WASHINGTON -- The defeat of the balanced budget amendment in the House last week sent a clear signal to financial markets that it is business as usual in Congress, with fiscal profligacy still the comfortable order of the day.

Despite coming within a few votes of the necessary two-thirds majority, the measure could not muster the victory promised by its co-author in the House, Rep. Charles Stenholm, D-Tex. In the last-minute flurry of intense lobbying that preceded the vote, a handful of Democratic supporters defected and voted no.

The outcome should come as no surprise to observers of Capitol Hill, where flowing rhetoric and promises to produce a responsible budget are overwhelmed year in and year out by a flood of red ink. Congress is also the place where hundreds of special interest groups, helped along by PAC money, work their way into the consciousness of House and Senate members.

In the end, the amendment was smothered by a powerful coalition of self-interested lobbyists that included the National Association of Retired Persons, labor unions, state and local governments, and even business groups such as the U.S. Chamber of Commerce. With their dire warnings of massive tax increases and cuts in Social Security and other entitlement programs, these were the groups that carried the day.

They were aided in their efforts by the Democratic leadership in both the House and the Senate. House Speaker Thomas Foley, D-Wash., worked hard to persuade his colleagues to kill the amendment, using his power to threaten supporters with demotions in committee assignments. And as soon as the measure was defeated, Senate Majority Leader George Mitchell, D-Maine, said he saw no reason to pursue the bill.

Given the support of the balanced budget amendment among the general public, Republicans are correct in warning Democrats who voted against the legislation that the voters will want to settle accounts in November.

For financial markets, the demise of the balanced budget this year provides a gloomy reminder of policy gridlock and devotion to the status quo that will only add to the voter thirst for revolution. Unwittingly, Congress is adding to the political instability in the air from the challenge of Ross Perot.

With monetary policy at the Federal Reserve on hold, the markets want assurance that fiscal policy in Washington will remain at least neutral. Instead, Congress has indicated that special interests and deficits remain the chief driving force in fiscal decision making.

If the Democrats and Republicans are back to business as usual next year, the way will be clear for the next dollop of fiscal largess: a national health-care plan that will be paid for by taxpayers and business.

It was altogether fitting that while the House prepared to vote on the balanced budget amendment, members of the Senate Finance Committee were doing what they do best: looking for new ways to raise taxes. In the search for revenues to pay for an extension of unemployment benefits, the committee approved a requirement for securities dealers to mark their holdings to market.

The panel also agreed to raise to $51,000 the amount that retirees can earn without losing Social Security benefits. To pay for the change, the ceiling on workers' income subject to Social Security taxes was raised to $71,100.

A balanced budget amendment, even if it worked only to ratchet down the deficit part way, would help fixed-income markets. In signaling a firm commitment to fiscal restraint, it would lower long-term interest rates. Lower rates would help municipal issuers, consumers, and businesses. Lower rates would spur investment in the economy and could jump start a stock market that has clearly stalled.

Thank you, Congress. You did it again.

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