Date of Original Version

1983

Type

Book Chapter

Abstract or Description

There are few issues in economics on which popular beliefs are as widely held as the belief that budget deficits are inflationary. Practical men, professional speculators and traders, Congressmen and other noneconomists who permit themselves to be quoted are almost uniformly quoted on one side of the issue. Public opinion polls suggest that their view is a majority view. We can only guess at the qualifications and conditions that are in the minds of the practical man and the polls' respondents. It seems unlikely, however, that the qualifications would do more than state some conditions under which the positive association may be present, but not always apparent to the naked eye. For example, some may qualify their claim by asserting that deficits keep prices from falling, or inflation from declining, during recessions. Qualifications of this kind change the type of relation from simple to multivariate but they do not change the alleged positive relation between deficits and inflation. And they change the positive effect from a total to a partial effect that can be observed only if a proper set of "other things" is taken into account.

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Published In

Toward a Reconstruction of Federal Budgeting, The Conference Board.