The only reason to expect commitments being made now to have any effect is that they change the status quo: Congress has to act to undo them. But that puts these plans on exactly the same footing as the so-called Bush tax cuts that are scheduled to expire at year-end, 2012. Those cuts will expire unless Congress changes its mind.

Image Credit... Jacob Thomas

Indeed, the celebrating by conservatives regarding their “victory” in the debt ceiling deal is as premature as the teeth-gnashing by progressives. All that has happened is that we have wisely chosen not to voluntarily default on our debts, at least not yet.

So it may be reasonable to ask whether there is something more substantive Congress can do to deal with its budget problems. A solution favored by many Republicans is to pass a constitutional amendment requiring a balanced budget. The plan’s appeal is easy to understand. It promises much-needed discipline, and best of all, it would take many years to approve. Maybe it should be called the Augustine amendment.

But do not be fooled. Even if the amendment could be put in place immediately, it would be a bad idea for two reasons. It wouldn’t work, and we wouldn’t want it to work.

To see why it wouldn’t work, just look at other governments that already have such rules in place. Start with states and municipalities. Even with balanced budget rules, they collectively have debt of about $3 trillion. Most states are sensibly allowed to issue bonds to cover major building projects such as roads and schools, but this can allow debts to mount. Yet these visible obligations are just a part of the problem. Debts of roughly the same magnitude are hidden in the form of underfunded pension liabilities once the official estimates are corrected for some dubious assumptions about risk. No balanced budget rule can prevent abuse via creative accounting.

If you think such rules would work better at the national level, look at Europe. When the European Union was formed, member states were required to limit annual deficits to 3 percent of gross domestic product. We are now seeing the difficulty of enforcing such rules.

More important, even if a balanced budget rule were enforceable, it would be bad policy. Consider the case of household spending. Most of us are faced with a lifetime balanced budget constraint. Unless we manage to die with negative net worth (or declare bankruptcy), the amount we can spend and give away during our lifetimes is limited to what we earn or receive as gifts.