I had the idea recently to dig out my Unbalanced Budget Amendment, to mandate savings during good economic times, tax hikes during bubbles, and Keynesian countercyclical spending on jobs and infrastructure and such during recessions. It turns out that I can’t find mine where I put it online.
But when I looked around again I saw that much of it is being adopted by lots of economists, and even implemented by some countries.
Here is an early, undeveloped version.
I put up a draft on a site for political ideas that no longer exists. But there are many other similar proposals now, which I will go over briefly.
Then we can start to discuss specifics.
But first, some background. The stock market has hit a number of record highs due to President Obama’s steady hand, even if Trump pretends that he had anything at all to do with it. Well, he has had a big hand in turning the bull market into a bubble. In particular the ginormous Republican tax cut for corporations at the end of 2017 fed a huge wave of stock buybacks to push stock prices up, but only temporarily. In 2018, the market went mostly sideways, and ended up the year below where it started. So I have been predicting a crash since January 2018.
More importantly, so have numerous professional economists and financial analysts, in every important financial paper, including the WSJ.
President Obama proposed a stimulus bill in 2009. Republicans, under the Dog Whistle of the deficit hawks, held it to as small as they could manage, and then claimed that it hadn’t worked. We in the reality-based community know that it did work, and could have worked much better if it had been bigger.
So let us imagine that we can get the Republicans out of the way in 2021, with a Democratic House, Senate, and President. It’s easy if you try.
Forbes: We Need an Unbalanced Budget Amendment
Erik Kain Senior Contributor
The unbalanced budget amendment is a requirement that in good times the government must run a budget surplus. The virtues of such a rule are that it allows for counter-cylical fiscal policy during a recession.
This is one of those really smart policy ideas that, for reasons purely aesthetic, stands no chance of being adopted, but it really does make excellent sense.
No, for reasons purely ideological, that is, that the 1% must not be deprived of their prey, nor the racists of their hammer against programs that help people they don’t approve of.
Mar 29, 2017 - A careful analysis of the various previously proposed balanced budget amendments reveals a number of problems or loopholes, making it more appropriate to call them the unbalanced budget amendments (or UBAs).
The biggest loophole is that Congress would not have to balance the budget under any proposed BBA if there were a national emergency. There are currently 32. The oldest one goes back to Jimmy Carter.
A real, intentional UBA would have to be designed not to have such loopholes. That is harder than it looks.
Jul 25, 2011 - The unbalanced budget amendment is a requirement that in good times the government must run a budget surplus. The virtues of such a rule are that it allows for counter-cylical fiscal policy during a recession. Indeed, it reduces the cost of counter-cyclical fiscal policy because it guarantees a reserve fund for just such emergencies. The unBBA is thus a type of automatic stabilizer.
The Failure of Keynesian Politics
Let's accept for the sake of argument the truth of Keynesian economics. It is now clear that Keynesian politics has failed. But don't take my word for it. Here's Paul Krugman on the great abdication:
…without saying so explicitly, the Obama administration has accepted the Republican claim that stimulus failed, and should never be tried again.
What’s extraordinary about all this is that stimulus can’t have failed, because it never happened. Once you take state and local cutbacks into account, there was no surge of government spending.
Automatic stabilizers such as unemployment insurance are one area that has worked quite well. What other areas can be automatized? Funding for states? How about an automatic payroll tax cut tied to the unemployment rate? (fyi, Keynes favored the latter).
Unemployment worked well until it ran into mandatory limits. A UBA would say that such limits cannot be imposed while unemployment is above certain levels. Not just one of the generic national levels, but those that take account of the doubled unemployment figures for certain historically oppressed groups, starting with Blacks.
A program to help with mortgages would have worked. Not the actual policy of the Fed buying worse than worthless mortgages from banks and other financial malefactors, shoveling tens of billions of dollars at them.
Getting rid of illegitimate financial favors to the rich and large corporations would be good, but I have no idea how to write that in a way that cannot be perverted to do exactly the opposite. Well, others know far more about that than I do.
Readers should have no trouble thinking of other good ideas in this vein.
Alex Tabarrok: Balanced Budget Is a Bad Idea for the US - Time
This links to
Alex Tabarrok: The Virtues of an Unbalanced-Budget Amendment
One thing is certain about the deal reached to raise the debt limit: deficits aren't going away.
So instead of a balanced-budget amendment, I propose that a better idea might be an unbalanced-budget amendment (unBBA). It would allow the government to run a deficit during a recession. But unlike now, the amendment would require the government to run a budget surplus in good times.
In the Bible, Joseph doesn't advise the Pharaoh to balance the budget; instead, he tells the Pharaoh to save during the seven fat years so he will be prepared for the seven lean. An unbalanced-budget amendment reflects this simple and ancient wisdom.
Reihan Salam: The National Review: A Structurally Balanced Budget
That is, a budget balanced over the business cycle, going up and going down. This is what Chile has done.
The IMF has prepared a technical analysis of budget rules by country, and their performance.
Fiscal Rules—Anchoring Expectations for Sustainable Public Finances
We are not ready to write legislation that would work in the US context. We only have an outline of what we are trying to do, and of what the opposition would do to prevent it as long as possible, and then pervert it once we get it.
But never mind that. I want to see it added to the Green New Deal as something to be researched and discussed and put before the people, like the problems of fossil fuels and unsustainable agriculture and income inequality and social justice. As AOC and many others have been trying to explain, while being met with complete foolishness about Socialism and getting rid of cows and airplanes.
Renewable Friday: AOC and the Green New Deal
I will be able to do a deeper dive into proposals and practice fairly soon.
But for now, the floor is open. Ideas?