The IGM Economic Experts Panel overwhelmingly opposes a constitutional strict balanced budget amendment.
Weighted by the confidence of their answers, 99 percent of responders disagree or strongly disagree that a requirement the federal government balance the books would reduce output volatility; whilst 53 percent disagree with the view that it would lower federal borrowing costs.
This is timely. House Speaker Paul Ryan (R‑WI) has tasked Rep. Doug Collins (R‑Ga.) as part of a 22-person strong task force to consider alternative fiscal rules to the debt ceiling to help constrain the growth of US federal government debt. The task force offers its recommendations in December. Whilst the task force’s remit does not extend to constitutional change, the cost and benefits of different fiscal rules are bound to shape their thinking.
Why do economists demur over an ex-post balanced budget requirement that forces balance every year? Two main answers appear. First, there’s the Keynesian argument that fiscal policy can and should be used to smooth the business cycle, especially via discretionary deficit-spending during recessions. In this view, a balanced budget amendment can exacerbate output volatility by outlawing potentially helpful fiscal support and enforcing cuts when the economy is in a cyclical downturn.