The connection between deficits and inflation is what shaped the debate about
deficits in the pre1980. On one hand you hand pressures from every direction
for government spending, and on the other you hand you had the serious danger
of inflation forcing restraint. Below are two of many articles demonstrating
this painful political balancing act.
AllMontreal Gazette – Google News Archive
President Eisenhower’s main declaration
after the defeat of his party in the mid-term elections was that he would fight THE INFLATION THAT COMES THROUGH TOO
MUCH GOVERNMENT SPENDING. He will take his stand against the
spenders. “The Lord sparing me,” he said, “I
am going to fight this as hard as I know.”
It is, in every way, a worthy declaration. But the difficulty is that his own record in office is one of big spending and heavy
THE SORT OF
FINANCING THAT HAS MADE FOR INFLATION. The current fiscal year
will likely end with a deficit not less than $13 billion.
Nobody questions the sincerity of the President’s declarations regarding
economy. He is convinced that HEAVY
GOVERNMENT SPENDING IS HELPING TO RUIN EVERYBODY’S DOLLARS. But
the very fact that a man with such convictions has been able to do so little to
curtail spending and deficits gives cause for wondering
President Eisenhower, like the heads of so
many nations in the world, finds that the
pressures for spending come from so many peoples and groups that it is
politically impossible to refuse them. If too many people find
the government cutting down on their requests for this or for that, they may
always turn to other parties that offer be more obliging. Not even the free
spending of the Eisenhower regime satisfied the feeling of many voters that
they might get even more from the Democrats
It is not only that President Eisenhower is bewildered by such pressures. The
Canadian Minister of National Revenue, Hon George Nowlan, said not long ago
that he feels the pressures from every
direction for government spending, but does
not find many people who are eager to ask for less.
The same remark, in almost the same words, was macic by Rt. Hon J. L Jisley. at
the time when he was Minister Finance. He once said that he thought was the
only person interested in economy. Every plea
he ever heard was more and more spending.
Why is it, then, that
people keep making these demands upon governments, WHEN THEY KNOW THAT
THEY ARE WEAKEN THE BUYING POWER OF THEIR DOLLARS WHEN THEY DO SO?
The Politics Of Inflation
Politics Of Inflation
Spokesman-Review – Google News Archive
Watching the last inning of the first game of the World Series,
President Johnson pulled from his pocket a slip of paper showing the steady rise of interest rates over the last year.
That slip of paper expresses THE TRUE MEANING
OF THE FIGHT IN THE CONGRESS OVER THE PRESIDENT’S PROPOSED TAX INCREASE.
Basically, the Republicans are trying to delay action on the program to the
point that assures a stiff dose of inflation
certain to be blamed on the Democrats.
To understand what this is all about, it is first necessary to develop a sense
of the way the country lines up around the proposal for a tax increase. The overwhelming evidence is that most of the country is
bitterly against the tax rise.
The one big exception is the business
community. Having been won
over to the new economics in the last few years,
In this situation, the tax increase proposal presented a real danger to the
… the Republican leadership in the House developed the strategy of linking support for the tax increase with action by the
administration to cut back spending on a massive scale. Thus the
Dartmouth College wing of the party could come out for the tax increase
provided the administration agreed to pare
down spending by from $5 to $7 billion.
leaders have declared themselves almost UNANIMOUS FOR HIGHER TAXES AS AN
In the long run, the administration is likely to get a tax increase without drastic cuts in
expenditures. The SERIOUS DANGER OF INFLATION
MAKES A COMPELLING CASE.
They [Republicans] are beginning to tick of
more in sorrow than in anger the numerous
warnings they have issued to the administration on the matter of inflation. In a major floor speech late Tuesday, John
Byrnes of Wisconsin, the minority spokesman on taxes in the House, listed
laborious detail five such occasions running from February 1966 through June
Behind this emphasis is an obvious tactic. The Republicans believe they can now
head off a tax increase until next year. By
that time it will probably be TOO LATE TO DAMP DOWN INFLATIONARY FORCES.
