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An unbalanced idea from the governor

TNS Regional News • Jul 28, 2014 at 3:07 PM

John Kasich, now seemingly positioned to win a second term as governor of Ohio, may or may not run for president. When the question recently surfaced about pursuing the White House in 2016, the governor reprised Clint Eastwood playing Harry Callahan as part of his less-than-definitive answer: "A man's got to know his limitations."

The governor did say, as reported in the Columbus Dispatch, that he would be traveling the country in the coming year. He intends to pitch for a balanced budget amendment to the U.S. Constitution. Actually, he unveiled this campaign a year ago. He argues that if Congress won't act to advance the amendment, the necessary 34 states should call for a constitutional convention.

Predictably enough, the governor insists that if Ohio and other states can balance their budgets every year, the federal government, with a debt of $17.6 trillion, surely can and must do the same -- "because it's the right way to manage taxpayers' money and helps create a jobs-friendly climate."

The thoughts are tempting. They couldn't be more misguided. Perhaps a man also should know the limitations of his policies.

Robert Kogan of the Center on Budget and Policy Priorities recently examined the likely fallout from the amendment. He explains how the requirement for states to balance their budgets means the federal government must have flexibility to respond in dire and changing economic circumstances.

Consider the dynamics of a recession. Revenues decline due to diminished economic activity. Spending increases as "automatic stabilizers" such as food assistance and jobless benefits expand. The result is larger budget deficits. If anything, most economists advise running deficits as part of cushioning the blow of a downturn.

A balanced budget amendment would not permit such a response. The task would be to raise taxes or reduce spending or both, sending the economy into deeper trouble, prolonging the hardship.

Kogan points to an analysis by Macroeconomic Advisers, a leading private forecasting firm, weighing the impact of a balanced budget amendment in 2012. The report describes the effect on the economy as "catastrophic," about 15 million more people out of work, the unemployment rate doubling, the economy shrinking by double digits instead of growing 2 percent.

Not exactly the right way to manage, let alone jobs friendly.

The country learned lessons long ago about navigating through tough economic times. Know that as states such as Ohio balanced their budgets in the recent recession, they amounted to a drag on the overall economy. A key purpose of the federal stimulus package was to counter the effect.

Backers of the amendment cite provisions that allow for waiving its requirement in a crisis. Yet the hurdle is high, securing three-fifths, or two-thirds, of the House and Senate. That won't come easily, especially in today's Washington. More, economic data already lag. Add Capitol gridlock, and the response would be slower.

If families must make ends meet, why not the federal government? Gov. Kasich likes to make this case. What he overlooks is that families borrow money, or engage in deficit spending, to buy a home, or a car, or a college education. States perform similarly, through their capital budgets, their cumulative debt at roughly $1 trillion.

The governor also likes to lecture about the Ohio way. How has he kept the state budget in balance? Count among his top tools redirecting revenue streams to state coffers, reducing spending on local governments and school districts, plus leveraging a larger sum in federal Medicaid money.

That final item contains a doozy of a twist. The governor scolds Washington for "inexcusable" budget mismanagement, yet he has embraced its funds. Let's remind ourselves: The Medicaid expansion, for which the governor rightly has taken bows, would not have happened without federal spending.

And what if Washington followed the Ohio way? Things would get difficult for the state as the feds pushed the fiscal burden down to lower levels of government.

Obviously, the country faces a big budget challenge, an aging population fueling the main drivers of long-term deficits, Medicare and Medicaid. That means hard choices. Yet a balanced budget amendment hardly is an effective framework for addressing the problem.

Better, as Robert Kogan advises, to think about the deficit and the debt as percentages of the overall economy. The deficit peaked at 10 percent in 2009. It now is around 3 percent, and soon projected to rise. As a rule, the national debt should grow more slowly than the economy (except when the country deals with recessions).

Kogan points to the three decades after World War II. The debt fell from 106 percent of the economy to 25 percent -- all without a balanced budget amendment.

EDITOR'S NOTE: Douglas is the Beacon Journal editorial page editor. He can be reached at 330-996-3514, or emailed at mdouglas@thebeaconjournal.com.


By MICHAEL DOUGLAS - The Akron Beacon Journal (MCT)

(c)2014 the Akron Beacon Journal (Akron, Ohio)

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