Still More Inflation?

March 8, 1954

There are ominous signs that President Eisenhower’s budget is bursting apart at the seams, and that a demagogic scramble for votes will launch us into still more huge deficits and inflation.

Mr. Eisenhower’s 1955 budget was not sound in the first place. He planned a deficit of $2.9 billion, which would be the 22nd annual deficit in the last 25 years. Whereupon both Republicans and Democrats began to advocate still further tax cuts, especially in excises. And they even began to talk of his $65.6 billion budget as “pinchpenny.”

Then Mr. Eisenhower further weakened his own position by his remarks at a press conference on Feb. 17. He said that if employment did not pick up in March we would have a very definite warning that would call for a number of measures, and tax reduction might be one of the first to be considered. He added that the government wouldn’t hesitate one second to do everything to stop any real recession.

These remarks were disturbing for more than one reason. They attached a peculiar importance to the month of March that experience does not warrant. They placed an undue importance on unemployment statistics that are themselves largely a matter of guesswork. (The Commerce Department’s result was revised as much as 30 percent when it changed its sampling.) Unemployment statistics are also among the most laggard of business indexes.

But most disturbing of all was the implication that the President had accepted the heart of the Keynesian and New Deal philosophies, which throw all their emphasis on consumer spending and assume that the one sure way to avert depression and keep a boom whipped up forever is to unbalance the budget and resort to pump priming and more inflation.

Two days after the President’s press conference, Democratic Senator George, hitherto regarded as a rock of financial conservatism, started to anticipate and outbid Mr. Eisenhower by calling for an immediate increase of $200 in personal exemptions for all income-tax payers. And two days after that Democratic Senator Douglas threw whatever economic prestige he has left into endorsing the proposal. The first effect of this scheme would be, of course, to increase the deficit enormously. It has been calculated that an increase in the personal-income-tax exemptions from $600 to $800 would mean a loss of $4.6 billion in this year’s revenue. So even without any further increase in expenditures or additional tax reductions, this means that the prospective deficit, instead of being $2.9 billion, would be $7.5 billion. Unabashed by this, Senator George even proposed a further increase of the exemptions to $1,000 next year, which would mean a loss in revenues of $9.2 billion annually. And now it is generally assumed that the Republicans will be “forced” into raising the exemptions at least $100 annually. This would mean a revenue loss of $2.3 billion annually—or a deficit, other things being equal, of $5.2 billion. Such a procedure would be utterly irresponsible. The alleged economic reasoning behind it is a mere rationalization of political expediency. Naturally it appeals to politicians who want to make the popular gesture of cutting taxes without the unpopular action of cutting expenditures. This is naked inflationism, proposed by men who still pretend to be “fighting depression” though our national income in 1953 was the highest in our history.

President Eisenhower can successfully combat this demagogy, irresponsibility, and inflation only if he takes a solid stand on principle. He cannot hold the line if he merely tries to stick by his January budget. He cannot convincingly argue that a deficit of $2.9 billion is all right but a deficit of $5.2 billion is all wrong. He can succeed only if he stands on the firm economic and political principle that the budget must be fully balanced, and now. And then he can demand of any group in Congress that wants the fun of cutting taxes that it first of all cut expenditures by the same amount. The only alternative to this course is economic and political demoralization.