Is It time for Americans to adopt the Swiss debt brake?

As an economist, I have written extensively about the Swiss debt brake as a potential solution to the U.S. debt crisis.  The United States is experiencing debt fatigue and must enact new fiscal rules to restore sustainable debt levels at both the national and subnational levels.  The Swiss debt brake has proven to be the most effective set of fiscal rules in accomplishing this objective, cutting debt burdens in that country by half.  The Swiss debt brake has been the model for more effective fiscal rules, adopted by European nations and the European Union.

The Swiss debt brake, which assures a balanced budget over the long term, has been effective in large part because it was enacted through initiative and referendum at the cantonal and national levels.  An initiative incorporated the debt brake into the Swiss Constitution.  Swiss citizens approved the debt brake overwhelmingly; about 85 percent expressed their support.  Referenda and initiatives are direct-democratic institutions, which give Swiss citizens the power to vote on most important tax and expenditure decisions.

Although there are no provisions for a referendum at the federal level in the United States, there is a precedent for using direct democracy at the state level to control fiscal decision-making.  In Colorado, for example, voters enacted the tax and expenditure limit through an initiative and incorporated it into the state's constitution.

Changes at the federal level can be made only by federal law, which can easily be reversed, or through an amendment to the U.S. Constitution, which can be created by Congress or by an Article V amendments convention of the states.  In either case, three fourths of states must ratify the amendment for it to become law.

The United States is now far behind the learning curve in enacting more effective fiscal rules to address the debt crisis.  A major stumbling block has been reluctance to rely on direct democracy when it comes to fiscal decisions.  In this sense, the United States is like Germany, which has imposed strict limits on direct democracy, virtually precluding German citizens voting on fiscal issues.  The fear is that allowing citizens to vote on tax and expenditure decisions will result in unconstrained growth in government spending.  However, evidence shows that the opposite is true.

Matsusaka and Feld found that in both the United States and Switzerland, reliance on direct democracy significantly reduces the growth in government spending.  Further, a good argument can be made that relying on politicians to use their discretion in taxing and spending decisions without the presence of constraints imposed by direct democracy or a constitutional requirement is why we have failed to address the debt crisis.

It is not surprising that politicians in the United States, Germany, and other countries oppose reliance on direct democracy in fiscal decision-making.  Politicians do not want to lose control of the fiscal commons, which is the source of rent-seeking and the currency of political exchange.

As a result of politicians' unwillingness to constrain their spending powers, many citizens in countries without fiscal controls have rightfully grown to distrust politicians and the rent-seeking games that now dominate public policy.  This antipathy between citizens and political elites is on full display in the United States this election year.  Candidates in both political parties can't wait to incur the debt required to fulfill their unique vision of the nanny state.

It is time for Americans to look to the Swiss, not only for effective fiscal rules, but also for political institutions that would restore trust, respect, and confidence in citizens — such as permitting direct democracy on fiscal issues.

Additionally, wouldn't it be great to get rid of the cult of personality that now dominates our presidential elections?  Like the Swiss, we could create a federal council, with the presidency rotating among councilors on a yearly basis.  Many Swiss citizens cannot name the councilor who happens to be president in any given year.  Without the cult of personality in American politics, citizens could begin to build dynamic credence capital in their political institutions, as the Swiss have.

Whatever changes are made, one thing is clear: significant alterations to the current system are necessary if Americans are to enjoy a more effective, efficient, and fiscally responsible government.

Barry Poulson (think@heartland.org) is emeritus professor of economics at the University of Colorado-Boulder.

Image: Pixabay

As an economist, I have written extensively about the Swiss debt brake as a potential solution to the U.S. debt crisis.  The United States is experiencing debt fatigue and must enact new fiscal rules to restore sustainable debt levels at both the national and subnational levels.  The Swiss debt brake has proven to be the most effective set of fiscal rules in accomplishing this objective, cutting debt burdens in that country by half.  The Swiss debt brake has been the model for more effective fiscal rules, adopted by European nations and the European Union.

The Swiss debt brake, which assures a balanced budget over the long term, has been effective in large part because it was enacted through initiative and referendum at the cantonal and national levels.  An initiative incorporated the debt brake into the Swiss Constitution.  Swiss citizens approved the debt brake overwhelmingly; about 85 percent expressed their support.  Referenda and initiatives are direct-democratic institutions, which give Swiss citizens the power to vote on most important tax and expenditure decisions.

Although there are no provisions for a referendum at the federal level in the United States, there is a precedent for using direct democracy at the state level to control fiscal decision-making.  In Colorado, for example, voters enacted the tax and expenditure limit through an initiative and incorporated it into the state's constitution.

Changes at the federal level can be made only by federal law, which can easily be reversed, or through an amendment to the U.S. Constitution, which can be created by Congress or by an Article V amendments convention of the states.  In either case, three fourths of states must ratify the amendment for it to become law.

The United States is now far behind the learning curve in enacting more effective fiscal rules to address the debt crisis.  A major stumbling block has been reluctance to rely on direct democracy when it comes to fiscal decisions.  In this sense, the United States is like Germany, which has imposed strict limits on direct democracy, virtually precluding German citizens voting on fiscal issues.  The fear is that allowing citizens to vote on tax and expenditure decisions will result in unconstrained growth in government spending.  However, evidence shows that the opposite is true.

Matsusaka and Feld found that in both the United States and Switzerland, reliance on direct democracy significantly reduces the growth in government spending.  Further, a good argument can be made that relying on politicians to use their discretion in taxing and spending decisions without the presence of constraints imposed by direct democracy or a constitutional requirement is why we have failed to address the debt crisis.

It is not surprising that politicians in the United States, Germany, and other countries oppose reliance on direct democracy in fiscal decision-making.  Politicians do not want to lose control of the fiscal commons, which is the source of rent-seeking and the currency of political exchange.

As a result of politicians' unwillingness to constrain their spending powers, many citizens in countries without fiscal controls have rightfully grown to distrust politicians and the rent-seeking games that now dominate public policy.  This antipathy between citizens and political elites is on full display in the United States this election year.  Candidates in both political parties can't wait to incur the debt required to fulfill their unique vision of the nanny state.

It is time for Americans to look to the Swiss, not only for effective fiscal rules, but also for political institutions that would restore trust, respect, and confidence in citizens — such as permitting direct democracy on fiscal issues.

Additionally, wouldn't it be great to get rid of the cult of personality that now dominates our presidential elections?  Like the Swiss, we could create a federal council, with the presidency rotating among councilors on a yearly basis.  Many Swiss citizens cannot name the councilor who happens to be president in any given year.  Without the cult of personality in American politics, citizens could begin to build dynamic credence capital in their political institutions, as the Swiss have.

Whatever changes are made, one thing is clear: significant alterations to the current system are necessary if Americans are to enjoy a more effective, efficient, and fiscally responsible government.

Barry Poulson (think@heartland.org) is emeritus professor of economics at the University of Colorado-Boulder.

Image: Pixabay