A Balanced Budget Is a Moral Argument Before It Is an Accounting One

Suppose your neighbor throws a magnificent party, hires the band, orders the catering, and then hands the bill to your newborn daughter. He does not ask her. She cannot be asked. She cannot even hold a pencil. He just writes her name on the check and tells her to be grateful for the music.

You would call that a lot of things, and "sound fiscal management" would not be among them. Yet that is the plain structure of a deficit that is financed, year after year, by people who will never face the voters who must repay it. Folks, I want to make a case today that most budget commentary skips. The case is that a balanced budget is a question of fairness first. The arithmetic matters, and I will get to it, but the arithmetic is the servant of a moral claim, and if you lose the moral claim you will lose every argument about the numbers.

Jefferson wrote it down in 1789

The most direct statement of the idea comes from a letter Thomas Jefferson wrote to James Madison from Paris on September 6, 1789. Jefferson put a question to his friend: does one generation have the right to bind the next? His answer was no. He wrote that the earth belongs to the living, and that the dead have neither powers nor rights over it. By his reasoning, a debt that outlives the generation that borrowed it is a claim by the dead on the living.

Jefferson went further than anyone should today. He did the arithmetic, using mortality tables of his time, and concluded that a generation lasts about nineteen years, so a debt ought to expire at the end of that period. Nobody has ever run a modern economy on a nineteen-year rule, and I am not asking you to. Madison, in his reply of February 4, 1790, was polite and unconvinced. He pointed out that some debts are incurred for the benefit of those who come after, and that a nation which fought a war for its independence had in effect fought it for its children. That is a serious answer, and I will come back to it, because it is the best objection to my argument and it deserves a fair hearing.

Take what Jefferson got right. A public debt is a promise made by people who are alive today, to be kept by people who may not have been born when the promise was made. The question he asked is the question every family asks about every large purchase: who benefits, who pays, and who agreed to it?

Deficit and debt are different things

Before we go any further, let me define the terms, because Washington uses them as if they were the same word and they are not.

• A deficit is the gap in a single year when the government spends more than it collects. The federal fiscal year runs from October 1 to September 30.
• A surplus is the opposite: more collected than spent.
• The debt is the accumulated total of every past deficit, less any surpluses, that has not yet been paid off.

Think of a bathtub. The deficit is how fast the water is running in this year. The debt is how much water is in the tub. A government can cut its deficit in half and still be adding water. It only begins to drain the tub when it runs a surplus. This matters because politicians love to announce that they have "cut the deficit" when what they have done is slow the rate at which they are adding to the debt. A family that says "we only overspent by a little this year" has said something true and not very comforting.

Debt carries a price tag called interest. Every dollar of interest is a dollar not spent on a road, a soldier, a school or a tax cut. For the real current figures, go to the Congressional Budget Office and the Treasury's own published data. I am not going to quote a number here, because the number moves, and the principle does not.

The moral argument in four steps

Let me lay this out the way a debater would. Here is the argument.

1. Government spending is a claim on the work of citizens. Every dollar the government spends must come, sooner or later, from somebody's labor, whether through taxes, through inflation, or through borrowing that will be repaid by taxes.
2. Those who bear a cost should have a voice in it. This is the old principle that gave the colonists their slogan about taxation and representation. A burden imposed with no consent is a different kind of thing from a burden freely accepted.
3. Borrowing moves the cost to people with no voice. A teenager has no vote. A child not yet born has none either. A budget that spends today's money on today's voters and sends the repayment forward is, by design, a transfer from people who cannot object to people who can.
4. Therefore, deficit spending needs a justification that the people paying can accept in advance. It is not wrong every time. It is wrong when nobody even tries to supply the justification.

That is a value claim, and I want to be honest about which kind of claim it is. Steps one through three are descriptions of how public finance works. Step four is a moral conclusion, and you may weigh it differently than I do. But notice that the other side rarely argues against step four. It argues that the rule has exceptions. That is a much weaker position, and the best version of it deserves a fair statement.

