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Mr. Chairman and Members of the Subcommittee, I appreciate the opportunity to appear here to discuss how budget deficits affect long-term economic growth.

The Congressional Budget Office agrees with the Government Accounting Office and most economists that large persistent federal deficits dampen the rate of productivity and economic growth. Ultimately, deficits of the sort this country has experienced for over a decade keep living standards from attaining the level they could reach if the deficits were smaller. The problem is all the more pressing because the deficits occur at a time when other factors--low private saving rates, the slow growth in productivity, and demographic trends--will also tend to restrain the improvement of living standards.

Policymakers as well as economists widely recognize these arguments. But recognizing and understanding a problem is not the same as doing something about it: after more than two decades of discussion and procedural changes, we still do not have either agreement on the policy changes necessary to cut the deficit or the procedures that will effectively bring about a budget close to being balanced.

Many are now determined to try another procedural innovation: enshrining a balanced budget in the Constitution. I fear that the constitutional approach could divert attention from the fundamental job of deciding what spending is to be cut or what taxes are to be increased. Inevitably, these decisions must be made, with or without a constitutional amendment. Nevertheless, I am sympathetic with the underlying aim of the amendment--namely, to keep the need for deficit reduction at center stage.

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