About Scott Palmer Expertise International economics: trade deficits, effects on wages and unemployment, and globalization.
Austrian/free market economics: the business cycle, laissez-faire economic policies (pros and cons), monetary policy, and the work of Austrian economists such as Mises, Hayek, and Rothbard.
Experience Worked on Capitol Hill in Washington DC, doing economic analysis for the Cato Institute, Citizens for a Sound Economy, the National Taxpayers Union Foundation, the Heritage Foundation, and many others.
Organizations American Economic Association
Ludwig von Mises Institute
Society for the Development of Austrian Economics
International Winston Churchill Society
Publications The Wall Street Journal, USA Today, Reason magazine, The Freeman, Regulation magazine, The Washington (DC) Business Journal, Cato Policy Report, The San Jose Mercury, InfoWorld, PC World, Amiga World, Federal Computer Week, and many others.
Education/Credentials Ph.D. in economics, specializing in the cultural effects of economic globalization.
Expert: Scott Palmer Date: 4/28/2002 Subject: Balanced Budget
Question In recent years, politicians and some economists in the U.S. have called for an amendment to the U.S. Constitution that would require the the fed. gov. to have a balance budget. Would this cause problems in the economy?
Answer Dear Brian:
There is no perfect solution to most economic problems, but a balanced-budget amendment -- as it has actually been worded in the resolutions passed by 30 or so state legislatures -- is pretty good.
A balanced-budget amendment would require the US national government to spend no more than it takes in taxes -- i.e., to stop running budget deficits. Most versions of the amendment include exceptions for wartime, and also allow deficit spending if a two-thirds majority of both the US House and Senate vote in favor of such spending.
There are three stock objections to a balanced-budget amendment: first, that it is too trivial a matter to put into the Constitution; second, that it would prevent the government from using fiscal policy to stimulate the economy in times of recession; and third, that the same result can be achieved simply by the determination of legislators not to run deficits.
As for the first objection, the issue of budget balance is anything but trivial. Continued budget deficits are a hidden tax on working people for the benefit of those with political connections and lots of money to invest in T-bills. In addition, because future taxes must be higher to service the government's debt, continued deficits shift the cost of current worthless government programs onto future generations, who have no say in the decision to fund such programs. It is a matter of great significance, both economic and moral.
As for the second objection, most versions of the amendment allow deficit spending if two-thirds of the House and Senate vote for it. The difference is that an amendment makes deficit spending more difficult, less casual, and requires legislators to go on record as supporting it. Therefore, a balanced-budget amendment would allow fiscal policy to be used if its supporters could convince a majority of legislators that it was the right course of action.
As for the third objection, that legislators simply need to be more diligent in balancing the budget, such diligence is simply impossible under current institutions. Here's why.
A major reason for deficits is the phenomenon of "concentrated benefits and dispersed costs." Organized groups that benefit from government spending fight to preserve and increase that spending because the benefits they get far outweigh the costs of lobbying Congress. At the same time, taxpayers are not organized, and each taxpayer might pay only a few pennies for each individual government program. As a result, the groups that get millions of dollars fight tooth and claw to increase spending, while taxpayers -- who have actual jobs instead of leeching off the public till -- cannot mount a similar effort to oppose so many different spending programs, each of which has its own pro-spending constituency.
Therefore, the incentives politicians face are almost all in favor of increased spending. A balanced-budget amendment is meant in part to re-balance policians' incentives so that there is not an automatic presumption in favor of constantly increased spending. Under such an amendment, the "pain" of increased spending could not be deferred into the future by having the government borrow money: the pain would have to be faced immediately via a tax increase. This, balanced-budget amendment supporters hope, would help to control government spending.
