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However one might respond to the conclusion of that memorandum, it does raise, I think, a series of sobering and serious questions that the Congress would have to consider if it decided to seek to establish and organize a Constitutional Convention.
Senator Bayh. Without objection, they will be inserted into the record.
Senator MUSKIE. All of those have a slightly different thrust than what I am about to say this morning, and I don't want to repeat them, and I see no need to.
Mr. Chairman, it might be historically interesting to point out that the Father of our Country also fathered the first Federal deficit. George Washington was first in war, first in peace, and first in deficit spending, for a couple of reasons.
One, revenue was not sufficient to meet even the modest operating costs of the first Government.
And in addition, the Congress assumed responsibility for the wartime debts created by the States, in the first instance apparently of what has been an ongoing congressional inclination since to bail out the States and the local governments, when they run into trouble.
So a lot of these precedents we have seen recently have origins that are indeed deep in our consitutional history.
May I remind you I am sure we need no reminder-that in almost 200 years our Nation has held just one Constitutional Convention. The timeless brilliance of that Assembly's work is enhanced with the passing of each new decade.
The question has often been raised: Why haven't we had more Constitutional Conventions? That may just be because we have had many Presidential nominating conventions which have been engaged in writing platforms to establish policy for our country. And, as we have watched that platform-writing exercise conducted by Presidential nominating conventions, I suspect a lot of us have had sobering second thoughts about organizing a convention to rewrite the Constitution of the United States.
But in any case, Mr. Chairman, we have had a turbulent history of enormous strain and tremendous change in these 200 years. But through eight armed conflicts, a 10-year depression, impeachment proceedings against two Presidents, the stunning progression of social, economic, and technological change, and a bloody war between the States, Americans have never found it necessary to call another Constitutional Convention.
We have never confronted a crisis so severe, or a challenge so imposing as to justify risking irreparable damage to the fundamental law of this land.
Now, we are told by some, we must do just that for the sake of irrational fiscal schemes and unworkable gimmicks.
Mr. Chairman, that is an absurd proposition to me. A new Constitutional Convention should be rejected out of hand. But the anger and frustration which gave rise to the idea in the first place is another matter entirely.
That is a very serious thing indeed. We as legislators must respond, but with leadership, poise, and responsible solutions.
Public frustration with seemingly endless inflation is genuine. We certainly understand that inflation can destroy the fruits of a lifetime of labor and undermine an entire social order. Federal deficits, harmful though they sometimes are, are not the root of the problem. More importantly, changing the fundamental law of the land to maintain an unworkable Federal balance in good times and bad is not the solution. On the contrary, it can provoke an even deeper dilemma, and the array of varying approaches is anything but similar.
Almost 50 bills, resolutions, and State petitions regarding a balanced Federal budget are now under consideration by Senate committees. I understand that several of my colleagues have or will testify on the merits of their particular proposals. For analytical purposes, I have broken all the proposals into several basic categories. A full staff analysis will be made available for the record, as I've already indicated, but I would like to summarize the study here and highlight some of the critical flaws.
The first category encompasses what might be called the “basic formula," a simple requirement that the Federal budget be in balance, except in unspecified emergencies. The defects of this approach are as simple as its language. It limits or even eliminates the Federal Government's ability to respond quickly and flexibly to changing economic conditions. Moreover, a balanced Federal budget may be flatly impossible to achieve in times of severe recession. Finally, since we are given no definition of a state of emergency, we can anticipate prolonged debate and confusion just when prompt, effective action might be most necessary.
And the end of that debate might well come too late to allow for meaningful responses to economic conditions. Of course, since most of these proposals require a two-thirds vote of Congress to open the escape hatch, we might never have to concern ourselves with responding at all.
A two-thirds vote is difficult to obtain on any issue. That's why the cloture rule now calls for a three-fifths vote instead of the traditional two-thirds. I can just imagine the scramble to avoid leadership to suspend a constitutional mandate for a balanced budget in order to respond to an emergency about which there may be deep controversy and debate. Who is going to lead the pack? Who is going to be the point man? How many would vote to make a two-thirds majority possible, unless the roof was falling in on our national economy?
