Tonight from the John F. Kennedy School
of Government: The Advocates.
From Washington, California's Governor Jerry Brown will
speak in favor of a constitutional amendment to require a balanced federal
budget. Here in Cambridge, Massachusetts, Harvard economist John Kenneth
Galbraith will testify in opposition to that amendment.
Good evening and welcome to The Advocates. I'm
Michael Dukakis. Should the federal government be forced to balance its
budget? Should it have to take in a dollar for every dollar it spends, and
should we have a constitutional amendment to require it to do so? That's the
issue we face this evening, one of the most important issues to face this
nation in many, many years.
Constitutional amendments, under our Constitution, can
originate in two ways. Congress can propose an amendment to the states for
ratification, and that's the course that we have taken with most current
amendments; or two thirds of the states can call for a constitutional
convention to draft an amendment, which is then subject to
To date, some 28 states have already passed resolutions in
one form or another calling for a constitutional amendment which would
require the federal government to balance its budget. If just six more
states act, two thirds of all of the states in the Union, then Congress will
almost certainly be forced to act—either to propose the amendment or to call
the constitutional convention.
Tonight we will not be debating the merits of the
constitutional convention, but rather of the amendment itself, which is
what, after all, the proponents in the end actually want. Should there be a
constitutional amendment requiring a balanced federal budget? Advocate Avi
Nelson says, "Yes."
Yes, I think there definitely should be a constitutional
amendment to balance the budget; and to help me make that case tonight,
first, we will have with us Governor Jerry Brown, Democrat from California,
who will be joining us from Washington, Charles Baird, a professor of
Economics from California State University at Hayward, and Senator Jim
McClure, United States Senator, Republican, from Idaho.
Understand, there are two points to this proposition. One
is that the budget should be balanced, and the second is that it should be
done by constitutional amendment. It's necessary to balance the budget
because we have had over the last 20 years deficit after deficit. And when
the government runs up a deficit, what it does is it turns on the printing
presses, and in effect, prints money to make up for the deficit. That
cheapens the currency and imposes a tax upon all of us that hits hardest on
the poor and the elderly and those on fixed income. We have to do it through
a constitutional amendment process because we simply cannot count on the
people in Washington, the politicians, to be responsible. We have had,
unfortunately, a generation of fiscal irresponsibility there. That's how we
have gotten to this mess in the first place—high taxes, high inflation,
problems all over the economy. So we have to impose the constraint from
above, and that's the advantage of a constitutional amendment. So we must
have a balanced budget and a constitutional amendment to do it.
Thank you, Mr. Nelson. Advoc—, Advocate Barney
Frank says, "No."
Thank you. Snake oil is back. Tonight you're going to be
sold a very nice, simple, but kind of vague solution, to a lot of
complicated problems. With me, tonight, to persuade you not to buy it are
Congressman Henry Reuss, Chair of the U.S. House Committee on Banking,
Finance and Urban Affairs, and Professor Kenneth Galbraith, an economist
who's a student of fiscal policy. We're not debating whether or not we ought
to balance the budget. We're not debating whether the President and
Congress, in the normal, democratic way, ought to take that step. What we're
debating is the notion that we ought to write a particular controversial
economic theory into the Constitution of the United States, and by so doing,
take the whole fiscal process out of the hands of the people in the normal
democratic way. We're told that you can't trust the Congress. Apparently, we
can't trust the American people to elect a Congress and a President and
communicate their views so that fiscal policy can be made in the normal
democratic way. We can't tell you exactly what the amendment will do because
a lot of the proponents have been smart enough to keep it very vague. Some
of them won't tell us what it says, so we can't tell you what it will do.
But if it will do anything at all, mandating that the budget has to be
balanced by constitution year in and year out, means that when we run into a
situation of unemployment, the federal government will be unable to respond
by job-creating, stimulating measures. And as in the past, a commitment to a
balanced budget imposed by a constitution will cause us to go deeper into
Thank you, gentlemen. We'll be back to our cases
and our debate in a moment, but first, a word about some of the difficult
issues in tonight's debate. It's clear that we have here at least two
conflicting economic philosophies. The proponents of the amendment believe
that constant and increasing federal debt, the unbalanced budget, is at the
root of our economic problems. The other side makes the argument first
propounded by the British economist John Maynard Keynes back during the
great Depression, that deficit spending by government, going into debt
during slow cycles in the economy, can help ease the burden on everybody
during economic hard times. Now let's get on with our cases. Mr. Nelson, the
floor is yours.
I call Governor Jerry Brown of California.
Welcome to The Advocates, Governor Brown. Nice to
have you with us.
Nice to be here—by telephone, at least.
Governor, thank you for joining us from Washington. Let me
begin by asking a basic question. Do you believe in a constitutional
amendment to balance the budget?
Very simply, in the same way that the women of
America wish to constitutionalize the commitment to sexual equality, the
people in this country that wish to bring fiscal responsibility and a
climate that will build for the future, see the necessity of giving
constitutional stature to a requirement to balance our federal budget. It
makes eminent good sense. I think if Mr. Lyndon Johnson had to balance the
budget in the 60's, he would have gotten out of Vietnam a lot
Do you think it's realistic to try to balance the budget?
Some people say that that's not a realistic objective.
All budgets must ultimately be brought into balance.
And the only question is, "Will this generation be so irresponsible so as to
pass on to the next generation the excesses that it lacks the courage to
correct. I see a need for fiscal discipline. I see a need for creating a
climate of investment, increasing our, increases in productivity,
strengthening our dollar. And one way, not the only, but a significant step
forward would be to introduce a constitutional requirement—meaning that we
balance what we spend as against what we can collect.
Governor, you just heard the Advoc—, Advocate from the
other side say that you can't eliminate deficits; you eliminate a tool of
management of the economy. Has deficit spending been successful?
