An Unconstitutional Deficit?

Times are hard in the US. The federal deficit is now over a trillion (one thousand billion) dollars[ref][/ref]. In order to fill up this bottomless pit, a dozen Republican senators have put forward an audacious proposal. They want to amend the Constitution so that the budget would have to be balanced. Should it be adopted, a supermajority (2/3 of the votes) would be required to allow a deficit[ref][/ref].

Such a proposal is shocking for Keynesians and other fans of government intervention. Norman Ornstein of the American Enterprise Institute finds it irresponsible, adding that “It would virtually ensure that an economic downturn would end up as a deep depression, by erasing any real ability of the government to pursue countercyclical fiscal policies.”

“Keeping spending at 18 percent of GDP is not feasible when we have a huge generation of baby boomers moving into retirement,” says Alice Rivlin, who sat in the Obama’s debt commission. Others, too, think that such an amendment would be a fiscal straightjacket [ref][/ref] and that a budget should be balanced inside a business cycle instead.

The Government Nuisance

With this amendment, it would be impossible for the government to ease recessions with contracyclical measures. Contrary to popular belief, it is a good idea.

Indeed, history clearly shows that the government is, more often than not, responsible for crises. The most recent one, caused by a mortgage crisis, is mostly due to government policies[ref][/ref]. Among others, they made Fannie Mae(the government sponsored entity),whose mission is to make the housing market more affordable, relax its requirements in order for someone to get a mortgage [ref][/ref]. It also made – and still does – banking establishments lend money to basically anyone[ref][/ref].

The Great Depression can also be linked to government intervention[ref][/ref]. Indeed, two UCLA economists recently confirmed what Murray Rothbard had proved in “Americas Great depression,[ref][/ref]that Franklin D Roosevelt, inheritor of the Herbert Hoovers legacy of interventionism, prolonged the 1929 recession by at least seven years. Among others, he suspended the anti-trust laws, which let companies fix prices at 123% above normal – the suspension of such laws was granted to those who accepted participating in collective bargaining, which raised wages at 125% their normal level; and he restricted foreign trade – he thought it was one of the causes of low wages – which made increased the price of steel by 14%.

Trimming Down the Fat

One of the other measures included with the amendment forbids tax increases without a supermajority. The left strongly objects to such measures. It claims that tax decreases are one of the main causes of high deficits [ref][/ref]. Of course, this is a myth[ref][/ref]; increasing taxes means taxing effort, which discourages work and wealth creation.

Instead of increasing taxes, there are many very easy budget cuts to be made:

  • The Drug Enforcement Agency, who is given an annual budget of $2.42 billion to fight drugs in the US and abroad. They are likely to arrest honest citizens whose only fault is to consume an arbitrarily illegal product – which would have been alcohol 90 years ago –, who in turn flood the courthouses. Police resources are therefore diverted from real crimes (theft, murder, fraud). Imagine how much money would be saved if we didn’t have this futile war on drugs, or how some people would legally use certain substances without the fear of being treated like serial murderers, and as a consequence, how much less corruption there would be [ref][/ref].
  • The Housing and Urban Development (HUD) Department, whose mission is to make housing affordable to everyone. One of the greatest architects of the actual crisis – it fostered the housing bubble by allowing people to purchase a home, even to those who wouldn’t qualify – squanders $43.72 billion.

  • US military bases outside of Iraq and Afghanistan. More than $250 billion[ref][/ref] are spent to keep more than 700 bases everywhere (Japan, Germany, Turkey), but for what purpose? There is no news about the US being at war with most of the countries where the bases are. Only empires (Rome, England) maintained troops abroad in order to maintain their hegemony.
  • The Department of Homeland Security (DHS), created in the aftermaths of 9/11. The DHS absorbs $55 billion to accomplish it’s missions – like helping people during natural catastrophes[ref][/ref] – that were accomplished without it before 2002. The dismantling of this department would not only save money, but would also stop many individual rights violations like wiretapping.

  • Agricultural subsidies. Anywhere between $10-30 billion are taken from the taxpayers and put in the farmers’ pockets[ref][/ref]. The theft is two-fold, because food imports are severely restricted. A double victory would be won by citizens with the liberalization of agriculture.
  • ALL subsidies to ALL forms of energy. The government would therefore save $18.2 billion [ref][/ref]
  • by not helping the “renewable” energy sector – who is, after all, another bottomless pit – and $31.5 billion[ref][/ref]by not helping the fossil fuel sector. Considering the high prices of the resources (except maybe for natural gas), the process of exploration and extraction pays for itself.

With all the proposals above, the deficit would be cut by over $400 billion. It would be totally eliminated if the 10th amendment – “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people” – were taken to the letter[ref][/ref]. Indeed, federal programs like Medicare, Medicaid, HUD, The Department of Energy, The EPA, the Federal Reserve and the Department of Transportation, only to name a few, would be deemed unconstitutional and be eliminated.

Concentrating on Essential Missions

Governments were created essentially to protect people from outside and inside dangers (army) and to prosecute such dangers (justice). Everything else is superfluous, and more so in the US, since the power of the federal government is stricly limited. This amendment is in a way superfluous, but if it’s what it takes to control the deficit, so be it. THAT amendment won’t be violated easily


One Response to “An Unconstitutional Deficit?”

  1. Redmond says:

    Yes – the gold standard would stop this madness.

    I'll repost a talk in the Blog

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