Archive for balanced budget amendment

Why not a balanced budget amendment to the US Constitution – what is the objection?

Posted in Political/Social Commentary with tags , , , , , , on August 10, 2011 by The Center Shot

For just a minute, try and step back from your party affiliation (whatever it is) and everything you’ve heard about the idea of instituting a balanced budget amendment. I want you to consider some things completely objectively. I’ll warn you when I get to the part where you can put your party colors back on! OK? Ready? Here goes….

If you’re reading this, YOU are almost certainly living under a “balanced budget” in your own home. If you weren’t, you couldn’t afford the internet connection you’re using to read this; much less the computer you’re using. If you’re reading this, there’s a 98% chance that you live in a state that has a balanced budget requirement built into the state constitution. Vermont is the only state that doesn’t have some sort of balanced budget mechanism in place. If you and the state that you live in need to live within your means, why shouldn’t the federal government be held to the same standard? It doesn’t take a trained economist to figure out that if you spend more than you make (or take in), you are heading for trouble . The same holds true whether you’re talking about an individual or a business or a government. ‘Sure,’ you say, ‘but I have a care loan and (maybe) a home mortgage – isn’t that spending more than I take in?’ No, because you are, ultimately, calculating that you can afford to make the payments each month within your balanced budget. Hopefully, within your budget you have even accounted for money you are putting away for a rainy day- a “surplus.”

These are the type of considerations any self-sustaining entity (person, business or government) lives by. It’s a simple concept. So, why not impose the same standard on the federal government that everyone agrees spends too much. Yes, there are disagreements on what the government spends money on; but everybody has something that they believe the government spend money on foolishly and unnecessarily. For example and generally speaking, Democrats/liberals don’t like excessive defense spending and Republicans/conservatives don’t like excessive spending on social programs.Right? Well, if politicians no longer had the ability to borrow or print money to fund anything they want and, instead, had to figure out what they can afford, I think we can all agree that they would be at least a little more responsible about how they spend our money, what projects they devise and what promises they make to us, the American people.

Are we still on common ground?Can we agree, so far, that this would be a slight improvement in our government?

‘OK,’ you say, ‘but doesn’t a balanced budget amendment favor certain people or groups?’ No. How would it? Even in its purest form (I’ll get to this later, so just bear with me) it doesn’t change any of the fundamentals of our democratic system. Revenue can still be raised through taxes to actually pay for things we need or want, it would just help limitborrowing and keep the federal government living within its means- like we do. Of course there will be ebbs and flows in the makeup of the government over time. Some years Democrats will have more influence and some years Republicans will be stronger; but this is the very necessary basis of our system. Our system is set up on “checks & balances” and the dueling parties are a perfect example of that principle. We, the people, decide who controls the government and we have an opportunity every 2 years to effect a course correction if we don’t like what they’re doing. Limiting spending to what we can afford, and without unchecked borrowing doesn’t change this dynamic in the long run, it only limits the government’s ability to run up uncontrollable debt.

When we want to try something something new or different we look within our own budget for unnecessary spending in order to find the money. Right? Why shouldn’t the government do the same thing? If they weren’t able to raise the “debt ceiling” and borrow money because of a balanced budget amendment, they would actually do something about the rampant waste in other areas to look for the funds to implement something new. If they can’t find the funds within the budget or government waste, then they would have to make the case to the American people why it’s such a good idea and ask our permission to raise taxes to fund the idea.

That sounds good, doesn’t it? Wouldn’t that be better than some congressman/woman coming up with a cockamamie idea in a back room to please a special interest group or lobbyist and then simply raising the debt ceiling to borrow the money to implement it? Members of both parties have done this time and time again and chances are there’s an example where it really made you mad!

