Notes on the Budget

February 1, 1960

Word Inflation: The verbal inflation in the budget has increased at an even faster rate than the dollar inflation. The signed part of the President’s message, preceding the hundreds of itemized tables, runs to 78 pages. The Budget Message six years ago ran to only fourteen pages. The increase in wordage is 457 percent, compared with an increase of annual estimated dollar expenditure of 24 percent. The comparison is not frivolous. Good government and good policy depend on the extent of public interest and understanding. Public interest and understanding are encouraged by clarity and brevity, discouraged by prolixity. The significant facts can be buried under mountains of detail. I am not yet ready to put it forward as Hazlitt’s Law, but I suspect that the number of people who read a message varies inversely as the square of its length.

How Good a Guess? The President estimates that expenditures in the fiscal year 1961 will be $79.8 billion and receipts $84 billion, leaving a surplus of $4.2 billion. How likely is that surplus? It is not to be achieved by any cut in expenditures, which are estimated at $1.4 billion more than in the current fiscal year, but by an increase, from practically the same taxes, of $5.4 billion in revenues compared with the current fiscal year and of $15.7 billion compared with the fiscal year ended last June 30. Such an increase of 23 percent in two years would be improbable without substantial inflation; but this would mean correspondingly increased costs, which are not allowed for in the expenditure estimates.

Comparisons with the last full fiscal year, 1959, are not encouraging. For that year the President predicted a surplus of nearly half a billion. But expenditures were $6.8 billion more than he estimated and receipts $6.1 billion less, so 1959 ended with a deficit of $12.4 billion. If the same absolute error were now made for 1961, we would end, not with a surplus of $4.2 billion. but with a deficit of $8.7 billion. The 1959 error was abnormally large. But even for the fiscal year 1958 Mr. Eisenhower predicted a budget surplus of $1.8 billion and we ended with a deficit of $2.8 billion—i.e., $4.6 billion worse than the forecast. His present surplus estimate hardly justifies a Democratic spending spree.

Cost Comparisons: Even when we take the budget at face value, it is the biggest expenditure Mr. Eisenhower has ever proposed. This is not the result of proposed increased spending on defense. On the contrary, “major national security” expenditures, at $45.6 billion, would be less than in 1959 or in the current fiscal year. The new budget contains the highest nondefense expenditures ever recommended. These total $34.2 billion, compared with $31.2 billion recommended for 1960 and $28.1 billion for 1959 (though both increased in actuality), and with actual non-defense expenditures of $27.8 billion in 1958, $25 billion in 1957, and $20.9 billion in 1954. In brief, non-defense expenditures alone are $13 billion greater than in 1954.

Nor does even this tell the full truth about the 1961 budget. When social security and trust-fund operations are counted in, expenditures for 1961 will not be $79.8 billion but $96.3 billion. Total nondefense and welfare spending, at $50.3 billion, will actually exceed defense spending by $5 billion.

Debt Management: Congress will be irresponsible if it does not heed the President’s request for immediate removal of the 42-year-old 4¼ percent limitation on interest rates on government securities maturing after five years. Such long-term securities can no longer be sold at that rate. The ceiling is highly inflationary, as it forces the government to offer short-term securities acquired by commercial banks. As the government must pay around 5 percent even on these, the ceiling on long-terms actually raises its interest costs.

Item Veto: The President is to be congratulated for again asking authority to veto individual items in appropriation bills. He points out that 41 state governors now have such item veto authority. It is a minimum requirement for fiscal responsibility. The only real question is whether it goes far enough.