Against a Balanced Budget Amendment.

Some Republicans argue that the current deficit is the product of legislative indiscipline. From time to time, they have proposed a “Balanced Budget Amendment” to the Constitution as the cure for this indiscipline. Sort of like fiscal gastric by-pass surgery.[1] Allow me to disagree.

First, the whole economic history of the Twentieth Century argues against the sanctity of balanced budgets. An obsession with balanced budgets made the Great Depression of the 1930s much worse than it need have been. “Hoovervilles” were the packing-box shanty towns named after the budget-balancing president of the United States in the early Depression. Massive deficit spending—which would be outlawed by a balanced budget amendment—got the Imperial Japan, Nazi Germany, and the United States out of that Depression. You don’t have to like the company we kept to recognize what worked. Since the Second World War all countries have used deficit spending to counter down-turns in the economy. It has turned out to be a crude tool, but it has been effective. Our current problems exist because the Democrats flinched before the cost of getting us out of the mess created by the housing bubble. The stimulus package needed to be twice as big and front-loaded into the first year. Then Republicans imposed the “sequester” that further reduced government spending.

Second, a balanced budget amendment will do nothing to resolve the fundamental disputes between Democrats and Republicans which stands at the center of our current dead-lock. Republicans rightly complain that the Democrats will not address the exploding cost of entitlement programs, which cannot be supported by any model of economic growth or taxation of the rich.[2] Democrats rightly complain that they cannot sell austerity to their constituents without some tax scalps from the rich to brandish. How will a balanced budget amendment solve this basic dead-lock? Making the budget an issue subject to judicial review merely passes the buck from the legislature to the courts. If you think abortion or gun-control are subjects best avoided at the Thanksgiving dinner table, just wait until taxes and spending get on the docket!

Third, about 22 percent of federal spending goes to defense, about 22 percent goes to Social Security; and about 22 percent goes to Medicare/Medicaid. That’s two-thirds of federal spending. About 7 percent goes to debt-service. Everything else that government does is crammed into the remaining 25+ percent of federal spending. What do people want to cut? Social Security? Medicare? Defense? I would bet not. OK, we could do without the Department of Education and the DEA. What about other things? Air traffic controllers? Paving the highways? The federal courts? The Coast Guard air-lifting injured commercial fishermen off heaving decks at night in the Bering Sea? Cuts to welfare won’t do it.[3]

If the vast majority of legislators do not want to make these cuts, then the only solution that would be imposed by a Balanced Budget Amendment would be big tax increases on a very wide basis. Basically it would involve undoing the George W. Bush Administration’s tax cuts.[4] Republicans should be careful about the things for which they wish. A balanced budget amendment has a snowball’s chance in Hell of solving those problems.

[1] For a recent example, see: http://www.fredericksburg.com/news/politics/brat-pushes-for-balanced-budget/article_c82422c9-e21a-586e-b1d4-eca59612c277.html

[2] Republicans conveniently fail to provide any detailed plans on how they would contain entitlement spending. There are a bunch of ways of doing it, but not without somebody’s ox getting gored.

[3] In fiscal 2014, SNAP added $74 billion to a$3.5 trillion budget. I can’t even calculate that small a percentage.

[4] They should best be called the Bush-Obama Tax Cuts because President Obama fought hard to have 98 percent of them made permanent. According to the NYT, two-thirds of the federal revenue lost from those cuts came from people who make less than $250,000 a year.

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Bang for the Buck

How much defense spending is enough?  Faced with big budget deficits, a reluctance to pay taxes, and a sluggish economy hard put to square the circle by generating wealth, inquiring American minds want to know.  In 2007 the American defense budget was about $470 billion.  In 2012 the defense budget was running about $550 billion a year. That’s a lot of bucks.  What did Americans get for the money?  They got an Army of 569,000 soldiers on active-duty; an Air Force with 1,990 fighter planes; and a Navy with 286 ships.[1]  That’s a lot of bang.

It’s a common-place that the American defense budget is equal to the combined defense spending of the next seventeen countries on the list.[2]  That bald statement argues for cutting spending without sacrificing security.  However, it needs interpretation.  On the one hand, it assumes that the “interests” of the United States and those of the other countries on the list are symmetrical.  They aren’t.  China’s primary interests are in the Far East; India’s in South Asia; Russia’s in the countries bordering it around the huge arc from Eastern Europe to Eastern Siberia; South Korea’s in Northeast Asia; France’s in Western Europe and the Mediterranean.  Decision-makers in Washington have to worry about the Far East, South Asia, the Middle East, Europe, Africa, and Latin America all at the same time.  In terms of possible operations, the American military has to face a range of threats from nuclear war to conventional war to guerrilla warfare to terrorism.

On the other hand, it assumes that fighting power is closely linked to budgets.  It isn’t.  Russia and China pay, house, feed, and care for their troops at a much lower level than does the United States.  Military equipment also is comparatively cheap in low-wage economies.  More importantly, how big is the Taliban’s defense budget?  Drones at a million and a half dollars a pop kill enemies, but the culture of a primitive area causes new ones to spring up like dragon’s teeth.

Perhaps it isn’t how much money a country spends that tells you something about its attitude toward military power or its sense of pressing danger.  Perhaps it is the share of Gross Domestic Product (GDP) a country will devote to military power that is key.[3]  In 2012 the United States devoted 4.7% of GDP to defense, Russia 4.4%, the People’s Republic of China 2.1%, and the European Union countries 1.7%.  China’s neighbors don’t appear to feel deeply threatened–yet.  Japan spends 1.0%, Taiwan 2.3%, Vietnam, 2.5%, South Korea 2.7%.  On the other hand, not all of Russia’s neighbors seem to feel secure.  Georgia spends 5.1% of GDP on defense.

On one SIPRI list Iran devotes a nominal 1.8% to defense.  Other estimates put it at 2.7% and back in 2006 the commander of the US Central Command called the Iranian military the most powerful in the region.  Moreover, the Iranian pursuit of nuclear weapons and willingness to use proxies in Iraq and Syria make them far more menacing to their neighbors than the statistics alone suggest.  As a result, Saudi Arabia spends 8.9% of GDP on defense, Oman 8.4%, and the United Arab Emirates 6.9%.  Perhaps those high figures reflect doubts about an American security umbrella.  They may also hint at an informal alliance with Israel to prevent Iran from finishing its drive for nuclear weapons.  War is coming to the Persian Gulf if the Iranians don’t blink.


[1] “Downsizing the Military,” The Week, 5 October 2012, p. 13.

[2][2] See the rankings by the Stockholm International Peace Research Institute (SIPRI) presented at http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

[3] Ibid.