Think about this: A fiscal restraint system, like a balanced budget amendment, can do things that please both parties and solve a lot of issues:

  • Waste – Everyone agrees the government wastes a ton of money. If borrowing was severely limited it would forcethe government to pay more attention to its own wasteful spending and be more efficient in its use of OUR money!
  • War – Politicians would be a LOT more hesitant to engage in conflict if they didn’t have a “blank check” to borrow whatever they wanted! Before starting a conflict, politicians would have to look just as much at whether we can afford it as whether it’s the right course of action. Since starting a conflict would almost certainly require an increase in taxes, in the case of a balanced budget amendment, a President would have have to really make the case to the people and get them on board. A pretty big deterrent to initiating!
  • Military Spending – Since military spending is a big part of the budget, congress would have to take a hard look at the massive waste and redundancy in military budgets and be much more selective in the selection and creation of new technologies- choosing only those that make sense, are truly needed and can be brought to fruition on time and within budget.
  • Social programs – While social programs would likely take an initial hit, they will anyway because they aren’t sustainable under the current setup – something that very few people, on either side of the political aisle, disagree with. If the waste and fraud were seriously addressed, like a balanced budget amendment wouldrequire, a significant dent could be made in the current insolvency of these programs. Then, add to that the savings in other areas of government that could be redirected to social programs, and you’ve made significant progress towards funding social programs. A balanced budget amendment wouldn’t threaten social programs, it would mandate that they are run in a way that guarantees continued help for needy Americans. Addressing these issues, once and for all, would likely provide more benefits to those who need them!*
  • Taxes – For those who favor tax reform, a balanced budget amendment would make this more likely! Whether you favor raising taxes on the “rich” or reforming/simplifying the tax code or closing loopholes or any combination of these, a balanced budget amendment works for you! Once the government is forced to ‘live within it’s means’ and can’t simply borrow more money, the only source of revenue available will be taxes. Right now, Washington doesn’t have any reason to seriously deal with taxes because, rather than deal with such a tough and contentious issue, they simply choose to borrow more which only delays the discussion.
  • Debt/Deficit – Everyone agrees that the current, increasing debt is hog-tying the US economy. This is an issue that effects all Americans and one which both parties agree must be solved. A balanced budget amendment would force the government to eliminate the deficit in future years, would halt the debt from growing further and would put us on a track to begin paying of the debt. While we may have disagreements on how money (in the federal government) should be allocated and on whether taxes should be raised (and, if so, on who), one thing we can all agree on is that we would be better of if we didn’t borrow more money. Regardless of which side of the isle we are on, we can all agree that there’s enough money in this country that WE SHOULD be able to operate the government without having to borrow trillions of dollars a year. A balanced budget amendment would simply guarantee that we have the debate and do the tough work to make that a reality.
  • Special interest groups – By eliminating the government’s ability to borrow money indiscriminately, the hold that special interest groups have on politicians and their influence on policy will be greatly reduced. Politicians (on both sides of the aisle) have used their ability to borrow as much money as they wanted, as a way to fund projects and programs that are brought to them by special interest groups- groups that, in return, deliver votes in the following election. In any town other than Washington DC, this would be called bribery, extortion or fraud;but in the US Capital this is called “business as usual.” So, if we cut off the rampant borrowing that facilitates the influence of special interest groups, we can really limit their influence over our politicians. This doesn’t mean they’ll go away, it just means they won’t be as powerful as they have been.

Still keeping an open mind? C’mon, you can do it! I’m almost done. Hang in there!

Yeah, but what about emergencies? What if we have a natural disaster or are forced to go to war?  These are reasonable questions and there’s a really good solution. Included within a balanced budget amendment, there should be a provision to allow the government to borrow money and to run a deficit in the case of emergencies but that also limits that amount and imposes a strict time frame for full repayment. If we limited the borrowing to a certain percentage of our gross domestic product (GDP), defined what constitutes an “emergency” and imposed a set time frame (also tied to GDP) we could account for those emergencies. In other words, just like in our own personal lives, we would be able to borrow money when we really need it but we would be limited in how much we can borrow based on our ability to repay the loan in full; and we would given a firm time frame to repay the loan. If every person and every business is required to operate this way, why shouldn’t the US government?

OK, you made a pretty good case; but if it’s such a great idea, why are so many politicians opposed to a balanced budget amendment? They’re opposed to it because, basically, it’s like asking a politician to cut his own throat. Think about it – what politician want’s to cut off the money flow that helps him run for office? Remember how many political ads you saw during the last big election? Those ads, especially on TV can cost tens (if not hundreds) of thousands of dollars! Most politicians depend on the help of special interest groups to finance their election campaigns. So, why would they voluntarily cut themselves off from this money tree? They won’t. Not without enormous pressure from average voters, like you and me. Polls already show that roughly 70% of the American public already support the idea of some sort of balanced budget amendment.

