The household fallacy, constitutionally entrenched

The Washington Examiner reports that twenty states have now passed the Convention of States resolution, with Kansas becoming the twentieth in early 2026. The convention's three stated subjects include fiscal restraints on the federal government — which is to say, the ambition is to write austerity into the constitutional fabric of the republic, making it not merely a political preference but a legal mandate. I find that prospect both understandable and, on the macroeconomic evidence, alarming.

The appeal is easy enough to grant. A household that spends more than it earns for long enough will come to grief. Every citizen intuits this. Every sensible politician knows how to weaponise the intuition. But the federal government is not a household, and the analogy, however emotionally satisfying, breaks down precisely at the moment it matters most — namely, a recession, when private investment collapses and aggregate demand falls short of the economy's productive capacity. At that moment, the household instinct says: cut spending, balance the books, show the markets you are serious. The macroeconomic reality says: if everyone retracts at once, the economy contracts further, tax revenues fall, and the deficit widens anyway. You cannot legislate your way out of the paradox of thrift by writing the thrift into the Constitution.

I want to be fair to the other side, because intellectual honesty demands it. There is a legitimate case that fiscal rules — credibly enforced — can anchor long-run expectations, hold down borrowing costs, and force a political discipline that legislatures left to themselves chronically fail to exercise. These are not frivolous arguments. Some of the most able economists of the twentieth century made versions of them, and experience in several European democracies showed that fiscal frameworks can have real disciplinary value. I do not dismiss the concern about long-run debt trajectories; they are real, and they deserve serious attention.

But — and this is the decisive objection — there is a profound difference between a framework that constrains ordinary spending and one that removes the government's capacity to act as a countercyclical force in a genuine slump. If a balanced-budget amendment bites hardest in a downturn, when revenues have fallen and automatic stabilisers have raised expenditure, it transforms a recession into a constitutional crisis. The government is compelled by law to cut precisely when cutting is most destructive. That is not fiscal discipline; it is procyclicality entrenched in parchment. One need only recall what the combination of war debts and austerity demands did to the German economy in the early 1930s — I wrote about the political consequences of economically irrational settlements at Versailles, and what followed confirmed the argument in the most terrible way — to grasp how high the stakes can be. (I mark this historical parallel as my own inference from principle, not a claim about the specific drafting of the Convention of States resolution, which the Washington Examiner describes only in outline.)

The proponents will say, of course, that the convention's language will include escape hatches for emergencies. Perhaps it will. But constitutions are interpreted by courts and by politicians under pressure, and emergency clauses have a way of being either too narrow to deploy when needed or too broad to provide any discipline at all. The engineering of such a provision matters enormously, and the Washington Examiner's lead offers no detail on how that tension would be resolved — so I hold my judgment on the specifics while standing firm on the principle.

What would I build instead? A fiscal framework that distinguishes between current spending and public investment — that treats the state's capital budget separately, as any well-run enterprise does — and that includes automatic stabilisers designed to expand when unemployment rises above a defined threshold and contract as it falls. That is rule-bound, it is disciplined, and it is macroeconomically coherent. It does not require a constitutional convention; it requires a legislature with the courage to design good institutions rather than outsource the question to a document written for a pre-industrial economy. Twenty states have reached for a constitutional hammer because the ordinary tools of democratic governance feel broken. The frustration is understandable. The remedy, I fear, is not.