In some cases it probably has. But the proposition
today, as judged by the record of the last 20 years, is an annual budget
deficit; and John Maynard Keynes said the most serious evil is the
corrosion, corrosive effect of inflation. And certainly, the interest on our
federal debt that has increased three times faster than the cost of living
during this decade presents a serious challenge to the future stability and
well being of the Republic. I think the balanced budget is possible. I think
it can be done, and a constitutional amendment will crystallize the
political will that is now lacking in the Congress to make the hard choices,
whether through taxation or cutting, or a combination of both, to bring into
alignment in a reasonable time period our spending with our tax
Governor, if deficits are bad for us, why is it that they
have been accepted by the public for so long, up until now?
Because the aggregation of special interests have
such individually appealing causes that the Congress is unable to resist
them. And while an amendment of itself, acting in a vacuum would have a
difficult time overcoming that special interest power, I believe that with
the force of the ratification process, the national debate, and the
elections over the next several years, that the chemistry in Washington will
correct what has been lacking in the past; namely, the ability to say "no"
to the myriad of interests when aggregated, lead to the excess, the dollar
weakness, the monetizing of the deficit, and a general decline in American
power that ultimately will unwind the social compact. I know that
Congressmen would like to correct this problem. But when the constituents
come in and say, "More money for schools, for medicine, for the military,
for this, for that," they can't make the hard choice. The amendment provides
the crystallization of the political will of this nation to give the
Congress the fortitude that I think it wants, but really requires, in the
form of an amendment, to make a reality in the years ahead.
All right, gentlemen. Let me interrupt at this
point. Governor Brown, Mr. Frank is now going to ask you some questions on
cross-examination. Mr. Frank—
Governor, it's nothing we can do by amendment to undo the
last 20 years. For the future now, are you in favor of some economic
stimulus by the federal government in times of recession?
I wouldn't be opposed to an appropriate stimulus if
it could be controlled, but I see right now that in the midst of a
annualized rate of 15 percent inflation, we're still running a deficit of
over 40 billion.
But, but Governor, the amendment doesn't just address
itself to today. When we're amending the Constitution of the United States,
we have to have a somewhat longer range view. My question to you is, on the
one hand you've said, "We have to balance the budget every year, and we
should mandate that constitutionally," doesn't that deprive us of the option
in a recession if a majority then constituted of the people and the Congress
want to use a deficit to defeat unemployment in a particular
Well, the fact is we have structural unemployment.
We have huge deficits, and I believe that an amendment could be written with
sufficient flexibility to allow for the vagaries of the business cycle of
So, you're for a balanced budget, except when we should
unbalance it. Where is that amendment? Would you show it to us? You've been
for this for three, four, five months. Have you such an amendment that we
can look at?
Well, I will say this that you've opposed it without
seeing it; so you must have the ability to make a judgment.
That's right, Co—, Governor. I've opposed it, Governor,
I've opposed it—
I think those—, you're debating a matter of
principle, and I say as a matter of principle, we ought to balance the
budget; and it won't get done unless we have a national debate, an
amendment, and the ratification—
—and the election of the people in '80, in '82, and
'84 and are prepared to carry it out.
Governor, what I'm opposed to is evasion and
inconsistency. You say on the one hand we should balance the budget. On the
other hand you say, except if it were in a recession, we could devise one
that was sufficiently flexible. I think that there's an inconsistency
between a commitment annually to balancing the budget, which you first said,
and a recognition that deficits are an appropriate tool. I think your
failure to come up with an amendment shows that you recognize the
inconsistency. If it can be overcome, why haven't you put that down on paper
to show us?
I didn't say writing the amendment was—, is easy. I
just said that the difficulties and risks of an amendment to the
Constitution are far less than business as usual, which is progressively
unwinding the social compact. And there's no magic in a balanced budget in—,
in 12 days or 12 months. There can be flexibility within—
But, Governor, we're talking about amending the
—the point is to make the commitment to do
Gentlemen, we're not, gentlemen, we're not going
to be able to understand you if you talk at the same time. Go ahead.
Give him another question—
The question is, it may—, you say it's not easy to write
it; but you're a national leader. You're campaigning on this issue. Don't
you think you have an obligation to tell the people what it is in some
specifics that you're for? I have seen versions of them, and I oppose them.
How can you ask the American people to rally behind a crystallization which
is amorphous and doesn't have any substance on paper?
Well, it obviously is not so amorphous that panic is
set in in many quarters because of it. I think an appropriate amendment
could be drafted, and it ought to come—
But you don't draft one—
—out of a careful process of national and
Now, Governor, this amendment that you won't draft, you
say that we have a problem now with the special interests. Would
I'll be glad to draft it, and I may just do that in
a few months.
But, Governor, please don't—, I asked you, and I thought
we'd get on to a new subject; you didn't want to talk about that one. The
question is— you were talking about the special interests—won't the special
interests in a post constitutional amendment Congress have the same power
they have now? What, in your amendment is going to loosen the grip of those
I, I would say the political chemistry will be quite
different after 1980 if this amendment is debated and in a process of
ratification. Those who line up against it, may not be around to fight it;
and those who are elected will have a renewed spirit to fiscal discipline
that will be required in the 1980's.
But you don't think you—you can't take on the special
interests without this unwritten constitutional amendment?
I think that the past history indicates that the
Congress and this nation is in the grip of a fiscal excess that requires an
extraordinary remedy. And I would identify that as an appropriately drafted
amendment to the Constitution requiring balance.
Appropriately, but as yet undrafted.
Gentlemen, I'm sorry I have to interrupt at this
point. We've run out of time. Governor Brown, thank you very much for being
with us on The Advocates this evening. I appreciate it.
Mr. Nelson, another witness please.
I call Professor Charles Baird.
Welcome to The Advocates, Professor Baird. Nice to
have you with us.
We've heard from a political leader. Professor Baird is a
professor of economics. Professor Baird, are deficits bad?
