Say No to Deficits; Time for Schuldenbremse

February, 2018

Washington -- Is it time to dust off the proposed Balanced Budget Amendment to the U.S. Constitution and put it back into the national debate? Deficits are dangerously high and neither the President nor Congress seems to care.

The December tax cuts were largely paid for by additional federal borrowing, as were the latest spending increases for both military and domestic spending. The President's 2019 budget proposal gives up on achieving a balanced federal budget anytime soon, if ever.

This time the concern about fiscal responsibility must come from Democrats. Republicans have no more credibility on the issue. Republicans have not really cared about deficits since the time of President Gerald Ford, except rhetorically. Even lip service to the concept was conceded when Vice President Dick Cheney told the country that deficits don't matter. The last Republican president to achieve a balanced budget was Dwight Eisenhower.

Democrats have a coherent argument that they are the more fiscally responsible party. It is unfortunate that they have not made more of the issue over the years: liberal Democrats like Governor Jerry Brown and Senator Paul Simon fought years for a Balanced Budget Amendment; President Bill Clinton actually balanced the federal budget and started using surpluses to pay down the federal debt.

In these Democrats' views, deficit spending is to be avoided whenever possible because interest payments on the debt amount to a transfer of wealth from average taxpayers to the better-off lending class. It increases inequality. And it is not only the American lending class that buys U.S. debt and makes money off the interest, but also foreign entities, like China. It is one thing to keep interest payments within our own borders; it is quite another when national security is imperiled because the debt is held by foreign adversaries.

Democrats wary of excessive deficit spending also recall that it was the venerable John Maynard Keynes himself who cautioned against running deficits in times of economic prosperity. Those were the times to run surpluses and pay down debt, Keynes advised. Cyclical deficits as economic stabilizers in hard times, yes; structural deficits year after year (current Republican policy), no.

Add to that the experience of recent years in Europe. Switzerland in 2003 adopted a constitutional amendment called a Schuldenbremse, or "debt brake." Germany followed in 2009, as did Austria, France, and others as part of an EU economic effort against structural deficits. The key concept is the differentiation between necessary cyclical deficits and structural ones. Germany's limitation, for example, is a structural deficit of no more than 0.35% of annual GDP.

It is not by coincidence that European economies are thriving, even more than the U.S. economy. They are using revenues to pay down structural debt. It's time to see how Schuldenbremse might translate into new U.S. balanced budget language.

How does this relate to, say, Nebraska and the 2018 elections? Republicans Deb Fischer and Don Bacon, who both voted in December and February to pay for tax cuts and new spending by ballooning the federal deficit, have given their Democratic opponents a golden opportunity to campaign against them on grounds of utter fiscal irresponsibility.

Although the conventional wisdom would be that this is unlikely, as it would amount to trying to run to the right of Fischer and Bacon, it is anything but. There is a long history (see above) of Democrats holding forth against excessive deficit finance, which is perfectly consistent with Democratic advocacy of federal investment in human capital. The conventional wisdom, as usual, is wrong; there is no more connection between the political right and balanced budgets. That's been clear for years, but now Fischer and Bacon have driven a stake through its long-dead heart.

When one looks at competition in the federal budget, interest on the debt is a great threat not only to social programs, but to everything else as well. Debt interest is clearly a competitor against defense spending, which Fischer and Bacon claim to support but are endangering by relying on China* to pay for it.

This is the time for Democrats to start running political commercials centered around the proverbial family kitchen table, talking about how families have to make responsible choices, and how it is now truly time for action to stop current, incredibly reckless fiscal policy. That would be first by removing incumbents, and second by taking another look at budget reforms, including a responsible constitutional amendment that can be informed by the positive experiences of European democracies.

*Still very Red, still totalitarian, still freedom's formidable adversary.