The strongest case on the other side

Here is the best opposing argument, in terms its defenders would accept.

John Maynard Keynes published The General Theory of Employment, Interest and Money in 1936, in the middle of the Great Depression. His central idea was that when private spending collapses, because families stop buying and businesses stop investing, the economy can sink into a deep hole and stay there. In that situation, he argued, the government can step in and spend, borrowing if it must, to keep people employed until private demand recovers. Under this view, a deficit in a recession is not a vice. It is a bridge. And a government that insists on balancing its budget in the middle of a collapse, by raising taxes and cutting spending when everyone else is already cutting, can make the downturn worse.

There is a second strand to the argument, and it is the one that echoes Madison. Some borrowing buys things that last. A bridge, a port, a rail line, or a defense that keeps the country free will serve people for decades. Why should only today's taxpayers pay for a benefit that tomorrow's taxpayers will also enjoy? Alexander Hamilton made a version of this case in a letter to Robert Morris in 1781, when he wrote that a national debt, if it is not excessive, would be a national blessing. The Union financed the Civil War largely with borrowing. America financed the Second World War the same way. Nobody serious says the Union should have lost to keep its books clean.

That is the case. It is a good case. A conservative who waves it away has not understood it.

Why the answer still holds

Now the answer, in order.

First, the exception concedes the rule. Notice what the Keynesian and the Madisonian are actually saying. They are saying that borrowing is justified by a recession or by a long-lived asset or by a war. That means they accept that borrowing needs a justification. Good. We agree on the principle and disagree on application. And once you accept that borrowing needs a reason, the question becomes whether the reason is being offered in good faith.

Second, the Keynesian bargain has two halves, and Washington keeps only one. If deficits are medicine for a recession, then surpluses are supposed to be the habit in good years. That is the whole point of a countercyclical rule: borrow when the economy is weak, repay when it is strong. Count the years since the early 1960s in which the federal budget was in surplus, which you can verify from the Treasury's historical tables, and you will find that the good-years half of the bargain has been honored only a handful of times. A bridge you cross but never repay is not a bridge. It is a one-way street into the future's pocket.

Third, "it lasts for decades" is not the same as "it is a capital investment." A bridge lasts. A recurring program that sends a monthly check does not become an asset because it is long-lived. The Madison argument works for the thing that outlives the debt. It does not work for spending that is consumed this year and financed forever. The test is simple: when the loan is paid off, will anything still be standing?

Fourth, a war is a real exception, and everybody knows it. The same people who invoke the Civil War to justify a spending bill do not usually agree to a war's discipline: the sacrifices, the end date, the plan to retire the debt when the emergency is over. Honor the exception by treating it as an exception.

I am not saying that every dollar of borrowing is theft. I am saying that the burden of proof sits with the borrower, and that the burden has been ignored for so long that people now treat the exception as the rule.

What the states figured out

Here is a piece of history that does not get told enough. In the early 1840s, several American states that had borrowed heavily to build canals and banks in the boom years found themselves unable to pay, and some of them defaulted or repudiated what they owed. It was a disgrace, and the lenders, many of them in Britain, remembered it for a long time. The states drew a lesson, and in the following years many of them wrote limits on borrowing into their constitutions.

Today nearly every state has some form of balanced-budget requirement, and Vermont is the one most often listed as the exception. The details vary a great deal. Some states require the governor to submit a balanced budget. Some require the legislature to pass one. Some bar borrowing for ordinary operations while allowing bonds for buildings and roads, and a number require voter approval for large debts. Many keep a "rainy day" fund for recessions. If you want the rule for your own state, read the state constitution on your legislature's website, because the wording is the whole story.

Why do these rules work, when federal rules mostly do not? Three reasons. First, they live in the state constitution, which a court can enforce, and which a simple majority of a legislature cannot repeal. Second, a state cannot print money, so when the cash runs out, the cash runs out. Third, the bond market disciplines a state that borrows carelessly by charging it more. The rule works because the consequences are real and arrive on schedule. I would add a fourth reason, which is moral rather than mechanical: a state budget is close enough to home that people can see the connection between what is spent and what is owed.