Another category of mandated balance approaches might be called the "appropriations revenue formula.” It would require that all appropriations for any fiscal year would not exceed all estimated revenues for that fiscal year. This concept is subject to the same criticisms which apply to the first approach. Additionally, it would eliminate full funding of multiyear projects. It would end the practice of appropriating the full costs of such projects at the outset so that it is clear to Congress and the public that a long-term commitment has been made and it is understood just how much that commitment will cost.
This approach, incidentally, would actually require a large budget surplus. Appropriations have recently run 10 percent higher than outlays because appropriations include long-term items that do not spend out in the year in which they're created. Even if we ended the practice of fully funding multiyear projects, this formula would still require substantial annual surpluses which would severely slow economic growth.
The next option would not only balance the budget, but eliminate the debt as well. Along with the standard defect of rigidity, that proposal would impose a much heavier drag on the economy and violate every standard of investment management.
Other proposals would limit the number of deficits which the Federal Government could carry in a specified number of years. But the economy might well demand five deficits in 5 years or none. There is no way to tell in advance.
The surtax formula is the next one. Any deficit would have to be erased by the end of the next fiscal year by imposition of a proportionate surtax. Apart from promoting a spend now, pay later mentality, that idea could impose a terrible economic burden in times of recession. A deficit year followed by a subsequent balance and surtax might plunge us into a raging depression.
Herbert Hoover tried to tax us into balance once--the year was 1932—and he had the full support of the Democratic Congress. It was not a good year for the economy. It was not a good year for Herbert Hoover.
The so-called Friedman approach is still another approach. It would hold the growth of Federal spending in any year to the rate at which the GNP
grew the year before, but at best the GNP is only an estimate, an informal estimate made by experts at the Department of Commerce of the Nation's output of goods and services, but one that would be revised four times, between the President's budget submission and the end of the fiscal year. Relating outlays to the current year's GNP would be even worse. Whose guess of current year GNP would we respect? OMB's? CBO's? A private forecaster's?
For the fiscal year 1980, we have: The President's forecast of 3.2 percent; CBO's forecast of 3.9 percent; Wharton Econometric's forecast of 1.3 percent; and Chase Econometrics' forecast of 4.1 percent. Which one do we choose?
We should not give guesses any rigid authority for determining our budgets, and a bad guess could severely restrain hopes for the country.
A half dozen further variations on the theme become more complicated and even less enlightening. They are included in the staff study, which is presented for the record. Suffice it to say that algebra, bar graphs, and total disregard for economic realities are the prominent, common features.
Mr. Chairman, that brief analysis of a very complicated and detailed scenario is hopefully adequate to demonstrate that the good intentions which extend behind these proposals are poorly served in practical effects. We confront a confused and confusing jumble of misinformation. Some of the structures proposed are more rickety and dangerous than others, but none will stand up under pressure. None can improve on the structure we have already layed out.
Dr. Walter Heller recently testified before the Budget Committee and added his name to the growing consensus of experts who oppose the Constitutional Convention and the mandatory balance concept. Sitting at his side, in agreement with him on the Convention issue was Dr. Alan Greenspan who clearly has a different economic philosophy than Dr. Heller.
Dr. Heller identified six fundamental misconceptions which lie at the heart of wide popular support for the mandatory constitutional balance. I believe he has captured the essence of the fallacies as well as the appropriate responses. Let me summarize them.
The first fallacy has it that households have to balance their budgets and Uncle Sam should do likewise. But as Dr. Heller points out, most households run proportionately huge deficits when they buy a home, a car, or a boat, or a Ski-Do, or even send their children to college.
And unlike the household, the Federal Government must budget not only for its own expenses, but also for overcoming unemployment and recession on the one hand and an overheated economy on the other.
Second: Consumers, it is said, must pay back their debts, but Washington's debt just keeps on growing. The truth is, since World War II, the Federal debt has been the slowest growing major form of debt in America. The Federal debt today is less than three times the size it was in 1950. Consumer installment debt is nearly 14 times its 1950 level.
Third: It is argued that State and local governments must balance their budgets; why not the Federal Government? Unlike the States, Mr. Chairman, Washington throws capital and operating budgets into the same pot. If these expenses were separated out in the manner of the States, we'd be in balance or close to it.
