A Balanced Budget Amendment With No Balanced Budget

The Republican House caucus recently conducted a members “retreat” to discuss many things, among which was their own dysfunction, what to do about the “debt ceiling”, how to deal with a President who keeps rolling them, and what to do about a leadership team that seems more concerned with short term political survival than with long term progress for the country. Coming out of the retreat the caucus came to the realization that the debt ceiling fight was a dead loser for them politically. So instead of forcing a default the House punted the debt ceiling forward by a few months, and scored some political points by demanding that the Senate pass a budget. Republicans have been moaning about the lack of a Senate budget for some time, and as a political matter they have a point. So how did Speaker Boehner and Budget Committee Chair Paul Ryan convince the caucus to punt the debt ceiling? They promised them that the House would produce, in the next budget cycle, a budget that balances in ten years.

Lots of folks who follow this budget talk in a less than comprehensive fashion might be shocked by that. Many people I talk to would take an oath that the “Ryan Plan” produced a balanced budget! After all isn’t that what all the fighting has been about? The Republicans calling for fiscal discipline, and railing against the debt???? Surely Paul Ryan’s budget showed balance, because that is what he keeps saying we need. In fact Republicans have demanded that Congress pass a “balanced budget amendment” to the Constitution, which would make such balance a constitutional requirement. So what is the truth?

Paul Ryan’s budget did not show balance for over thirty years, and that imbalance makes his, and the Republican’s calls for a “balanced budget amendment”, fundamentally dishonest. So now they have taken the pledge to balance the budget in only ten years, and to do so with the existing revenue stream. In an interesting sidebar Paul Ryan now indicates that when he produces that budget he will include the $600 billion plus in new revenues that the Republicans strenuously fought against. Would be an interesting exercise to see what that budget would look like without those revenues.

Ryan, in his Sunday Meet the Press interview, made the claim that Republican budgetary philosophy was not to impose “austerity”, but rather to promote growth. He took pains to distance Republicans from the failures that are visible to all but the willfully blind in Great Britain, where the Cameron government has imposed austerity in a time of recession and created a downward economic spiral that comes from such wrong headed thinking. The best line I have read on the British experiment with austerity came from Matthew O’Brien in the Atlantic.

Unless austerity is offset by monetary easing, contractionary fiscal policy is indeed contractionary.

Pretty simple to understand, but something that Republicans just have trouble figuring out. If you undertake policies that are designed to contract the economy, the economy will indeed contract. Job losses, loss of economic output, and then more cuts because the economy is contracting and the deficit is rising as a percentage of the smaller pie lead to a death spiral. While you might think that nobody in their right mind would want such an outcome many Republicans seem eager to emulate the British failure. Ryan, well aware of the Cameron failure, will now be charged with the development of a budget that, by definition, MUST emulate the British model in order to achieve that balance in ten years. He is taking pains to separate rhetorically from this concept, but the numbers will be difficult to parse.

As a final thought I realize that Republicans have had a great talking point in whipping the Senate for their failure to produce budgets for many years. But Democrats have failed to ask how Republicans can advocate for a balanced budget amendment while at the same time refusing to actually produce a balanced budget. “Where is the balance” might be a question for Republican budget writers? Paul Ryan is about to try to answer that question, and the consequences for Republicans will be dramatic. His interview with Meet the Press is below.

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