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Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

The Case for a New Fiscal Constitution

  • William A. Niskanen
Journal of Economic Perspectives
vol. 6, no. 2, Spring 1992
(pp. 13–24)
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Abstract

For the first 140 years of U.S. history, the federal budget was effectively constrained by two fiscal rules: the formal limits within the Constitution on the enumerated spending powers and an informal rule that the government could borrow only during recessions and wars. At the end of the 1920s, federal expenditures were 2.6 percent of GNP. The federal debt was constrained to about equal to 16 percent of GNP. The general price level was roughly stable over this long period. Over the past six decades, however, federal expenditures have increased to nearly 25 percent of GNP. Larger and more frequent budget deficits have increased the federal debt held by the public to an amount equal to about 50 percent of GNP. And the general price level is now about nine times the level at the beginning of this period. This dramatic change in fiscal and monetary conditions occurred without one amendment to the Constitution to authorize a change in the fiscal rules. Our effective fiscal constitution has been transformed into one in which Congress and the President may authorize any type or amount of expenditures and taxes, subject only to the voting rules for routine legislation. How did this happen? Should economists be concerned about this change in the fiscal constitution? What, if anything, should be done about it?

Citation

Niskanen, William A. 1992. "The Case for a New Fiscal Constitution." Journal of Economic Perspectives, 6 (2): 13–24. DOI: 10.1257/jep.6.2.13

JEL Classification

  • H60 National Budget, Deficit, and Debt: General

What - no cost benefit analysis

  • Posted by WILLIAM H COLBERT
  • Posted on 3/5/2013 2:35:23 PM
Legislators are noted for their allergy to cost-benefit analysis. President Reagan tried to impose this on the federal government with an executive order, but the order foundered on the tacit agreement between legislators and bureaucrats to cater to special interests. The large print sales pitch for our constitution that was embodied in the Preamble should be more binding than the small print verbiage in the constitution itself, in my opinion.
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