The United States is the most developed economy in the world in terms of the gross domestic product. However, the country has one of the highest budget deficits globally, meaning that the overall spending exceeds the total revenue collections. The country has for many years run under an increasing cumulative budget deficit amounting to over $24 trillion as at 2022 (Tanaka, 19). The government has been under pressure to spend more following the COVID-19 pandemic and the ongoing war in Ukraine. It is projected that with the current trend, the budget deficit is likely to double the size of the US economy by 2025 (Tanaka, 19). The budget deficit debate has been a major issue of debate both in the senate and the house of representatives on the need for legislation requiring the government to have a balanced budget. The issue of budget deficit emerged after World War II when the government needed to borrow heavily as a result of huge spending on defense. The higher budget deficit may have an impact in future generation, but it is needed to ensure that the country has enough resources to spend on the critical segments of the economy.
A balanced budget is supported because it establishes a measure that will push the government to plan within the available public resources. The resultant political pressure will impose greater accountability and reduced wastefulness in spending. The intervention will help to shield future generations from unnecessary economic burden occasioned by the current regime. The ever-rising US budget deficit may raise the prospect for investors that the government will have a reduced ability to honor its debt obligations. Consequently, there will be increased interest rates that will suppress private-sector venture, which will cause slower economic growth. According to Crosby and Allyson, a spontaneous increase in interest rates can cause the government to face challenges in raising money to pay for interest as economic activities will slow down. In the end, the administration is likely to default or the economy will suffer from higher inflation.
However, it may be highly challenging to compel the government to have a balanced budget. The requirement will threaten the economic standing of the country by exposing the country to deep economic recession and loss of jobs. Kogan states that an amendment to balance the budget will require that the administration cuts on federal spending, raises taxation, or both. Budget cuts and increased taxation will further weaken the economy that is currently in a weak position after the COVID-19 pandemic and the current war in Ukraine.
Slowed economic activities will cause a further decline in federal revenue. It is expected that the economy will expand at a very slow pace leading to more spending on social programs and the cost of unemployment insurance. As a consequence, the government resources will be squeezed further and may well resort to borrowing or force the government to reduce spending on social programs. Kogan (2018) argues that the measure will not promote the free operation of the automatic stabilizers in the economy, which essentially involves drawing money out of the economy at just the wrong moment. This is not an acceptable recommended intervention for having a sound economic policy, the government will be exposed to an adverse spiral of bad fiscal and economic entanglement causing higher deficits.
Furthermore, the mandatory balancing of the budget lacks appropriate support from past practices. In the period leading to the Great Depression, presidents and the legislature attempted to balance the federal budget. The measure mainly succeeded in all years apart for periods of major wars, notwithstanding the state of the economy. However, in effect the country experienced an average of 2.8 recessions per decade specifically from 1854 to 1929 (Mou, 30). The trend was reversed under Franklin Roosevelt’s installation in 1933, where budget deficits have been authorized to accumulate as the economy weakened and recede as it recuperated. As a result, the country has been characterized by occasional and shorter economic slumps, averaging 1.6 recessions per decade (Mou, 36). Additionally, Mou (40) states that the typical duration of economic growth rose from an average of 25 months in the prior times to reach 63 months in the subsequent period. During the period of uncontrolled budget deficits, the country was able to experience eight longest periods of economic expansions.
In conclusion, there arguments against enforcing a balanced budget outweigh those in support. The US economy is a leading economy in the world and can leverage its global position to bargain for lower interest rates. The current business and operating environment are highly dynamic and economic shifts can occur at any time. Having a fixed budget will restrict interventions measures that may require immediate action. The preferable alternative would be to allow the government to operate with the help of borrowings. Adverse spending can be controlled by instituting tough policies on spending transparency and countability. Even as passing a law requiring the government to have a balanced budget could set a standard for controlled spending, its practical implementation is not plausible.
Works Cited
Crosby, Andrew, and Allyson L. Holbrook. “Public Support for a Balanced Budget Amendment to the U.S. Constitution: Trends and Predictors.” Public Budgeting & Finance, 2019, Web.
Kogan, Richard. “Constitutional Balanced Budget Amendment Poses Serious Risks.” Center on Budget and Policy Priorities, Web.
Mou, Haizhen. “Do Balanced Budget Laws Matter in Recessions?” Public Budgeting & Finance, vol. 38, no. 1, 2017, pp. 28–46, Web.
Tanaka, Yasuhito. “On Accumulation of the Budget Deficit: Spirit of MMT through Mathematical Analysis.” Issues in Economics and Business, vol. 8, no. 1, 2022, p. 19, Web.