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Balanced Budgets and the Debt

By Taylor Marvin

Scott Adams has been doing an interesting series of posts on tackling the deficit. While critical of optimistic conservative proposals to cut entire federal departments, he’s fairly militant on the subject of balanced budgets:

“If you can describe your political position with one word, you’re part of the problem. Political groups confuse philosophies with plans.  When you identify with a group, you become a philosopher. I suppose everyone assumes the plan is someone else’s job.

I’d like to see a Constitutional Amendment that makes anyone in federal office ineligible for another elected term if the budget isn’t balanced during the current term.”

Matt Yglesias is critical of this kind of thinking:

“The answer is that, no, you actually don’t need to get to a balanced budget in order to tackle the debt. The country’s debt is becoming less burdensome, which is to say any time GDP is growing faster than the debt. If debt growth is zero (balanced budget) or negative (surplus) that usually means fairly rapid debt-shrinkage. But given positive economic growth, modest budget deficits are completely consistent with reductions in the debt burden.”

This is an interesting debate. Adams’ idea is more realistic than most balanced budget amendment proposals because, unlike Tea Party Republicans’ most common amendment proposal, it includes an enforcement mechanism. Aside from the inherent recession magnifying problems with a balanced budget amendment Yglesias’ point is a good reason why balanced budgets are necessary at all. Looking at the debt in absolute terms isn’t that informative- it’s the debt as percent of GDP that’s important. At $14 trillion the US’s current debt is about $3 trillion dollars more than Japan’s. But Japan’s public debt is nearly 200% of GDP, compared to about 96% in the US. Both countries face serious debt challenges, but by only looking at the absolute debt amount doesn’t give a good picture of each country’s fiscal situation.

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