Well, for three reasons. First, they are often the
occasion for inflation. Secondly, they are almost as often the occasion for
hampering of real economic growth. And thirdly, they amount to an increasing
burden on future generations, which we are merely shifting forward with
Let's take these in order. You said, first, they cause
inflation. How do they cause inflation?
Frequently, deficits are financed by simply the
twentieth century equivalent of printing the money up. And throughout
history, the sole source, not just one source but the sole source of any
sustained inflation, has been printing up of new money.
So, the practice has been to print money in response to
deficits and that's the cause of inflation.
That is a primary cause of inflation. It's also
possible to increase the money supply even without deficits, but deficits
provide one important upward push on that money supply.
What about economic growth? How do deficits impede
Well, deficits are often, as well, financed by
borrowing from the private sector. Now when financing, when, when private
sector borrowers cannot get the money that government sector borrowers are
taking, these private sector borrowers who would be spending the money on
plant and equipment, which provides jobs, of course, will not be providing
those jobs and thereby real economic growth will be hampered.
And thirdly, you said that it hurts future generations.
How does it hurt the future generations?
Well, the national debt now is in the neighborhood
of 800 billion. The interest, the yearly interest on that national debt is
in the neighborhood of 50 billion. Now at some point in time, if these bonds
that represent the national debt are honest contracts, those bills are going
to have to be paid. And when those bills are paid, taxpayers that exist at
that point in time are going to be coerced because after all, taxes are
coerced payments. They are going to be coerced at that point in time to then
pay for the spending that we participated in today.
Now, Professor Baird, we've heard the theory enunciated a
number of times that it's necessary to have deficits in order to spur the
economy, especially at times of recession. This is part of the so-called
Keynesian Theory. Do you agree with that? Is that correct?
No, I do not agree with that. Deficits by
themselves, that is, deficits that are not accompanied by increases of the
money supply, cannot have any effect, cannot have any effect on total
spending. What they do is merely reallocate the spending. Government spends
more, and the private sector spends less. Because after all, the deficits,
in the absence of creating money, the deficits are financed by merely going
to the private sector and borrowing the money. And when you take money out
of the private sector from borrowing, that's exactly like taking money out
of the private sector by taxing. The private sector ends up spending less,
the government sector ends up spending more; in terms of total spending,
it's a wash.
Gentlemen, let me interrupt at this point. Mr.
Nelson, you're going to have an opportunity to ask Professor Baird a few
more questions. But now we go to Mr. Frank for cross-examination.
Professor Baird, so I understand, unlike Governor Brown,
you are not in favor of deficits as a form of stimulus in times of economic
I think they're useless for that purpose.
So, in supporting this amendment, you're willing to write
this into the Constitution as a requirement because you want to rule out
reference to deficits in times of recession.
So, you're not looking for an amendment that's flexible,
that's balanced most of the time.
Now, let me ask you, if we did have such a, a situation,
what do you think would get cut? What, what would you think Congress ought
to re—; I assume you're not for raising taxes?
That's exactly right, too.
So, what we want to do then is, is to reduce spending.
Would you tell us what spending you would reduce?
Yes, right at the top I would abolish the Department
of Energy. It hasn't done anything useful except create energy shortages.
Next, I would abolish all agricultural price supports programs. All that
does is make food more expensive for poor people.
—Expensive for the prices of sugar? Would you want to cut
down the price of sugar?
I would want the price of sugar, as the price of
anything else, to be determined by the voluntary choices of people in the
Thank you, Ed. The Senator from Idaho might want to talk
about that later. The question then is, you've given us what you think ought
to be cut. You have told us what you think ought to be cut. You want to
balance the budget so we don't have any deficits in times of inflation and
we do away with agricultural price supports, we do away with the Department
of Energy, how likely are the cuts that you advocate to be the cuts that
this Congress sits in the grips of the special interests—what are they
likely to do, this Congress?
Well, it's hard for me to guess on what the Congress
is going to do. I am better at suggesting what I would like them to do. I
have no way of knowing what they're going to do.
Well, but we can't amend—, with all respect, Professor, we
cannot amend the Constitution based on what you would like to do. We have to
amend the Constitution assuming that we know what Congress will do.
But the amendment does not, the amendment that I'm
advocating is not going to include in it those expenditure categories that
should be cut. It is merely going to say that the budget must be balanced.
Now, we pay Congressmen, presumably, to do something. And maybe what they
ought to do is consider carefully what ought to be cut. And I'd be willing
to testify in favor of cutting those things when the time arises.
But, but, Professor—. But, Professor, of course it doesn't
say what you want cut. That's one of the problems. The amendment isn't quite
as explicit. But you and I understand that cuts will have to come.
Now, on the one hand, you see I'm confused; on the one
hand, we're told that Congress could balance the budget by—, today. Why do
we need an amendment? You tell us we need an amendment because you can't
trust Congress. They're in the grips of the special interests. When I ask
you, then, what's likely to happen, you now conjure up a rational Congress
that's going to do this well. You can't have it both ways. If Congress is in
the grips of the special interests and we must amend it, what gives you any
confidence that the Congress that makes the cuts won't just wreak havoc with
the poor and the vulnerable?
Very good question, and I've got a good answer. If
it is indeed the case that every time a dollar is spent, a dollar has to be
raised in taxes, then the taxpayers are going to have a very keen incentive
to, to mount as active an anti-spending lobbying campaign as the special
interests do right now.
What happened in California, what's happening now in
California with regard to Proposition 13, are the right cuts being made in
Governor Brown's state? Is his chemistry set working out there?
My choices of what should happen in California are
somewhat different from what is happening. But what is happening isn't all
Well, but you told the California Ways and Means
Committee, the assembly in February, that, that wrong things were happening.
Maybe things have gotten better since then. But you said it was the
genuinely disabled, the retarded and the crippled who were being threatened
by these cuts. Are there any reasons to assume that the Congress of the
United States is morally superior than the California Legislature?
A very short—, a very short answer.
Thank you. Gentlemen, don't go away. Professor
Baird, Mr. Nelson has a question or two for you.