Now you can put your party hat back on. I’m done.

I’m not expecting this one article to convince you; but I am hoping that it will make you think. Even though the biggest objection to a balanced budget amendment to the US Constitution comes from Democrats in Washington, they aren’t alone. There are plenty of Republicans who ‘brush off’ the idea of a balanced budget amendment. I challenge you to take a close look at those who object and I’ll be willing to bet that they take enormous sums of money from at least one special interest group. If they do, don’t you think it’s at least reasonable to consider that their motivations are less than pure? Isn’t it reasonable to consider that they’re putting their own self-interest and political career first, before the interests of the country and their constituents? All I’m saying is that the idea of a constitutional control that limits the government’s spending is not the “radical” or “crazy” or “impossible” idea that many politicians in Washington make it out to be! Remember that you most likely live in a state that has a balanced budget requirement of some sort; and remember that if we ask for one we’re essentially asking the politicians to give up access to a money tree.

Would it really be bad to at least have a serious national discussion about forcing the federal government to operate the way each one of us do, the way every business does, the way every union does, the way that every non-profit organization does and the way that 49 out of 50 states do- within some semblance of their means? How can we expect to continue spending more money than we have? There’s NO way for it to continue indefinitely. Every year our debt grows to swallow a greater and greater amount of our GDP and eventually, if this continues, it will equal (or even exceed) what we take in; and, eventually, we will end up living in a bankrupt country. There’s NO reason we can’t live within our means and still do what we need to do for those who need our help. If you’ve been opposed to a balanced budget amendment please take a fresh and open minded look. It’s an idea worth looking at and discussing, to see if we can’t come up with a way to implement a balanced budget constraint on the federal government and curtail the out-of-control spending that they’ve become so accustomed to. If we don’t, the consequences will be more severe than we can imagine.

Are these new fuel economy standards a good thing? Really?

Posted in Political/Social Commentary with tags , , , , , on July 30, 2011 by The Center Shot

Yesterday was a perfect example of what’s wrong in Washington and why we need a “cap” on spending and a balance budget amendment. President Obama announced a new fuel economy standard that US auto makers reluctantly agreed to- 54mpg average (between all vehicles sold in the US) by 2026. Sounds like a good thing, right?  It’s not.

First of all, consider that last year, in spite of their fuel economy and the high price of fuel, hybrid vehicles only accounted for 2% of the vehicles sold in the US last year. Ford sold TWICE as many F150 trucks as they did all of their hybrid models COMBINED! Auto makers argued, this is clear evidence that Americans are not interested in these high-priced vehicles, regardless of their fuel economy.

Secondly, car makers warned that raising the fuel economy standard as high as the president wanted could lead to job losses. Auto prices are already at record highs with some pickups costing in excess of $70,000. In order to meet the proposed new standards (which call for an average mpg rating), vehicles will have to be developed that far exceed 50mpg; and the investment required to develop the new technologies will drive vehicle prices much higher. With consumers already balking at vehicle prices, especially on hybrids, market analysts warn that increased prices will lead to a slump in auto sales which will result in a loss of jobs in the auto industry and among small businesses that supply components to the auto makers.

In spite of these sensible economic objections, auto makers were convinced by the President to sign on to these new fuel economy standards. How, you may ask? Did the car companies have some sort of awakening? No. The President ‘sweetened’ the deal by offering tax credits to auto makers and including a policy review in 2017! What does this mean? It means that the American taxpayer will, essentially, subsidize the development of fuel economy vehicles that Americans won’t be able to afford and have already shown a reluctance to buy; and which will, inevitably, cost jobs. The analogy has been made, by economists, that this is like dealing with obesity by forcing clothing companies to produce nothing but small sizes.

The Administration and it’s supporters have spent the last 2.5 years blaming government subsidies, loopholes and tax credits to corporations and favoritism to special interest groups for a significant portion of the debt and the current budget crisis. Now, at the height of the nation’s biggest fiscal crisis EVER, the President engages in yet another spending spree to advance an environmental policy that he personally likes and that his political base likes. A policy that Americans doesn’t want, can’t afford and will cost American jobs.

