Why the balanced budget amendment failed... - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 27 November 2012
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Baltimore, Maryland

Our old friend Grover Norquist has been in the news lately. The Wall Street Journal, the New York Times and the Financial Times have all done major articles on Grover and his "Pledge." The idea behind all the press is that Grover is the one man standing between the Republican Party and a deal to avert an economic disaster.

The Wall Street Journal's article headline was "Washington's Enemy #1," which must have brought a smile to Grover's lips. We remember Grover as a much younger man. He came to Washington fresh out of Harvard. We gave him his first job in Washington, with the National Taxpayers Union. Our goal then was to avoid the bankruptcy of the US government and the debasement of the US dollar by forcing the feds to accept an amendment to the constitution requiring balanced budgets. We knew Congress would never agree to limit its own power in that way, but the constitution provides two avenues to amendment. Usually, Congress proposes an amendment which is then ratified by the states. But it can be done a different way. The states have the power to call a constitutional convention for the purpose of amending the constitution.

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Grover worked tirelessly with state and local taxpayers groups - this was back in the late '70s - to pass the Balanced Budget Amendment through the state legislatures.

The whole thing seemed like such a long shot at first. No one had ever done it before. But when we got the 30th state to sign on...all of a sudden, it didn't seem so far-fetched any more. It was within reach...an amendment to the constitution that would force the federal government to live within its means.

We were worried what might happen if a constitutional convention were called. What kind of mischief might the convention get up to, we wondered? So, we put language in the state resolutions specifically limiting the constitutional convention to a single issue - the balanced budget amendment.

As it turned out, we needn't have worried. When the campaign came close to success, the forces of darkness - zombies - came out of the closets to oppose us. Big name economists opined on how Congress would lose the ability to use counter-cyclical policy measures. Do-gooders, meddlers, and kibitzers told us how the poor would starve, the sick would die, and the country would be invaded by the Mexican army if the balanced budget amendment were passed.

Most important, Ronald Reagan was elected to the White House. Conservatives were told that 'deficits don't matter.' Besides, with their man in the top job, there was no longer any need to limit Congress.

The deficits went off the charts. But the stock market took off too. And so did the credit boom. People stopped worrying about debt.

With the balanced budget amendment stalled, and a 'conservative' in the White House, Grover left the National Taxpayers Union and set up his own group, Americans for Tax Reform. If deficit spending could not be controlled constitutionally, he reasoned, he would cut off its fuel.

"We learned that Republicans who tried to balance the budget by raising taxes were just acting as tax collectors for the welfare state," he explained.

Making an example of what happened to "Read my lips" George Bush - who lost his re-election bid after raising taxes - Grover asked Republican candidates to sign a pact with the voters - The Pledge. They agreed never to vote for a tax increase.

Now, those same Republicans are squirming. The Wall Street Journal reports:

    Mr. Norquist, ...finds himself smack in the middle of the political fight in Washington over whether taxes will rise on investors and businesses next year, a move he believes would cripple the Republican Party and could plunge the economy in recession. [Says Grover:] "For twenty years Democrats have tried over and over to trick Republicans into breaking the pledge. It hasn't happened. This isn't my first rodeo."
But more and more Republicans seem to want to buck The Pledge. Which doesn't surprise us. Grover thinks a promise is a promise; if politicians make a solemn agreement with the voters they'll keep it. We figure that if they say they won't raise taxes, well...at least their vocal chords work. They'll keep it as long as it suits them, and not a minute longer.

"A pledge is good at that time you sign it," explained Peter T. King, Republican from New York. Yes, it's good when you're trying to get elected, he might have added, when you'll say whatever you need to say. After you're in office, it's a different matter.

The deficits have grown to over $1 trillion per year. And that's the way the feds do the books. If the federal government were a public company, it would be forced to report its finances according to Generally Accepted Accounting Principles, which would show a deficit of more than $7 trillion.

That is why the pressure is on to break The Pledge and raise taxes. And that is also why Grover is right: the budget numbers how that Congress can't be trusted with more money.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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