Wayne O’Leary

The Right’s Fiscal Nuclear Option

An old, familiar political idea is once more abroad in the land. The endlessly recurring dream of a constitutional balanced-budget amendment (BBA), beloved by deficit hawks everywhere, especially in the Republican Party, has risen again to the top of the conservative wish list, and it’s closer to fruition than you might think.

The current point man for this benighted and dangerous proposal, which reappears periodically like a visitation from the undead, is also familiar. He’s Ohio Gov. John Kasich, aging former wonder boy of Republican politics, who evidently plans to use the latest BBA crusade as his calling card in a long-shot run for the GOP presidential nomination. He’ll need it to distinguish himself from the host of other austerity-minded candidates expected to enter next year’s Republican primaries.

Those with sufficiently long memories will recall Kasich from his fiscal-hawk stint in Congress (1983-2001), where he used his position as House Budget Committee chairman to play a leading role in shaping the ill-advised federal Balanced Budget Act of 1997, pushing for Medicare cuts along the way. As governor, he’s followed a similar tightfisted approach with mixed results, sinking low in the polls before rebounding just in time for reelection. Ironically, his 2014 victory over a weak opponent in a Republican year was made possible largely by an uptick in spin-off manufacturing jobs powered by the Obama administration’s deficit-funded General Motors bailout.

With that federally assisted comeback, Kasich hopes, it’s on to bigger and better things on the national stage, and here’s where amending the Constitution comes into play. The proposed BBA he’s pitching around the country is a twofer for the Ohio governor: an attention-getting gimmick guaranteed to impassion the GOP base, but also something in which he genuinely believes, wrongheaded as it may be. That’s the thing liberals often miss about right-wing conservatives: they’re true believers, and with the wind temporarily at their backs, they’re going for broke while they have the power, determined to achieve everything they’ve wanted for decades.

This goes double for the cause of the moment, Kasich’s BBA, and so the governor found himself in the state of Maine in late March at the invitation of Republican soul mate Gov. Paul LePage, as part of his tour of the states needed to move an amendment. (He’d previously been to Montana and South Dakota.) LePage needed no convincing, of course; neither did the Maine GOP’s other usual suspects, “moderate” Senator Susan Collins and newly minted radical-right Representative Bruce Poliquin, who is co-sponsor of a BBA initiative in Congress. But with skeptical Democrats controlling the larger of Maine’s two legislative chambers, their work is cut out for them.

For enactment under Article 5 of the Constitution, the BBA needs the support of two-thirds of all state legislatures (34), in order to bypass Congress (unlikely to be favorably disposed) and directly convene a constitutional convention. Eventually, three-quarters of the state legislatures (38) would have to formally ratify any potential amendment adopted. So far, 27 states have voted to call a convention; only seven more are needed by the BBA backers.

In John Kasich’s mind, immediate action curtailing spending is necessary to “change the culture” of Washington and forestall imminent economic disaster; Armageddon, he purports to believe, is virtually upon us. Others beg to disagree. The esteemed, Nobel Prize-winning economist Paul Krugman, for instance, rejects the simplistic notion, bandied about by conservatives, that national governments are exactly like families or small businesses, which must balance their budgets.

As Krugman puts it, indebted families owe money to other people; indebted governments owe money mainly to themselves. Obsessively paying down public debt owed to ourselves through stringent austerity, moreover, can lead to deflation and depression, cures worse than the disease. One only need look at Greece, where the Eurozone’s budget-balancing enforcers have nearly destroyed a nation.

As far as the US is concerned, only the deficit-funded emergency spending of 2009-10 prevented the Great Recession from becoming something far worse and kept the country from an economic free fall. That spending (the much-maligned “stimulus”) would have been impossible under the Kasich BBA. Something else could not have happened under such an amendment: the entire Roosevelt New Deal. FDR used deficit financing from 1933 onward to ameliorate the Great Depression, and he used it to fight World War II as well.

Since 2010, however, the Kasich view has prevailed; it’s been Republican-driven austerity that has stunted the national recovery and lengthened the recession by restricting public-sector investment and employment in the name of reducing the debt and deficit without taxes. Comfortable conservatives have been unconcerned, however, because of their ingrained, almost mystical, belief in the inherent recuperative properties of a languishing capitalist economy, which, uninterfered with, will eventually revive on its own.

That may be so, given enough time (although it took a world war to end the 12-year Depression); the problem is the extended and unnecessary pain and suffering endured in the meantime while we wait. And as John Maynard Keynes famously said, “In the long run, we are all dead.”

Evidence abounds of the destructive effects of mandatory budget austerity. In Europe, it’s produced lagging growth, crumbling infrastructures, dysfunctional governments, broken lives, and a lost generation. The question is, should America’s austerians be allowed to impose that sort of economic straightjacket here? For starters, there’s absolutely no evidence that modest budget deficits lead to catastrophe. The US has run a deficit in all but 10 years since 1933 and in all but 4 years since 1974; the world hasn’t ended.

In addition, the budget deficit we have has been falling for five years. It peaked in 2009 at the height of the recession, reaching 9.8% of GDP; it’s now down to 2.8% of GDP, about where it was when the financial crisis began and close to the average (2.5%) for the period 1980-2008. Citing Paul Krugman again, as long as there is sufficient economic growth, which government spending stimulates, the ratio of national debt to GDP (adjusted for inflation) falls and deficits are not problematic.

Still in a budgetary panic, Republicans? Then, stop trying to rewrite the Constitution to suit your political preconceptions. Pass a tax increase on your wealthy constituents and contributors instead, and save us a lot of trouble and false anxiety.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy.

From The Progressive Populist, May 15, 2015

Populist.com