Political analysts say that this an effort by the administration to mitigate damage among liberal Democrats that are angry with the President over his apparent willingness to negotiate on entitlement reform.  Business as usual in Washington- at it’s worst.

Politicians, on both sides of the aisle, are suffering from the “I don’t mind cutting as long as it doesn’t effect me” disease! Unfortunately, the President seems to suffering from it even worse than many others. It would be one thing if this move had a trade-off of significant job creation or would have a positive economic effect for the average American, that would outweigh the cost. Unfortunately, the BEST Americans can hope for is more expensive vehicles that are unlikely to provide fuel cost savings that outweigh the additional cost of the vehicle and that will be subsidized with taxpayer dollars. The WORST case is the same result in addition to a massive loss of jobs when auto sales slump because vehicles are too expensive to afford!

In addition, previous fuel economy standards have led to decreases in vehicle safety, increases in automobile related deaths and questionable reductions in overall emissions. Studies by groups like the National Highway Transportation Safety Administration, The Brookings Institute and the National Academy for Science have found that similar fuel economy standards (CAFE standards) led to reductions in vehicle safety and led to between 41,600 and 124,800 deaths, depending on the study. Additionally, the studies found that CAFE standards led to between 352,000 and 624,000 additional serious injuries in traffic accidents.

Whether or not government-imposed fuel efficiency standards actually reduces emissions is hotly debated. For every study that claims emissions will be reduced, there is another that shows they won’t. Studies that claim emissions will reduced ASSUME that (and rely on) people will not change their driving habits when presented with a more fuel efficient vehicle. Unfortunately, studies into this particular question show the opposite. As people acquire more efficient vehicles, they drive more; which often leads to a net increase in emissions as compared to their previous habits in their old car.

Additionally, there are many indications that the prices that auto makers will be forced to charge for these high fuel efficiency vehicle will be more that most consumers can afford. Even today, with the high price of fuel, sales of current hybrids and electric cars are extremely slow, to say the least. They are, frankly, out of reach of most Americans and many just don’t see how they can recoup the enormous cost of these vehicles through the increased mileage they offer. Don’t forget that on top of the vehicle sticker price, most buyers will pay interest charges that total thousands of dollars before the vehicle is paid off.  It takes a LOT of driving just to save $1000 off fuel economy.   and a HIGHER cost to the consumer, rather than the promised savings.

Remember, the new standard requires that the average mpg rating  of all the vehicles an auto maker SELLS (not produces) meets a particular standard. So, if a particular car maker sells work trucks (i.e. Dodge 2500 pickup, Ford F350 pickup, etc.) that only get mileage in the 20’s, they are required to sell enough vehicles that exceed the 54mpg requirement so that that the average of all sales is 54mpg.  If they don’t there are penalties. With current sales of hybrids and alternative fuel vehicle only accounting for a tiny fraction of the market, and all the issues already discussed, its reasonable to assume they will only account for a small percentage of sales when the guidelines go into effect.  Who will incur the penalties when these standards aren’t met?  The consumer.  The car makers may, initially, pay the ticket but they will pass those costs on to the consumer eventually; further raising the costs of vehicles.

With all these negatives and the fiscal crisis, it’s hard to imagine any reason, other than a political one, why the President would press this issue right now. It’s actually hard to understand why such a proposal would be put forth period, at any time, were it not for political concerns. One thing is for sure, this announcement smacks of the hypocrisy, poor timing and influence of special interest groups (particularly environmentalists) that have plagued Washington and led to much of the current debt and budget problems. The only way to begin to curtail this reckless type of favoritism and spending is to impose some sort of “check” or “cap” on spending; and the only way to permanently limit it is to implement a balanced budget  amendment to the constitution. If politicians are only given a a specific amount they can spend to get EVERYTHING done, instead of the power to borrow as much as they want, they will have to consider what they spend money on. Just like we do. IF a balanced budget amendment were in place and they want to implement a new program, they would have to find they money within the budget instead of simply borrowing it or printing it like they do now.

If you want to do some more reading on fuel economy standards and their real effects, check out this article from the Institute for Energy Research