Greenspan Pans Balanced Budget Amendment To Constitution

By WILLIAM PESEK JR. and MARK H. ANDERSON
AP-Dow Jones News Service

WASHINGTON -- Federal Reserve Chairman Alan Greenspan voiced strong opposition to an amendment to balance the federal budget, fearing that the long-term health of the U.S. economy would be jeopardized.

Greenspan's remarks, made in testimony before the Senate Budget Committee Tuesday, come as the Senate placed the amendment at the top of its legislative priority list in the new Congress.

Greenspan said the benefits of balancing the budget and achieving long-term fiscal restraint are indisputable. But amending the Constitution to force budgetary balance would have lasting side effects that may not be desirable from a macroeconomic standpoint.

'I don't like the idea of embodying concrete economic issues in the Constitution,' Greenspan said.

The Fed Chief has long been a true-believer in balancing the budget, noting that fiscal austerity would lead to lower interest rates, rising productivity, and higher standards of living. But instead of a Constitutional amendment, Greenspan supports what's known as a 'self-enforcing' balanced budget.

At the root of arguments against a budget amendment is concern that it would leave U.S. lawmakers defenseless to stimulate the growth in periods of economic contraction. Opponents charge that the legislation would have perverse effects in the face of a recession.

In economic downturns, for example, tax revenues fall and some outlays, such as unemployment benefits, rise. Many economists charge that these so-called built-in stabilizers for growth are necessary because they limit declines in after-tax income and purchasing power.

Greenspan's view on the amendment came up in response to questions from Sen. Pete Domenici, the panel's chairman. Domenici, R-N.M., is a strong supporter of the amendment and believes it is necessary to ``mandate'' spending that equals revenues.

The Fed Chairman's remarks prompted additional questions from Democrats who oppose the amendment. Sen. Gordon Smith, R-Ore., then asked Greenspan to restate his position in detail.

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While not agreeing specifically with arguments made by some economists about what impact a balanced budget amendment would have on tax revenues and outlays, Greenspan suggested another means of provided a built-in stabilizer for the economy.

The Fed chief renewed his support for what he terms a 'technically self-enforcing' mechanism for balancing the budget. Such a strategy would require a supermajority at all spending bills, thus ensuring an element of self-enforcement. While also undesirable, the self-enforcing plan would be less onerous than an actual amendment.

Greenspan noted that amending the Constitution would raise issues of enforcement that would preoccupy economic policy makers for decades to come, rather than enabling them to focus on the short-term challenges facing the economy. He added that he sees the American Constitution as overriding guide for government policy and fiscal objectives - not as a roadmap for economic policies.

Greenspan's opposition didn't dampen optimism on Capitol Hill for an amendment Tuesday. 'We have overwhelming support' for a balanced budget amendment, said Senate Majority Whip Don Nickols, R-Ok. And Senate Conference Chairman Connie Mack, R-Fla., noted that many of the nation's economists favor cementing budgetary restraint into the Constitution.

But as Congress returns to task of eliminating the deficit, a number of marquee-caliber economists are joining forces to oppose a balanced budget amendment. In fact, three leading U.S. economists have begun to recruit other reputable academics to oppose an amendment. The economists are Robert Solow of Massachusetts Institute of Technology, Robert Eisner of Northwestern University, and James Tobin of Yale University.

'We condemn the proposed balanced budget amendment to the federal Constitution,' Eisner said. 'It is unsound and unnecessary.'

Among the more than 35 economists that have signed on are Alan Blinder of Princeton University, Charles Schultze of the Brookings Institution, Zvi Griliches of Harvard University, and Robert Dederick of Northern Trust Co.

The Clinton administration has continually said a balanced budget amendment would be bad for the economy. Treasury Secretary Robert Rubin last week said an amendment could turn economic downturns into recessions, increase the risk of default on federal debt, prevent the government from dealing with natural disasters, and disrupt Social Security and Medicare payments.

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