Professor Baird, the point was made that you're in favor
of a Constitutional amendment where there would be no escape clause, as it's
called, that is no way would the, that the Congress could have a deficit.
Would you say that a, an amendment that had such an escape clause is
preferable to none at all?
And in terms of the question of spending with regard to
the Congressmen, isn't it true that one of the reasons that there is this
kind of spending pattern is that they have an incentive to try to hide some
of the costs in the deficit because they can then vote for programs but not
have to allocate the taxes.
That's been the mechanism for increasing
expenditures since the end of World War II. Yes.
Thank you very much, professor Baird for being
with us. All right, let's turn now to Mr. Frank, who has his first witness.
Thank you, Mr. Dukakis. I'll call Congressman Henry
Welcome to The Advocates again, Congressman
Reuss. Nice to have you with us.
Congressman Reuss as Chairman of the Committee on
Banking, Finance and Urban Affairs, presumably, you have some familiarity
with these things. Is Congress irresponsible?
It has been. But this amendment certainly isn't
going to make it responsible. It might make it responsible for making a
depression out of a recession; because if this amendment passes and the
Arabs raise their oil price or something else goes wrong in the world, and
there's more unemployment and a larger deficit, then under this amendment
Congress would either have to raise taxes or reduce expenditures, or both.
And that would simply intensify the recession into a depression, make the
deficit worse; and we'd be chasing our tail around forever.
Well, Congressman, Governor Brown told us quite
confidently that he was sure an amendment could be drafted by this Congress
that he has no confidence in. Do you think it would be possible, and he
said, and we're--we've just been told by Mr. Nelson an escape clause would
be okay for people who have a lingering fondness for some government action
against unemployment. Would you say that if we required a two-thirds vote of
the Congress to deal with recession that that would be an effective escape
No, because you can't get two thirds of the
Congress to do much of anything. Look at the, look at the attempts of the
proponents of this amendment to get a two-thirds vote. Very difficult to
You think the practical effect of an amendment would be
to rule out any reliance on deficits to fight inflation in, in bad economic
Well, I don't, I don't put great store by deficits
to fight inflation. I don't like deficits very much. But sometimes you get
deficits when you don't want them. And then to be forced to balance the
budget would make a major depression. And I don't think that's a very good
Well, now, we've also heard a governor, a governor of a
state, talk about the irresponsibility of the Congress, that the debt of the
Congress is 800 billion. Is that the situation, that the Congressional debt
is getting so out-of-hand that the states are going to have to stop—, step
in and protect the people from you big spenders?
At the—, since World War II, the national debt has
gone up three times. That's bad. But state local debt has gone up more than
15 times. So, if there ought to be a constitutional amendment, it would be
to balance the state budgets. But, of course, I'm not advocating that
because that, too, would be an abuse of the Constitution.
Let's talk about the question of the Constitution. Are
you against balanced budgets as a concept? Is that why you're up here?
No, I think that our goal ought to be full
employment and a balanced budget year in and year out. I think that would be
an excellent economic solution. But I don't want to see that in our
Constitution any mu—, any more than I would like to see a 55 mile per hour
speed limit, though that's a good thing in our Constitution. Or for that
matter, one of Governor Brown's great ideas, which I think is an excellent
one, that small is beautiful. So far as I know, Governor Brown hasn't
advocated it that we put that in the Constitution, at least as
What about this notion that if we have a constitutional
amendment by some process of chemistry will break the grip of the special
interests on Congress?
No, the special interests, ye have with ye always;
and you aren't going to be able to get rid of them. The russet potato people
and the sugar people are going to be after my friend. Senator McClure. The
dairy people are going to be after me, and we'll have to do the best we can
So, if Congress were forced to make drastic cuts right
now, who would it cut? Who would get hurt?
A brief answer please, Congressman.
—The poor, those who need it. They, they're always
the ones without much of a lobby.
Gentlemen, let's turn to Mr. Nelson now, who has
some questions for you, Congressman.
Congressman, in terms of the two-thirds, isn't it true
that veto overrides require two-thirds, treaty ratifications require
two-thirds? Those happen all the time.
Uh, veto overrides? Very rare. Very rare. Very
difficult to get two-thirds—
But, oh but they do—. They certainly would not be called
an unusual occurrence. And of course the Panama—
Name, name, name three.
The Panama Canal Treaty has, has, of course, gotten two
thirds of the vote. So, I mean it is possible s—
Name some, name some veto overrides.
Well, but, my point is that, that clearly, I would like
to be able to—
Very difficult to get two-thirds—
I would like to be able to name you a few more
than it, has happened, but the fact is, of course, that it does happen in a
two-thirds process as a process, is something that we have in the Congress
on a daily basis.
Yes, that, that was what the founding fathers
thought of as an almost insurmountable obstacle—two-thirds—they were
But it is in the process.
And I would hate to put that insurmountable
obstacle in the way of our getting rid of a depression in this
You mentioned that the, you expect that the poor
would be hurt by a, a balanced budget. And it's curious to me—are you saying
that the Congress would be so irresponsible that if there were a balanced
budget, they would cut out worthwhile social programs and maintain the
special interests programs?
Yes, no I didn't say anything about the poor being
hurt under a balanced budget. I said that the poor would be hurt by spending
cuts. And, it, it is true that the poor aren't represented by million-dollar
lobbies in Washington. It's the, it's the big interests who are, and they
would usually escape a cut.
I think what I'm driving at is if there were a
constitutionally mandated balanced budget, there was discussion before that
there would have to be some budget cuts made; and I would like to think that
the Congress, faced with this new responsibility, would recognize that those
programs that are not worthwhile would be eliminated, and the valuable
programs, social and otherwise, would be maintained. Is—, would you—
Ye—, yes. But where you and I disagree is, I think
that Congress ought to cut out the nonsense, whether or not there is a
balanced budget or a balanced budget amendment. And I hate to see us wait on
that until we get an amendment on the books. I think we ought to be about
that right now.
