Uploaded February 2017 | Updated September 2026, 3 weeks ago
Professor L. Randall Wray and Steve Grumbine of Real Progressives discussing the proposed Balance Budget Amendment (BBA) to the US Constitution. Such an amendment would mandate that the federal government only run balanced budgets. Modern Money Theory is very clear on this: a BBA would be unworkable and a disaster.
Firstly, it's doubtful that the government even can balance the budget. They can try, but the reduced deficits will result in recession and slower economic growth in the private sector (maybe even a financial crash), which will automatically grow the deficit back, as tax receipts decreased and automatic assistance spending like unemployment insurance increased. Further attempts to increase taxes and/or cut spending more would just make it worse. We've seen this happen in Europe for the last decade, and it's why Greece is now in "worse condition than the US Great Depression." Further attempts to balance the budget have only made the disaster worse.
Second, the sectoral balances are unsustainable. You *might* be able to get a balanced budget without a collapse if the private sector were willing to borrow to sustain it, like they were in the 90's. But this eventually collapsed when the private sector became unable to take on any more debt in 2008. It goes like this: in the US we run a trade deficit with the rest of the world, which means that dollars are constantly leaving the country. This would mean that the private sector is running down debt or going into savings, except that the government is spending more than it's taxing (running a deficit) and supplying these savings back to us. If we took away the government deficit, then we'd be constantly losing financial assets to the foreign sector, implying that the private sector was going into debt.
But third, it's simply unnecessary. The US government is the issuer of the US dollar. It floats the exchange rate, and has no foreign-denominated debt. Between these 3 conditions, it is impossible for the government to be forced to default on its debt. It is impossible for the government to run out of dollars, and at conditions of less than full employment, it is unnecessary for the government to raise taxes to pay for programs.
So what the heck is the purpose?????
Proponents of BBA either don't know better, or are purposely trying to stymie government and crash the economy.
See what else Real Progressives is up to here: facebook.com/RealProgressive
See the whole interview here: youtube.com/watch?v=-7StbLkjBQk
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facebook.com/DeficitOwls
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Professor L. Randall Wray and Steve Grumbine of Real Progressives discussing the proposed Balance Budget Amendment (BBA) to the US Constitution. Such an amendment would mandate that the federal government only run balanced budgets. Modern Money Theory is very clear on this: a BBA would be unworkable and a disaster.
Firstly, it's doubtful that the government even can balance the budget. They can try, but the reduced deficits will result in recession and slower economic growth in the private sector (maybe even a financial crash), which will automatically grow the deficit back, as tax receipts decreased and automatic assistance spending like unemployment insurance increased. Further attempts to increase taxes and/or cut spending more would just make it worse. We've seen this happen in Europe for the last decade, and it's why Greece is now in "worse condition than the US Great Depression." Further attempts to balance the budget have only made the disaster worse.
Second, the sectoral balances are unsustainable. You *might* be able to get a balanced budget without a collapse if the private sector were willing to borrow to sustain it, like they were in the 90's. But this eventually collapsed when the private sector became unable to take on any more debt in 2008. It goes like this: in the US we run a trade deficit with the rest of the world, which means that dollars are constantly leaving the country. This would mean that the private sector is running down debt or going into savings, except that the government is spending more than it's taxing (running a deficit) and supplying these savings back to us. If we took away the government deficit, then we'd be constantly losing financial assets to the foreign sector, implying that the private sector was going into debt.
But third, it's simply unnecessary. The US government is the issuer of the US dollar. It floats the exchange rate, and has no foreign-denominated debt. Between these 3 conditions, it is impossible for the government to be forced to default on its debt. It is impossible for the government to run out of dollars, and at conditions of less than full employment, it is unnecessary for the government to raise taxes to pay for programs.
So what the heck is the purpose?????
Proponents of BBA either don't know better, or are purposely trying to stymie government and crash the economy.
See what else Real Progressives is up to here: facebook.com/RealProgressive
See the whole interview here: youtube.com/watch?v=-7StbLkjBQk
Follow Deficit Owls on Facebook and Twitter:
facebook.com/DeficitOwls
twitter.com/DeficitOwls
And follow our sister page, Modern Money Memes:
facebook.com/ModernMoneyMeme
twitter.com/ModernMoneyMeme
