Tuesday, July 26, 2011

UNbalanced Budget Amendment

Yes, you read that correctly.

Alex Tabarrok suggests an amendment to unbalance the budget, and I think it is a great one.

For years I’ve recommended a balanced budget amendment only if it required balance over a rolling window of no less than several years. The problem with this is that it ought to be several years — to avoid budget panic during a year in which the economy is in recession the whole time, but less than the number of years between elections — so that all elected officials would have to deal with it.

I think the problem with Alex’s suggestion is how to measure “good times”. With the NBER business cycle dates? With a real GDP growth rate rule (say 2% or above)?

How about this alternative: you can only raise taxes when the economy is improving, and you can only raise spending when it’s getting worse!

One good thing about the idea is that the predominance of positive growth periods in the U.S. would mean we’d predominantly be running surpluses.

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