I would agree with that, but I know that some of
the items that are passed by the Congress certainly fall into the nonsense
category; and that is being done now, for example $102,000 to study the
behavior of fish while drunk. This is the kind of program that gets by now,
so obviously the need for budgetary control has not permeated the halls of
In fact, in the last two years, Congress has put
into place a very good process called the budget process, under which, if I
want to vote for a appropriation which is going to pierce the budgetary
ceiling which we've adopted, I have to find the money for that by cutting
someplace else and convincing Congress it ought to be cut. So we have
crocheted ourself a hair shirt which is really working.
Oh, I don't know about the hair shirt, but I do
know that the Council on Wage and Price Stability just had a 500 percent
increase in personnel and a 300 percent increase in budget. It doesn't sound
like biting the bullet much—
Well, it, it all depends what your, what your base
And this is wage and price stability.
—the, the Council on Wage P—, Wages and Prices was
given about 200 additional employees. But since their job is to ride herd on
price increases throughout the nation. I don't think it's excessive to have
somebody able to answer the phone when a businessman calls up and says, "Am
I justified in increasing my price?"
And, Congressman, you pledged your commitment to
balanced budgets as a theory, but didn't you vote four times last year and
twice this year against a balanced budget, including one where the President
wanted to cut nearly a billion dollars? The house was going to make it a
$703 million cut, and you were not in favor of either of those.
Well, I, I, I don't want to sail under false colors
here. I don't think this year or last year this country can have a balanced
budget because to do so would require our raising taxes to an amount that
would plunge us into a depression. So, I will plead, I will plead guilty as
must every Democrat and Republican in Congress to having voted for a total
budget that ended up in deficit. The important thing—
We've had one for 20 years.
—is that we're now moving to cut that deficit in
two. This year, it's going to be half of what it was last year, and that's a
good thing. It's still a deficit.
Gentlemen, I have to—. I'm sorry I have to
interrupt at this point. Mr. Frank, a few additional questions for
Thank you. Congressman, Governor Brown, you'll be
glad to know, also, is opposed to balancing the budget this year. He wants
to phase it in. I want to ask you though—, he suggested that if we had a
balanced budget amendment, that would have ended the Vietnam War. You were
there at the time; do you think that's accurate?
No, I think LBJ, had that bit in his teeth and that
you could have had any number of laws on the books, and it wouldn't have
stopped the war.
Well, let's talk about defense spending. We spend a
lot of money on defense. It's the only part of the budget that, of
substantial part that grew this year. Would I be safe to assume that the
balanced budget people are also the people who are most interested in
cutting that defense budget so we can bring federal spending under
No, typically, the balanced budgeter wants to
enlarge the military budget and cut down on Social Security for the old
folks or school lunches for the kids or whatever—. It needn't always be that
way but that's—
—typically the way it works out.
But the advocates of the balanced budget are people
who would have the military be a much, much larger percentage of the total
federal expenditure; I would assume that we now have it.
And when, you make increases there, your added
deficit is huge. It isn't just a hundred thousand dollars.
Thank you, Congressman.
Thank you, Congressman, very, very much for being
with us. For those of you who may have joined us late, we're debating the
question, "Should there by a constitutional amendment requiring a balanced
federal budget?" Mr. Nelson has presented two witnesses in favor of that
proposal. Governor Jerry Brown of California and Professor Chuck Baird of
California State University. They have argued very strongly that we need
such an amendment, that Congress simply cannot be trusted or expected to get
spending in line with revenues, and that unless we have such an amendment,
we will be, in effect, mortgaging our present to the future. On the other
hand, Mr. Prank has presented his first witness, Congressman Reuss, who has
argued that if such an amendment goes through, it will be virtually
impossible for this country to combat recession, depression, and
unemployment. Now let's turn to Mr. Frank who has a second witness.
Thank you, Mr. Dukakis. I call John Kenneth
Nice to have you back on The Advocates again,
Professor Galbraith, our opponents would have us
believe we're debating inflation. Where do you stand on inflation—for it or
Oh I, I consider inflation a very damaging
thing; and I've devoted a very large part of my life, almost as much as
Congressman Reuss, to opposing it, but by effective rather than by
Well, Professor, do I denote, do I detect a note of
skepticism that the present, that the present enormous deficit is the
single, or major cause of all our inflation?
Well, I've been, I must say, astonished at the
almost catastrophic neglect of figures here, this evening. They, uh—, at the
present time, the federal government, as you as a State Legislator know,
sends about 80 billion dollars out to the states in state aid. So, one has
to look both at the federal budget and at the state budget together. And if
one looks at those budgets together for fiscal 1980, there is a deficit of
something under two billions—1.9 billion. So that the notion that has been
circulated here that we're talking in terms of large deficits, is also part
of the fantasy of my learned colleagues. I don't want to be hard on
Professor, you may puzzle some of our audience.
Here you are, you're against inflation and you're not for deficits all over
the lot. Why, then, do you resist this, this wonderful, albeit, unwritten
Well, doesn't it say that there-. The problem
of inflation is a complex thing, which includes control, control of bank
lending, monetary policy. It includes the budget, and there are times, and I
think this is a time when one doesn't, so far from wanting a deficit, one
would want a very substantial surplus in our combined budgets. But then,
also, the problem of inflation includes wages, we haven't mentioned the
Teamsters here tonight. And it also includes corporate prices. It also
includes agricultural prices. It even, Senator, I think, includes sugar
prices. So that to select out a budget that is almost in balance and say
that is the cause of inflation is, if I must say so, an insult to this
Well, but, Professor, you then—, I have to ask you,
why are you opposed, though, to a constitutional amendment which would
require a balance if we now, if you think we ought to have one now?
Well, because the, as Congressman Reuss said
and said very well, if we are, if we have a depression or a recession, if
there's a great deal of unemployment, then to at that time to seek to
balance the budget will not only add to the suffering of the unemployed, but
it w—, is self-defeating, because the effort to increase taxes or cut
expenditures lowers income in the economy as a whole, lowers tax returns and
makes the deficit worse.
