Hunter Blair at the Economic Policy Institute writes—A balanced budget amendment would be extraordinarily dangerous for the economy:
The House is set to take up a balanced budget amendment this week, which would limit federal spending in each fiscal year to federal receipts in that year. Putting aside for a moment the chutzpah of House Republicans trying to pass a balanced budget amendment (BBA) just a few months removed from their passage of a $1.5 trillion tax cut that went largely to the richest households and big corporations, the simple fact is that the economic consequences of a balanced budget amendment range from extremely bad to catastrophic. The reason for this is that a BBA would amplify any negative economic shock to the economy and would thereby turn run-of-the-mill recessions into disasters.
When the economy enters a recession, government deficits increase as tax revenues decline and government spending on programs such as unemployment insurance increase.
These “automatic stabilizers” are incredibly important as they cushion the blow to the economy from a recession. For example, researchers at Goldman Sachs found that the shock to private sector spending from the bursting of the housing bubble was larger than the shock that led to the Great Depression of the 1930s.
Given this larger initial shock, why didn’t we have another Great Depression, with unemployment rates approaching 20 percent and beyond, in 2009–10? The simple reason is that the mechanical increase in the deficit from tax reductions and increased transfer payments absorbed a lot (not enough, but a lot) of this shock, and automatic stabilizers were either non-existent or a lot smaller in the 1930s. Having these programs in place to absorb recessionary shocks is one of the great economic advances of the past 80 years—and getting rid of them by imposing a BBA makes as much sense as outlawing computers or antibiotics.
To comply with a BBA as a recession approached, Congress would have to offset any mechanical increase in the deficit by raising taxes or cutting spending. The increased taxes or spending cuts would further drag on the economy, raising the deficit again and requiring still further tax increases or spending cuts. This vicious cycle would amplify the damage to the economy. Essentially this vicious cycle would lead to a large increase in the fiscal multiplier, with each dollar in spending cuts leading to output losses of about $2.50. [...]
How big a deal is this problem of a BBA amplifying negative economic shocks?
[...] if we had been forced to balance the budget in the face of the shock that led to the Great Recession, then GDP would have declined by a staggering 22 percentage points. With unemployment peaking at 10 percent during the Great Recession, Okun’s law implies that a balanced budget would have caused unemployment to peak instead at about 21 percent. [...]
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On this date at Daily Kos in 2005—Guantánamo Bay military tribunals: “I don’t care about international law:
The government is holding about 550 terrorist suspects at the U.S. Navy base in Cuba. An additional 214 have been released since the facility opened in January 2002—some into the custody of their home governments, others freed outright.
Little information about those held at Guantanamo has been released through official government channels. But stories of 60 or more are spelled out in detail in thousands of pages of transcripts filed in U.S. District Court in Washington, where lawsuits challenging their detentions have been filed.
The previously anonymous detainees provide accounts of their imprisonment and impressions of U.S. justice. Some express defiance, others stoic acceptance of their fate.
On today’s Kagro in the Morning show: FBI raids Trump lawyer (and RNC deputy national finance chair) Michael Cohen's office, home and ... hotel room. Over bank and campaign finance fraud. No biggie! Armando joins us to discuss it and take apart the spin. Also: Bossert picks genius day to resign.
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