3 1959. 1918.

12 1960. 1919.

25 1961. 1920.

24 1962 1921.

1963. 1922.

23 1964. 1923..

22 1965. 1924.

21 1966. 1925.

21 1967. 1926.

20 1968. 1927.

19 1969 1928.

18 1970. 1929.

17 1971. 1930.

1972. 1931.

1973. 1932.

19 1974. 1933..

23 1975. 1934.

27 1976. 1935.

29 1977. 1936.

1978. 1937.

79 143 204 260 271 257 252 253 257 255 259 266 271 274 273 272 280 288 291 293 303 311 317 323 329 341 370 367 383 409 437 468 486 544 632 709 780 2 839 2 899


16 17


36 1979. 1938.

37 1980. 1939.

48 1981. 1940.

51 1982 1941.

58 * Gross Federal debt. * Estimated figures. Source : Office of Management and Budget.

2 940 2 952



[blocks in formation]

Senator Bayh. Senator Muskie, we appreciate your being here. I know how busy you are. I do not know of anyone that has a wider array of rather sobering responsibilities than you.

Certainly I think you, more than any other Member of this body, has had the personal responsibility, I think, and have accepted it well, and indeed initiated a lot of it, in works as well as words, to try to start Congress along the road of budgetary sanity.

And inasmuch as you have played and are playing this critical role, and have from time to time reminded all of us that our pet projects will have to wait because we have reached the guidelines that we set for ourselves, or are about to exceed the guidelines, I think it is not only significant but critical that we have a chance to hear from you this morning as we undertake these very important hearings.



Senator MUSKIE. Thank you very much, Mr. Chairman. I am sorry to have missed Senator Byrd's testimony. Apparently there is something of the climate of the drunken sailor in the room, so maybe a sobering speech might be in order.

In any case, I am delighted to have this opportunity. I hope I can contribute to it.

Before I forget it, I would like to ask to have included in the record, after my remarks this morning, a speech I made before the National Press Club on February 13; another one before the Conference of State Legislators on March 1; and in addition a Congressional Research Study on Balanced Budget Proposals as well as an interesting memorandum from Professor Tribe of the Harvard Law School on the Proposed Balanced Budget Constitutional Convention.

« EelmineJätka »