Well, Professor, you are, been around watching
these things longer than some of us. I just wonder whether this talk about
balancing the budget at all costs and keeping it balanced makes you
nostalgic at all for a, for a different time.
Yes, there—, well—, we're living in a time of
nostalgia, and I must say here is where I compliment my colleagues. They
have shown a certain amount of imagination in picking out Herbert Hoover as
the subject of their—, as the imagery of their nostalgic association. It was
Herbert Hoover who struggled in the early 1930's to balance the budget. In
doing so, intensified the depths of the Depression, increased the
unemployment; and it is now, I think, part of the romantic nostalgia of our
time that we seek to get back to Herbert Hoover. Well, now, there's
imagination there, but perhaps not substance. .
So you're saying that a constitutional amendment
which required the budget to be balanced all the time, as Mr. Baird would
have it, or some unspecified times, as Governor Brown would have it, or when
two-thirds overrode, unless two-thirds overrode, as Mr. Nelson would have
it, that the combined effect of any or all of those amendments would have a
negative effect at some future time in our economy?
Yes, if observed. But you will notice that our
colleagues here this evening, when faced with it, are—, defend not the
balanced budget but the escape clauses, which shows the lack of conviction
which I'm sure that Congressman Reuss and I will not, of any—, being on the
right side of this issue will not be found guilty of this claim.
Well, then, Professor, what would you say to a
balanced budget amendment, which in eloquent terms, crystallizes the public
will, as Governor Brown would have us, but was all full of escape clauses?
Would you have any particular objection to that exhortation in the
Yes, I would, well, I would very much dislike
to see the, the waste of time that would be involved in bringing together a
constitutional convention, Governor, I'm not getting over on that subject,
and which would then affirm what Congressman Reuss and you—, what we're
arguing tonight, which is that ultimately the responsibility must lie with
Gentlemen, I have to interrupt. I'm sorry Mr.
Frank. Let's go over to Mr. Nelson now, Professor Galbraith, for a few
Now, Professor, you say that you're in favor of a
balanced budget at this point in time.
Oh, no, no I didn't. I said I think that we
should have a surplus at the present time.
Surp—, surplus. I, I would point out that
Congressman Reuss voted against even a balance for this year.
There is, there's room for difference of
opinion for people who are opposed to this amendment.
We don't differ on that. Uh, don't make
anything of that.
Okay. I will let the disarray in the ranks on the
other side be disarray. Professor, would you, if I were to agree—
No, this isn't disarray. Reu—, Reuss and I are
solidly opposed to this nonsense of a, of a constitutional convention to
have a balanced budget. There's no, there's no difference between us in
But there is disagreement as to whether there
should be a surplus now or not.
Oh, there certainly, anyway; I'm not sure. We
disagree on a lot of other things.
Let me go on if I might. I would agree that
deficits aren't always bad. Would you agree that they are sometimes
—That deficits are sometimes bad.
Absolutely. No question about that.
Over the past 20 years we've had a single year
where there was not a deficit. Would you have agreed with that policy?
No, I think we should—, there, there have been
times in the past when I would have, when I did strongly urge a stronger
fiscal policy. I was one of the few economists at President Ford's summit
meetings who argued very strongly at that time for a tax increase, when he
called together the great men of the country to decide what should be done
So, apparently the Keynesian theology has either
not been followed very well or has been followed. What was his
Oh, no, no, Keynes, Keynes was a very great man
and he would, under those circumstances, had strongly urged a surplus—
I see, so there's nostalgia on the other side as
No, no, I think you're right. There's—, I
suppose there is a difference between nostalgia for wisdom and nostalgia for
The only question then is who, who's to judge
which is which.
Let me go back to the Congress. You would agree
then that the Congress has not acted responsibly over the course of the past
20 years, or there have been periods of time when—, times when they have
Oh, I think the Congress has been much more
responsible in the last 20 years than it was during the great Depression.
There's no question about that; but, in my lifetime, I think it's fair to
say in the presence of two distinguished members of the Congress that
there's no body, not even the Harvard undergraduate body, that has so
improved in one lifetime as the Congress of the United States. Now, it isn't
perfect, but it is—, but—
I, I notice you—. I'm sorry.
I notice you mentioned the Harvard undergraduate
body—not the faculty.
And I—. Well I, I, I'm seeking to avoid ad
hominem argument here. I, I sense possibly that your two defeats for
Congress may be leading you to wish that you could get to Washington by way
of a constitutional convention. Is that possible?
Gentlemen, this is all very pleasant. Could we
get back to the question?
Professor, if you are, if you're convinced that
the Congress is by and large responsible, then—
I, I take that—. I withdraw that last comment,
if you'll withdraw your attack on the Harvard faculty, okay?
It was a compliment, not an attack.
A balanced budget, gentlemen. That's what we're
Wouldn't you say that the Congress should be
responsible enough to know where to make cuts or when to increase taxes, if
indeed there were a constitutional amendment that required a balanced
I think probably the cons—, the Congress would
be very much like the Congress we have now. It—, the excitement over this
discussion might bring a few extremists into the Congress, but I don't
really think that's too dangerous.
Is it also true that part of the problem here is
not economics so much as it that it gives the Congressmen an opportunity to
hide some of the costs of their programs—in effect, that they want to
provide programs for their constituents; they don't want to pay for them,
and, therefore, by having a deficit, they can accomplish to some extent,
though? It's part of the name of the game.
I think this is unquestionably true. No one who
knows the Congress can doubt that this is true, but if—
Shouldn't we try to change that?
If, I think this would be no less true if a
two-thirds or three-quarters majority were required, in line with Governor
Brown's suggestion, to pass a, an appropriations bill. I don't think you
would be altering that at all, do you?
