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1979 AEI Economist 1 (1979)

handle is hein.amenin/aeieco1979 and id is 1 raw text is: the w# economist American Enterprise Institute for Public Policy Research , April 1979 IN Two Views of the Budget-Balancing Amendment The idea that the Federal budget should be balanced has been standard A merican doctrine for a long time (except, probably, among economists since about 1930). But the budget has in fact been balanced in only nine of the past fifty years and in only one of the past twenty. In the past fifty years there have been $626 billion of deficits and $34 billion of surpluses. About $247 billion of those deficits, or 40 percent of them, came in the five fiscal years 1975-1979. These large deficits of recent years occurred at a time when the inflation rate was exceptionally high and the growth of productivity exceptionally low. They also came at a time when the belief was growing that government expenditures were too high and were not yielding benefits equivalent to their costs. In the minds of many people, persistent and growing budget deficits have been a major cause of these ills. Despairing of correcting the situation by more conventional means, they seek to eliminate deficits, or at least drastically limit them, by a constitutional amendment requiring the Federal government to balance its budget save in exceptional circumstances. Others see the facts quite differently. They would point out that the recent deficits occurred in a five-year period when the average unemployment rate was much higher than in any preceding five-year period back to the 1930s, and probably higher than in any other five-year period of this century except for the 1930s. And while the recent deficits have been large by historical standards, so has almost everything else about the American economy. They would deny that deficits have been a significant cause of recent economic difficulties and fear that commitment to budget-balancing would dangerously limnit the ability of national policy to respond to the needs of an uncertain world. This issue of the AEI Economist presents the views of two outstanding economists on the desirability of a constitutional amendment to require a balanced budget. Their statements, which were presented as testimony before the Subcommittee on Monopolies and Commercial Law of the Committee on the Judiciary of the U.S. House of Representatives, deal with many of the leading arguments in the current debate. Dr. Arthur F. Burns is Distinguished Scholar in Residence of the American Enterprise Institute and former Chairman of the Board of ?overnors of the Federal Reserve System. Dr. Paul A. Samuelson is Institute Professor, Massachusetts Institute of Technology, and Nobel Laureate in Economics. His statement begins on page 4. HERBERT STEIN By Arthur F. Burns I appreciate the opportunity to participate in the proposal for a constitutional requirement of a deliberations of this distinguished Committee on balanced budget. the wisdom of a constitutional amendment requir- Let me state at the outset that I favor the principle ing a balanced Federal budget. of such a constitutional requirement, but that I am In your recent address at the National Governors also mindful of the practical difficulties that attach Conference, Mr. Chairman, you spoke with moving to this proposal. I therefore welcome your counsel eloquence of the need for calm and rational ex- of care, reason, and caution. amination of the facts and issues surrounding the I have watched with great concern the rapid The AEt Economist / April 1979 / I

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