Milton Friedman on the Balanced Budget Amendment Part 1

Mark Levin “I feel that we can do great things.”

Uploaded by  on Mar 26, 2011

Mark Levin “I feel that we can do great things.” Mark is excited by the proposed Balanced Budget Amendment. He states that this would be a great thing for America to pass. He believes the Balanced Budget Amendment will help bring the nation back to it’s Constitutional roots. Mark explains what the amendment is and how it will work. In his February 1983 classic essay, Nobel Prize-winning economist Milton Friedman gives his opinion on a balanced budget amendment that requires a super majority to raise taxes. Friedman states, “The purpose of the balanced-budget-and-tax-limitation amendment is to limit the government in order to free the people—this time from excessive taxation. Its passage would go a long way to remedy the defect that has developed in our budgetary process.” Part #1 3-25-2011

The best article I have ever read on the Balanced Budget Amendment was written by my favorite economist Milton Friedman. Here is the first portion below:

Washington: Less Red Ink

An argument that the balanced-budget amendment would be a rare merging of public and private interests.

Our elected representatives in Congress have been voting larger expenditures year after year—larger not only in dollars but as a fraction of the national income. Tax revenue has been rising as well, but nothing like so rapidly. As a result, deficits have grown and grown.

At the same time, the public has demonstrated increasing resistance to higher spending, higher taxes, and higher deficits. Every survey of public opinion shows a large majority that believes that government is spending too much money, and that the government budget should be balanced.

How is it that a government of the majority produces results that the majority opposes?

The paradox reflects a defect in our political structure. We are ruled by a majority—but it is a majority composed of a coalition of minorities representing special interests. A particular minority may lose more from programs benefiting other minorities than it gains from programs benefiting itself. It might be willing to give up its own programs as part of a package deal eliminating all programs—but, currently, there is no way it can express that preference.

Similarly, it is not in the interest of a legislator to vote against a particular appropriation bill if that vote would create strong enemies while a vote in its favor would alienate few supporters. That is why simply electing the right people is not a solution. Each of us will be favorably inclined toward a legislator who has voted for a bill that confers a large benefit on us, as we perceive it. Yet who among us will oppose a legislator because he has voted for a measure that, while requiring a large expenditure, will increase the taxes on each of us by a few cents or a few dollars? When we are among the few who benefit, it pays us to keep track of the vote. When we are among the many who bear the cost, it does not pay us even to read about it.

The result is a major defect in the legislative procedure whereby a budget is enacted: each measure is considered separately, and the final budget is the sum of the separate items, limited by no effective, overriding total. That defect will not be remedied by Congress itself—as the failure of one attempt after another at reforming the budget process has demonstrated. It simply is not in the self-interest of legislators to remedy it—at least not as they have perceived their self-interest.

Dissatisfaction with ever-increasing spending and taxes first took the form of pressure on legislators to discipline themselves. When it became clear that they could not or would not do so, the dissatisfaction took the form of a drive for constitutional amendments at both the state and the federal levels. The drive captured national attention when Proposition 13, reducing property taxes, was passed in California; it has held public attention since, scoring successes in state after state. The constitutional route remains the only one by which the general interest of the public can be expressed, by which package deals, as it were, can be realized.

Two national organizations have led this drive: the National Tax Limitation Committee (NTLC), founded in 1975 as a single-issue, nonpartisan organization to serve as a clearinghouse for information on attempts to limit taxes at a local, state, or federal level, and to assist such attempts; and the National Taxpayers Union (NTU), which led the drive to persuade state legislatures to pass resolutions calling for a constitutional convention to enact an amendment requiring the federal government to balance its budget. Thirty-one states have already passed resolutions calling for a convention. If three more pass similar resolutions, the Constitution requires Congress to call such a convention—a major reason Congress has been active in producing its own amendment.

The amendment that was passed by the Senate last August 4, by a vote of 69 to 31 (two more than the two thirds required for approval of a constitutional amendment), had its origin in 1973 in a California proposition that failed at the time but passed in 1979 in improved form (not Proposition 13). A drafting committee organized by the NTLC produced a draft amendment applicable to the federal government in late 1978. The NTU contributed its own version. The Senate Judiciary Committee approved a final version on May 19, 1981, after lengthy hearings and with the cooperation of all the major contributors to the earlier work. In my opinion, the committee’s final version was better than any earlier draft. That version was adopted by the Senate except for the addition of section 6, proposed by Senator William Armstrong, of Colorado, a Republican. Approval by the Senate, like the sponsorship of the amendment, was bipartisan: forty-seven Republicans, twenty-one Democrats, and one Independent voted for the amendment.

The House Democratic leadership tried to prevent a vote on the amendment in the House before last November’s elections. However, a discharge petition forced a vote on it on October 1, the last full day of the regular session. The amendment was approved by a majority (236 to 187), but not by the necessary two thirds. Again, the majority was bipartisan: 167 Republicans, 69 Democrats. In view of its near passage and the widespread public support for it, the amendment is sure to be reintroduced in the current session of Congress. Hence it remains a very live issue.

The amendment as adopted by the Senate would achieve two related objectives: first, it would increase the likelihood that the federal budget would be brought into balance, not by prohibiting an unbalanced budget but by making it more difficult to enact a budget calling for a deficit; second, it would check the growth of government spending—again, not by prohibiting such growth but by making it more difficult.

The amendment is very much in the spirit of the first ten amendments—the Bill of Rights. Their purpose was to limit the government in order to free the people. Similarly, the purpose of the balanced-budget-and-tax-limitation amendment is to limit the government in order to free the people—this time from excessive taxation. Its passage would go a long way to remedy the defect that has developed in our budgetary process. By the same token, it would make it more difficult for supporters of ever-bigger government to attain their goals.

It is no surprise, therefore, that a torrent of criticism has been loosed against the proposed amendment by people who believe that our problems arise not from excessive government but from our failure to give government enough power, enough control over us as individuals. It is no surprise that Tip O’Neill and his fellow advocates of big government tried to prevent a vote in the House on the amendment, and used all the pressure at their command to prevent its receiving a two-thirds majority.

It is no surprise, either, that when the amendment did come to a vote in the House, a substantial majority voted for it. After all, in repeated opinion polls, more than three quarters of the public have favored such an amendment. Their representatives do not find it easy to disregard that sentiment in an open vote—which is why Democratic leaders tried to prevent the amendment from coming to a vote. When their hand was forced, they quickly introduced a meaningless substitute that was overwhelmingly defeated (346 to 77) but gave some representatives an opportunity to cast a recorded vote for a token budget-balancing amendment while at the same time voting against the real thing.

Milton Friedman received the Nobel Prize in economics in 1976. He is the Paul Snowden Russell Distinguished Service Professor Emeritus of Economics at the University of Chicago and a senior research fellow at the Hoover Institution at Stanford University.
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