The federal rules that did not bind

Now compare the federal record. Article I, Section 8 of the Constitution gives Congress the power "to borrow money on the credit of the United States," and nothing in the original text limits how much. Section 4 of the Fourteenth Amendment says that the validity of the public debt shall not be questioned. So the Constitution itself has no balanced-budget rule.

Congress has tried to supply one by statute. The Balanced Budget and Emergency Deficit Control Act of 1985, known by the names of its Senate sponsors as Gramm-Rudman-Hollings, set declining deficit targets and threatened automatic cuts. The targets were missed and then revised. Statutory pay-as-you-go rules came and went. The Budget Control Act of 2011 set caps on discretionary spending, and you can read the story of how that came about in our account of the 2011 debt-limit fight that produced real spending caps. The caps helped for a while, and then Congress adjusted them.

Here is the structural problem, and it is the heart of the matter. A statute is passed by a majority, and a later majority can change it by the same method. One Congress cannot bind the next. A rule that the rule-makers can waive whenever it hurts is a suggestion. It is a resolution to diet made by a person who also owns the refrigerator.

The only measure that would bind is a constitutional amendment. A balanced-budget amendment passed the House in 1995 and then failed in the Senate, and the idea has returned in various forms since. Article V of the Constitution sets the path, and it requires two-thirds of both chambers and ratification by three-fourths of the states, which is hard on purpose. You can argue about the design. A well-built amendment would need exceptions for war and for recessions, and a poorly drafted one could invite accounting tricks or force cuts at the worst moment. Those are real objections, and a conservative who wants an amendment should answer them in the text rather than shout past them. Still, the question to ask of any proposal is this: can a simple majority waive it tomorrow? If the answer is yes, it is a speech, not a rule.

For a broader tour of how the process works, see How a budget becomes law, from the President's request to the checks, and for the straight answers on the debt itself, twelve questions about the national debt, answered straight. If you want to know why restraint keeps losing, we took that on in Why Spending Restraint Keeps Losing in Washington, Whoever Is in Charge.

My verdict on which rules bind

Let me give you the ranking, and then you can argue with it.

1. Rules a court can enforce beat rules a legislature can waive. State constitutional limits work. Federal statutory targets do not.
2. Rules tied to a hard cost beat rules tied to a hope. A state that cannot print money has to face its bills. A government that can borrow at will has to be held to account by something else, and the something else is the voters.
3. Rules with a built-in exception for a real emergency last longer than rules that pretend emergencies do not exist. A rule that cannot bend gets broken. Write the exceptions into the rule, with a vote and a deadline, so the exception does not eat the rule.
4. Rules about process matter, but only if the public can see them. A requirement that a bill show its cost over ten years, in plain words, on the first page, is worth more than a hundred speeches.

And one thing the rulebook cannot do. It cannot supply the sense that the future has a claim on us. That is a habit of mind, and it is older than any statute. It is the same habit that makes a father put aside money for his children's schooling and does not require a law to do it.

The bottom line

• A deficit is a one-year gap and the debt is the running total. Ask any politician which one he is talking about, and whether the deficit is really falling or is just growing more slowly.
• Borrowing is not always wrong. A war, a deep recession or a bridge that will outlast the loan can justify it. The burden of proof is on the one who borrows, and a recurring program does not qualify as an investment.
• A rule that a simple majority can waive next year is not a rule. Look for limits written into a constitution, as your state's probably is, and look for a federal proposal that can bind a future Congress.
• Read your own state's balanced-budget clause on your legislature's website, then ask your state representative how the rainy-day fund works. Write to your members of Congress and ask them one question: who will repay this, and did they agree to it?
• For real figures, use the Congressional Budget Office and the Treasury, not a talking point. A fair argument can survive the numbers.