And so Republicans are getting ready to tag the
Democrats with blame for THE HEAVY DOSE OF INFLATION that is on the way.
Notice how everyone back in 1967 knew that deficits had an immediate,
real cost. There was none of this nonsense of “passing the cost to future
generation”. The price of excessive federal spending was pay by the dollar’s loss
of purchasing power over the subsequent 2 to 3 years.
IT GOT BETTER — MAGICALLY
After 1980, the old, common sense formula underwent a drastic change:
Deficits = Money Printing = NO INFLATION?
= LOWER INTEREST RATES?
Deficits = Money Printing
Although the inflation and interest rates came down, the first part
of the formula remained the same. The government never stopped printing
money to finance its massive deficits.
Money Printing = NO INFLATION?
What did change was that this money printing started producing much, much less
inflation, as seen below.
NO INFLATION? = LOWER INTEREST RATES?
The NEW Politics Of Inflation
Once the one restraining force on budget deficits was removed, the
threat of inflation, the results were predictable. Budget deficits exploded
Pressures for government spending VS no cost whatsoever
These massive deficits, combined with an apparent lack of consequences, slowly gave
rise to the idea that, “deficits don’t matter.”
The Matter Is: Do Deficits Matter?
matter is: Do deficits matter?
It’s a question that affects interest
rates, taxes and budgets, and isn’t easily answered
Milwaukee Journal – Google News Archive
Aug 28, 1983
By Jane Seaberry
WASHINGTON, D.C — … DO DEFICITS MATTER?
It is a problem because if deficits do
matter, … it could lead to higher
interest rates …
compelling Congress and the
administration to do something about it.
IF DEFICITS DON’T MATTER and don’t necessarily raise interest rates, as
some in the administration maintain, then there
is NO PRESSURE FOR TAX INCREASES.
… After initially saying deficits do matter, TREASURY
NOW SAYS THERE IS NO DEFINITE LINK BETWEEN LARGE DEFICITS AND HIGH INTEREST
Deficits Don‘t Matter?
don’t matter? NonsenseMilwaukee Journal – Google News Archive
Jan 28, 1989
Can it be that federal budget deficits aren’t very
harmful after all? Some unorthodox
economists, along with certain leaders of the financial
community, are starting to suggest that
possibility. They note that
Deficits obviously will not always lead to a recession. Experience has established that red-ink spending
— up to a point, at least — can stimulate
economic growth. And
economy has experienced six straight years of growth even as the government has
piled up one large deficit after another.
Moreover, it is even proper to pass
along some of the costs of government … TO
THE NEXT GENERATION through deficit financing.
widely conceded that a certain level of public debt can be tolerated
Wow, isn’t that amazing? After 1980, politicians no longer had to agonize over
painful budget decisions: the US could now just print money all the money it
wanted without consequences! Our dollar would stay levitating in the air,
defying the laws of supply and demand, while the consequence of massive federal
spending were passed on to some distant unnamed “next generation.”
Ask any good magician how he makes his assistant levitate in
the air, and he will tell you there is explanation to it. It simply is. If
point out he is defying the laws of gravity and there has to be a trick behind
it, he will tell you “it’s magic”. Well, it is the same here too.
There is no official explanation to why
deficits and money printing stopped causing inflation. The treasury’s
position on the matter is simply that “deficits don’t matter.” They used to
cause inflation, and now they don’t. Never mind that this defies all laws of
economics and common sense. IT’S MAGIC.
Now, maybe this is acceptable to some people. Perhaps it is possible an
educated adult to believe “everything
magically got better” and still have some self-respect. I
meant really, if someone thinks Santa Clause is real and that UFOs are “out
there”, who am I to judge?
As for me, I DON’T believe in magic. There
ain’t no such thing as a free lunch. When someone like Madoff promises us
something that seems too good to be true, it probably is. So rather than
accepting the treasury’s “deficits don’t matter”, my reaction is to suspect
fraud. MASSIVE, MULTI-DECADE MADOFF-STYLE FRAUD.