Inflation by Spending

September 29, 1958

In its September budget review, the government confirmed that it expects a deficit of more than $12 billion in the current fiscal year.

This is treated as nobody’s fault. It is all blamed impersonally on “the recession.” When the current budget was presented in January we were promised a surplus of $500 million. The present deficit is accounted for by an estimated increase in expenditures of $5.3 billion to $79.22 billion, and by an estimated decline in receipts of $7.4 billion to $67 billion. One way in which this was restated in some news stories is that 60 percent of the present expected deficit is accounted for by the impact of the recession on receipts and 40 percent by higher spending.

It is possible, however, to apply a different kind of analysis. This would begin by pointing out that the original January estimates were not realistic. This column was not alone in making such comments as the following (on Jan. 27): “It seems highly probable that estimates of both receipts and expenditures for 1950 err on the optimistic side. . . . In an acknowledged period of declining business, the President wishfully estimates budget receipts from the same taxes at $2 billion more in 1959 than in 1958. And Democratic leaders (and some Republicans) are demanding even higher spending.”

BLAMING THE RECESSION

Can the higher spending be blamed on the recession? Well, unemployment-insurance payments are now expected to be $585 million higher than expected in January, and expenditures on housing are expected to be more than $1 billion higher because of the “emergency anti-recession” mortgage-buying program. But it is not the recession or the panicky actions caused by it, but record crops (encouraged by the subsidies themselves) that account for the estimated increase of $1.8 billion in farm price supports. And the increase of $591 million in the estimated postal deficit was caused mainly by a retroactive pay increase.

Altogether estimated expenditures have increased over January by $5.3 billion. The planned expenditures even in January were far too high. The nondefense expenditures then recommended, in fact, reached a new high record of $28.1 billion (not including the $2.5 billion for the highway program) compared, say, with $21.2 billion in 1954. Proposed non-defense expenditures in January were higher for 1959 than for 1957 in practically every major category—for foreign economic aid, veterans’ benefits, “welfare,” farm subsidies, natural resources, and housing.

Estimated spending under the cash budget (which includes the operations of the government’s trust funds for social security and jobless pay) now comes to the staggering total for 1959 of $94 billion.

ARE WE HELPLESS?

Yet we are told that there is nothing we can do about this, and that we must resign ourselves, not only to a $12 billion deficit this year, but probably to at least a $6 billion deficit in the next fiscal year.

The truth is that, if a healthy public opinion made itself felt, and if the will existed in Washington, the nondefense budget could be cut now by an annual rate greater than the estimated $12 billion deficit, and with all-round advantage. The $6 billion farm-subsidy program is an economic outrage. Most of the $4 billion foreign-aid program is demonstrably futile. The $5 billion of veterans’ benefits is shamelessly swollen. All of which has been pointed out before.

But under our present budget system (or lack of system) responsibility for reckless expenditure and inflationary deficits cannot be fixed. Congress and the President shift the blame to each other. We will never have a responsible budget until we adopt the system that prevails in, say, Great Britain, and is approached in many of our states, under which the legislature cannot make any appropriation not recommended by the Executive, or in which the Executive can at least veto or reduce any item in an appropriation bill beyond his recommendation. This constitutional change, it is true, would not be in itself sufficient to assure fiscal responsibility. But it is highly improbable that such responsibility will ever be secured without it.