I do because I think the constitutional mandate
would tell the Congress that they have to be more explicit in terms of the,
the delineation of the costs of the program; and if nothing else, two-thirds
would make it more difficult for them to hide the costs.
Gentlemen, I don't know who's asking the
questions and who's giving the answers, but I have to interrupt at this
point. Professor Galbraith, thank you very much for being with us. Mr.
Nelson, I never knew that Idaho and sugar were associated, but I have a
feeling we're going to hear about that in the next few minutes.
We're going to find out.
Your next witness please.
I call Senator James McClure.
Welcome to The Advocates, Senator.
Nice to have you with us.
Jim McClure is a Republican Senator from the great
state of Idaho, and I will leave to my advocate on the other side the
questions about sugar and potatoes and the like and deal with the more
substantive questions. What do you think the solution is to the current
economic problems that we have?
Well, there can be no doubt about the solution.
First of all, we must find a way to limit the growth of government and limit
the cost of government by, in my judgment, a balanced budget amendment, a
limit on federal spending, and a reversal of our tax system—a system that
ought to reward those who invest and produce and save, rather than rewarding
those who consume. I think that's a very clear mandate, and I hope that
we'll get about doing this.
Senator, has deficit spending worked in our
Of course it hasn't worked. If you want to look
at what it's produced/ look at the 800 billion dollar national debt, look at
the 60 billion dollars in annual interest on that debt, 50 billion dollars
of which is not—, is real payments from taxpayers. Look at the high rates of
unemployment, the high interest rates, the stagnation in our economy today,
the growth rates which are much less than other countries. And I think you
obviously see the end result of the economic planning and fine tuning that
some experts would have us do.
And has it caused inflation?
Of course it's caused inflation. It's not the
sole cause of inflation, but it certainly contributes. The deficit spending
crowds out private investment. It creates an inflationary psychology, and it
leads to the printing of additional money which certainly inflates.
You dare to contr—, contradict Professor
Galbraith, I take it.
Of course. It's just too bad that he's living in
past decades and can't modernize his thinking.
Do we have to do this in the form of an amendment?
It's been suggested that, well, maybe it's a good idea but not as an
Well, I've been in the Congress for 12 years now,
six years in the House and six years in the Senate. And I'd have to say that
the Congress is not going to balance a budget unless it's forced to do it.
It's had a number of opportunities to do it, but it has missed every
opportunity, resolutely pushed them into the background. And even with an
annualized rate of inflation running at 15 percent today, Congressman Reuss
can say he is opposed to balancing the budget this year. Sometime maybe; but
not this year.
Senator, are you troubled by, that, that it might
be inappropriate or that the amendment is vague or hasn't been drafted
Well, certainly, there are a number of amendments
that have been drafted, that have been introduced, that are before the c—,
public and before the Congress for discussion. That doesn't disturb me that,
as a matter of fact, Congress might have to take a look at it and change
some of the language if indeed they judge that wise to do. We'll have the
advice of a lot of people as to how to do that, I'm sure.
If we had a constitutional amendment for a
balanced budget, would it, it indeed, as has been alleged, hurt the
minorities and the poor?
The greatest danger of the minorities and the
poor is continued inflation, continued economic stagnation that does not
allow them to grow. They've got to have an expanding, growing economy if
they're going to participate in it. The greatest danger to the minorities
and the poor is that we'll continue to have deficits that are supposed to
rescue them but actually mire them further in the lack of opportunity. It
has been said that a number of people did not give up slavery of one kind to
be subjected to the slavery of the federal handout.
What about times of war or recession?
A very brief answer please, Senator.
Time of war may be a difference—uh—question. In
recession, I'm not at all certain that deficit spending gets us out of it.
We tried that. That's been kind of dogma for 40 years, but we found you
can't spend yourself rich. You can't do it; I can't do it; the government
can't do it.
Thank you, Senator.
All right, let's turn to Mr. Frank for some
questions. Mr. Frank—.
Senator, I gather that, again, unlike Governor
Brown, you don't think that we should have deficit spending in time of
recession. So, drafting an amendment, I realize, isn't a problem for you.
But I do want to talk about the Governor's notion that chemistry will
accompany this amendment, and the special interests will dissolve. Let's
talk about sugar prices. You're a Senator from Idaho, and you've been for
higher sugar prices, for legislation to keep sugar prices higher than the
market force. Will the Governor's chemistry make you and higher sugar prices
Not at all. But you divert your attention away
from the real issue about why the Congress votes deficits the way they
Oh, but the Governor's chemistry, the Governor
Well, I'm not—, the government, the
Pardon me, Governor.
The Governor may be talking about chemistry. I'm
not. I'm talking about Congress.
Well, he's part of your—. But, but I thought one of
the reasons, if you want to say the Governor was wrong, okay, but I, one of
the reasons I thought he gave was that the amendment process itself would be
purgative to special interests and that, that we wouldn't have people fixing
sugar prices or, but you say that's wrong, and, and you're not to be charged
with it, so we'll, we'll forget about the Governor.
As a matter of fact, what I suggest the amendment
will do is make it more difficult for the special interests to induce the
Congress to fund their special interests.
Well about, you say that it's very important to cut
spending right now. Defense, the Pentagon budget "has gone up the biggest.
Are you opposed to that?
No, that's not true.
Well, it's gone pretty big. I'll withdraw
It went up 10 percent because you may not
You made that statement—. You made that statement
a while ago-
Well, I withdrew it. Senator.
I think correction ought to be made.
I, I permit it twice; I'll withdraw it twice.
All right. Thank you.
It was a 10 percent increase. But I suspect you
don't want to talk about it, and I'd like to get to that. The question is,
are you, in your feeling that it's urgent and very important to balance the
budget now, opposed to the 10 percent increase, a more than inflationary
increase, for the Pentagon this year?
Well, first of all, the defense spending has only
gone up 3 percent in this proposed budget in real terms, and spending for
social programs has gone up 12 1/2 percent.
Well, but do you oppose—
So, where is the priority in this budget?
