An Appraisal of Federal Fiscal Policies: 1961-1967

Abstract

With few exceptions, 1961-1967 was marked by heavy and continuous expansionism in fiscal and monetary policies. Because expansionism was continued and intensified after the economy reached practical full employment in mid- 1965, the result has been cost and price inflation; interest rates at century-high levels despite money-supply increases permit ting 4 per cent a year inflation; a reduced foreign-trade bal ance; and a weakened international monetary system. More over, despite uninterrupted expansionism and the addition of a half-million men to the Armed Forces since 1965, there has been little reduction in unemployment rates since early 1966 and near-recession in 1966-1967. Two aspects of these devel opments are particularly unfortunate: one is that they leave the United States, as it faces the inevitably difficult problems of the 1970's, with an economy seriously unbalanced, domesti cally and internationally; the other is that hard-to-answer questions have been raised concerning the practicability of us ing fiscal policy, particularly tax policy, as an economic stabi lizing device. Although a good part of the fiscal record may be regarded as misadventure, the expenditure explosion that began in 1965, and which was at the root of the trouble, was consistent with executive-branch recommendations for sharp increases in spending authorizations—for nondefense as well as for defense purposes.