August 6, 2011

Why the Downgrade Happened and How the U.S. Can Recover

David M. Primo

Senior Affiliated Scholar

The S&P’s downgrade of long-term U.S. debt is due in large part to its concern that Washington's plans for significant budget cuts are not credible. S&P states, “...this [step toward fiscal consolidation] is within the framework of a legislative mechanism that leaves open the details of what is finally agreed to until the end of 2011, and Congress and the Administration could modify any agreement in the future.”

Given Congress’ track record of making and breaking spending control promises, S&P is right to be skeptical. This is the crux of the problem with federal budgeting: any agreement can be modified at any time, making pledges of fiscal discipline, even laws regarding fiscal discipline, virtually meaningless.

The fix? A constitutional budget rule is necessary to lock in spending control for the long term, thus ensuring the United States will, in fact, get its budget on a sustainable path. Constitutional rules are enforceable, hard to change, and far more credible than statutes or a legislature’s internal rules. In recent weeks, critics on both the left and the right (albeit for different reasons) have scoffed at the idea of constitutional rules, characterizing them either as doomed to fail or as attempts by extremists to enshrine a particular vision of government in the Constitution.

While the particular proposals on the table may not be optimal, we should not throw out the baby with the bathwater. Constitutional budget reform is crucial for ensuring the long-term credibility of U.S. fiscal policy. The S&P’s report sends a clear message: show us the money (cuts). That means it’s time for a real debate about constitutional budget rules.