Well, I'm asking you where your priority is. Mine
is for the social programs, but—
Well, that's all right. The question—. We'll,
we'll debate that when it comes to the Congress.
Well, but are you for reducing defense spending at
Would you allow me to answer the question?
Yes, if you'll answer it.
Thank you, I'll try, if you'll allow me. The, the
question of which spending will be cut and which will be increased will be
the composite of 535 different opinions. My opinion may be one, but the fact
that we have not been able to come to grips with that in the current
political context tells me we've got to change it.
No, but I think, Senator, that's part of the
problem of the evasion. That's why I asked you the question. You're asking
people to accept an amendment which will require cuts; but people, I think,
have a right then to know where the cuts are going to come from. Isn't that
a fair question for them to ask?
The, the cuts will come from the collective
judgment of a majority of the Congress.
So, we—. So we can't know. We're being told that we
should accept an amendment which makes substantial cuts, but we don't know
where they'll come.
I think that's probably correct because the
question is whether or not you want to know with precision where they'll cut
or whether you want to have a balanced budget.
Right. Senator, what about the injection of the
judiciary into the spending process? If we amend the Constitution and we
require a balanced budget and the budget is out of balance, what about the
role of the Supreme Court and the federal courts into the budget process?
Don't they have to then come in and begin to enforce that and tell Congress,
"Stop spending; cut the appropriation; withhold that?"
Well, it's possible, I suppose. But I suspect
that budget deficit is going to be whatever the Congress says it is. The
balance or the lack of balance will be whatever the Congress says it is,
just as it is now. I don't think,
You mean the amendment won't mean anything?
I don't think the amendment—
Wait a minute. Is this an "Alice in Wonderland"
amendment? You're just going to re-define it?
Mr. Frank, let's let, let's let Senator McClure
answer the question.
Thank you. Uh—, the—. I have never contended that
the amendment is a panacea, that it will solve all the problems by itself.
But, it raises the threshold by which the decisions made by Congress so
easily now to satisfy special interests will be defeated.
But, as I understand what you're telling me is,
that you want an amendment but the courts won't get in. It's an amendment
that'll say there will have to be a balance but whatever Congress says of
the balance, will be a balance.
I sa—. Of course, there's—.
But what have you changed, then, except some
There's—. Yes—. No, we have changed—.
Mr. Frank, we have time for one last answer from
The very essential thing, and that is that it
makes it more difficult for the Congress to unbalance the budget and
Simply making define it differently, that's all is
what you're telling me.
No. Well, it isn't simply defining it
differently. It requires a two-thirds vote in order to do that.
That is not unattainable.
Gentlemen, I'm sorry. I have to interrupt at this
time. Senator McClure-
—Thank you for being with us. I'm sorry we can't
continue this, but we've got to go to our closing arguments. One minute, Mr.
Nelson for your close.
Thank you. So we're told what we heard before—that
everything's okay; don't intrude on the congressional process. Trust the
congressional politicians, and it will all work out in the end.
The fact is, for 19 of the past 20 years, we have had
deficits. And it's commonplace now to have 30, 40, 50 billion dollars a year
as an annual deficit. And that's where the problem comes in, because these
deficits do cause inflation, and inflation is something that impinges on all
of us and hardest on those who are least able to afford it. So we need the
constitutional mandate from above in order to apply this restraint. It won't
hamstring the economy. And most people in favor of the amendment are indeed
in favor of some kind of escape clause, if you will, so that two-thirds or
three-quarters of the Congress could, under appropriate circumstances make
the changes. But as you've heard, it would at least make it more difficult
for the Congress to play, pay, play political games and to, in effect, pay
no heed to the people who want a balanced budget. And by the way, if you
find yourself in agreement, you're not in the minority. Over 83 percent of
the American people are in favor of a balanced budget. And I think we should
have a constitutional amendment to have it.
Thank you, Mr. Nelson. Mr. Frank, you have one
We began with a Governor who wouldn't tell us what
his amendment was going to say. We ended with a Senator who said-, "Don't
worry, because whatever it says, it doesn't mean anything. The deficit will
be whatever we say it is."
Well, the fact is that there is a flaw in saying that the
way to deal with this is from above, as Mr. Nelson has said. You don't solve
problems in a democratic society by impositions from above. Yes, we have a
problem with inflation. Yes, we have a problem with special interests that
are too deeply entrenched in the legislative process; but you don't stop
them from some imposition from above. And you don't stop them with vaguely
worded constitutional amendments that aren't intended, apparently, to mean
anything. The only way you deal with those structural problems, with those
inflationary tendencies, with those special interests, is by hard political
work. You do that not from above but by working in the electoral process.
And to pretend that all of these problems of structural and other
inflationary causes, of special interest domination of the legislative
process, that they're going to go away by some chemistry because we'll
crystallize the popular will behind an amendment, the wording of which we
don't know, the meaning of which is unclear, is simply to fool people. And
we'll be worse off than before if people's attention is diverted to this
Thank you, gentlemen, both very much. Now's the
time when we hope we'll hear from you and our viewing audience. What do you
think? How do you feel about this issue? Should there be a constitutional
amendment to require a balanced federal budget? Send us your "Yes" or "No"
answer with your comments on a postcard to The Advocates, Box 1979, Boston,
Next week, The Advocates will debate a question I'm sure
most of you in our audience have given a lot of thought to. And that is the
question of how we pay for public television and whether or not the federal
government, and specifically, the taxpayers of the United States, ought to
pay a substantially greater share out of tax dollars for the cost of public
television. And so, our question next week will be, "Should Congress approve
greatly increased federal funds for public broadcasting?" We hope very much
that you will join us, and we hope you've enjoyed tonight's very lively
Our thanks to Mr. Nelson, Mr. Frank, to some very
distinguished and able witnesses, and to the Harvard School of Government,
the Kennedy School of Government, here at our Harvard, our hosts this
evening. Thank you, and good night.