Balanced Budget Amendment

The Balanced Budget Amendment is a mostly right-wing populist proposal to pass an amendment that would force the United States federal government to always maintain a balanced budget. It's one of the few policy proposals that both many right and left leaning economists can agree is a very bad idea, though it maintains some popularity with those who conflate microeconomics with macroeconomics (such as comparing the debt of the U.S. to the debt held by an individual household).

The main problem with the idea is that during a recession the government would be forced to make ends meet by raising taxes and drastically cutting spending, which would make recessions much longer and more brutal than necessary.

Some of its support stems from the belief that allowing substantial deficit spending will, if unchecked, inevitably cause a global economic collapse. Running a deficit will not cause problems by itself, as long as the economy improves faster than the debt increases, i.e. the debt as a percentage of GDP decreases in the long term. The financial system as we know it is more robust than these doomsayers believe, given that the brouhahas of the Great Depression and the Great Recession did not destroy it. In both of those cases, the solution to the crisis was to stimulate the economy through spending, a measure that forcing the budget to be balanced would prevent. Rather than deficit spending leading to a spiral of debt that destroys the economy, it can actually prevent a spiral of runaway economic contraction.

A balanced budget amendment would deprive the government of one its key tools to mitigate recessions. The ideal situation would be for the government to run a deficit in recessions and a surplus in booms, mitigating the boom/bust cycle, but it takes greater testicular fortitude than most politicians possess to call for reductions in spending when the economy is doing well. Excessive government borrowing has some well-documented problems, but it does not follow that eliminating borrowing entirely is a better idea than allowing a modest amount. Many arguments in favour of balanced budgets amount to Greece-baiting, predicting inevitable disaster as long as the scourge of deficit spending is allowed to endure.