A balanced budget = smaller economy

May 30 2012 - 12:35pm

This June 12 marks the third anniversary of our nation's switch to high-definition television. Prior to the change, networks left the impression that if one obtained the converter box they could maintain the same quality of television as before, without purchasing cable or satellite, etc.

Yet June 12, 2009, effectively marked the end of free and dependable television for many. There is no doubt that if the networks informed viewers that the quality for those without cable or satellite would markedly deteriorate, there would have been many more objections to the change.

When pharmaceutical medical products are advertised they are required by law to inform the public of possible side effects the products might cause. Thus many products warn users that the product could cause "headaches, dizziness," etc. When medical procedures are undertaken the patient is generally informed exactly what is going to be done and given an idea of what to expect.

Sen. Orrin Hatch and others advocate a balanced budget amendment (BBA) requiring the national government to balance its budgets. They seem to believe that if the national government balanced its budgets the economy would grow, although the history of the 1800s shows their belief is erroneous.

Unlike producers of pharmaceuticals, politicians are not required to explain the side effects of policies they promote. They are afraid to explain in detail what it will do to the economy over time, because its key side effect is to certainly shrink the economy.

The fact which escapes the BBA advocates is this: U.S. government spending is income to millions of Americans. Moody's Analytics, which specializes in macroeconomic research, finds that almost 20 percent of U.S. income is coming from the government. These payments include jobless benefits, social security, food stamps and disability payments.

The government paid out 35 percent more in 2010 than it had in 2007; this big increase is a direct consequence of the Great Recession which began in December 2007. Thus, the increased expenditure was clearly not because of a new program President Obama started. Every time an unfortunate person is rescued by our economic safety net, government expenditures increase.

These government expenditures are known as "stabilizers" because they prevent the job destruction from spreading. Economists have estimated that every $1 paid in jobless benefits generates as much as $2 in the economy. (To visualize this imagine how a federal dollar given to a Hill employee might be income for a local restaurant owner who would then spend it to give a local beautician income etc. )

One reason this economic downturn has been so prolonged is because government at all levels has had one of its largest declines in history. Nearly all the government job losses occurred at the state and local levels and they were most severe in Republican controlled states. The Nation magazine notes the 11 states where Republicans took control in 2010 were responsible for 40 percent of the public sector job losses in 2011. Texas, which was Republican controlled before 2010, single-handedly was responsible for 31 percent of the public job losses.

Therefore 70 percent of all public sector job cuts occurred at the state and local levels of 12 Republican controlled states. Nobel laureate Paul Krugman estimates that if government growth had been comparable to the Reagan era, unemployment would now be at seven percent, which is one percent better than the president promised.

Women have been disproportionately hurt by public sector job losses. Although between June 2009 and March 2012 women gained 680,000 jobs in the private sector, in the same period they lost 396,000 jobs in the public sector, partially because of their deep involvement with education. This suggests that BBA is a position which would hurt the most vulnerable.

The Congressional Budget Office just reported that if the budget balancing measures adopted by Congress are adhered to, the economy will get into another recession in 2013.

The BBA is just a U.S. version of the austerity that has caused so much suffering and protest in Europe. Austerity is shrinking their economies: the BBA will shrink ours.

How can anyone believe that at a time when the spending of consumers and businesses are down that it is appropriate, helpful, or wise for the largest single purchaser of goods and services- the U.S. government -to reduce its purchases and thereby exacerbate the downturn?

Jones lives in West Haven.

From Around the Web