As the debt ceiling struggle intensifies, members of Congress are calling for adoption of a balanced budget amendment. As with all proposals to amend the Constitution, the first question is: Why didn’t the Founding Fathers include a balanced budget requirement in the Constitution? How could they have missed the tendency of legislatures to spend more than they raise in taxes?
The Framers actually understood that democratic decision-making bodies tend to overspend. From bitter experience during the Revolutionary War, they also believed that financial markets would prevent a government from living beyond its means. What they could not foresee was that subsequent developments in financial markets would, for a long period of time, give the U.S. government the ability to run deficits and issue debt with little regard for the costs. That period is now ending.