David Frum

02.11.13

A Balanced Budget Amendment: Great Politics, Terrible Policy

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National Review's Robert Costa reports GOP leadership will be moving ahead with a balanced budget amendment this week. The proposed legislation would place an 18 percent of GDP cap on federal spending and require supermajorities for tax increases and raising the debt ceiling. It's cat nip for the Tea Party.

But here are the little issues with such a plan.

First, we're aging, and we're aging fast. An older population will cost far more in health care spending and pensions, and will be accompanied by a declining tax base. Even if we manage to dramatically reform Medicare and Medicaid, keeping outlays below 18 percent will require some impressive rationing. (I recommend reading Jonathan Last's new book for more on this.)

A cap on spending, especially one at 18 percent, also means recessions will be turning into depressions. The automatic stabilizers that have induced such deep deficits since 2008, especially unemployment insurance, would be capped under such a plan. Without that spending to prop up demand, expect the boom and bust cycle to get worse.

So perhaps one the answer, as James Pethokoukis seems to be implying at his AEI blog, is to make the cap much higher (say, 21 or 22 percent). That might do the trick, but it's the same problem as 18 percent. You don't, or at least shouldn't, pass constitutional amendents that are swiftly outdated by demographics. Right?