But that sort of budgeting makes no sense at all at the Federal level, and I do not advocate it. Moreover, a State or local budget can be balanced by tax hikes or spending cuts without jarring the entire national economy; not so with the Federal budget.
Fourth: Mr. Chairman, it is almost uniformly held as a matter of faith that Federal deficits are the major, if not the only, source of inflation. The record says otherwise. During hard times, the deficit is anything but destructive. It helps the economy back to its feet by activating additional demands for goods and services and putting iile workers and machines in business again. And the deficit has little or no bearing on the real prime movers like the cost of food and energy.
In the post-World War I era, rapid inflation was accompanied by Federal budget surpluses. And from 1959 to 1965 Federal deficits were the order of the day, and yet price inflation was little more than 1 percent per year. There simply is no strong historical correlation between deficits and inflation.
Fifth: It is taken for granted that the Federal budget is out of control and a constitutional limit is the only possible solution. Again, facts do not bear that out. Statistical measures ranging from Federal spending as a proportion of GNP to Federal spending growth patterns show that the upward trend of the sixties and early seventies has been reversed.
The new congressional budget process has brought an historically unprecedented level of discipline and control to the Hill's budgeting procedure and capabilities. We have begun to see the results. In 1975 the deficit was 3 percent of GNP. In 1980 it is projected at 1 percent. Our budget resolutions have set spending targets at an average of $28 billion below the requests submitted by the authorizing committees. We can and must do better still, and we will.
But we need no new constitutional alterations to get that job done. We need discipline and sustained commitment to fiscal responsibility, and no statute or amendment can supply those crucial ingredients for us. Beyond that, sheer political reality dictates that the current—the seated Congress and President are not about to disregard the message the voters are sending-austerity and restraint are good politics as well as good policy. The combination is compelling.
Sixth: It is assumed that a balanced budget mandate would be a simple, effective, and efficient way to restrain the growth of Federal spending and limit future budgets. But as the foregoing analysis of the major approaches indicates, the new ideas are anything but simple or effective. A nightmare of semantics, administration, accounting, potential evasion, and inherent incentives for poor management and misleading bookkeeping would be sure to accompany any of the sweeping proposals which have been advanced.
Mr. Chairman, under most conditions of economic health, a Federal deficit is unacceptable. This Congress must take prompt, aggressive, and sometimes painful steps to squeeze this deficit down and out. I want to take this opportunity to urge the support of the Congress for the sunset legislation. It is much more moderate, in that it is not as tough as an amendment to the Constitution. Yet, it is an approach which has been resisted by the Congress for the 3 years that I have been advocating it here on the Hill.
The Senate last year adopted it with respect to the spending side of the budget, but rejected it with respect to the revenue side of the budget. The House has yet to take it up; although, the House Democratic Caucus this year endorsed it. I urge your support in this committee and as Members of the Senate for that approach which on a selected basis would help us to weed out waste, low priority programs, programs which are not working, which are not effective, and which may no longer be serving a national need.
That way we can find the resources to balance the budget, to reduce the deficit, and perhaps to support new initiatives which may be in the national interest as we come to them.
Mr. Chairman, we must retain the resources and flexibility to cope with a wide variety of economic circumstances. No respected economist would come before this committee or any other and tell the Senate that Federal deficits must not be tolerated in times of recession and other forms of severe economic distress.
But beyond the persuasive realities of economics and fiscal theory, there is a deeper issue here. The rush is on to impose a poorly thought out and badly constructed restraint on the Congress of the United States. That is disturbing enough. But to insist on writing such a program into the American Constitution is another level of folly. I would not want to develop economic policy for the 1980's on the basis of fiscal concepts which were popular in the 1780's. We have no business imposing such restraints on those who will come after us. And our Constitution is a timeless document to be reserved for timeless principles.
The Constitution is the most eloquent, elegant document in the political history of the world. There is no room in it for algebraio equations that don't make sense. There is no place there for simplistic schemes or transient whims. There is no excuse for cheapening its simple dignity and marring its fundamental wisdom, not for short term political points, not as a consequence of misperception and misunderstanding. The framers of our Constitution have left us a remarkable legacy, a model for republics which follow and for those which are hopefully yet to be born.