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flj^ August 4* 1989 DEBT jftSD ItffiLATIOH We ore treated to a ateagy flow of oratory these daya about the danger* lurking to our public debtt which* mi era told, hais# reached a point where Inflation and repudiation are Inevitable* Moat of thie oratory eounda rery impressive* She only trouble with £t 10 that it never goto anywhere near the lowly level of facte* $hie ie only natural | for if our orators would interrupt their resounding periods long enough to look at sme pertinent facts, they would ran the danger of suffering draetio deflation thnaelwea* fake, for instance* the glib etate»snt that *rlee in the public debt J & inflation** Vhat can this possibly Bean? Inflation* according to ordinary eomon eenee language* ie a draatio rise in prices* The only possible relation between debt and inflation ie through the effect of debt coat prices* Let ma look at the facts* The total public debt in thie country today la eliaoet twice what it was in 1929* and the debt of the Federal Cerement alone ie about 2 1/Z times ae great* And yet* the wholesale price index which etood at 95 in 1929, 1926 being 100t ie only 73 at the preas&t tlae* Obviously there m e t be eoðing wrong with the idea that a riae in debt In Bat thte apparently isn't what the prophets of doom really wmw they donft actually try to prove that we already hate inflation—- 7 that wuld be too nonsensical for anyone to believe—but rather they warn us that *Svm set of circuit anoes will set It off—donft ask ma when.* We have heard this precise m m i u g for at least six years now* Perhaps the time has cce&e when It Is up to the orators to tell us The same old warning repeated year after year gradually begins to lose Its force whoa nothing ever happens* But you trill say six years Is a short ti$e« Maybe just a little *&ile mere and the inflation trill be here. It is easy enough to cheek up on this notion by looking at the facte for another country where they have had a much longer experience of a high public debt than we heme here* In Esglsnfr—a country incidentally mch praised by critics of Ad&taistratlon policies in this country—the total public debt* including local units as well as the National Gorerxmant^ amounts to #lt050 per capita as compared with #450 in this country* Xn other words* the per capita in England is alzsost Z 1/2 tlses what It is here* Surely if there is anything in the theory that our debt Is rapidly becoming so large that inflation and repudiation are just around the corner, England saast already be engulfed in a disastrous inflation aecosapanled by the repudiation of her public obligations* TPhe actual facts are quite different* In the last fire years has been enjoying one of the most extraordinary periods of prosperity in her history* Trices hare been steady; production has been at an all-time high; end ecsploymemt Is above the 1929 level. Oorensmsnt bonds are selling at remarkably low yields* Aed all this has ta&en place with a public debt alaoat 2 1/e times as large as aura* 1st other nerds, when we tore a public dobt of $125 billions m*VL still short of the Crushing burden® under which Ragland has enjoyed such extraordinary prosperity* Zf inflation and repudiation are just around the corner, it is strange that the bahfcers, insurance eo&paay executives, and wealthy capitalists of this country are so stupid that they are will ins to pay continually higher prices for Government bonds* Yield cat the average long-term Ckrrern&ent bonds recently got dorai to 8*07 percent* an all-time sfcich moans that the Ckivarzmeat is selling its obligations cm the taost favorable term in Its history* And yet, ve are told that the policies of this ea&e Government are leading us to financial ruin* Shat we are suffering from at the present time Is a dafic~ ciency, not an excess, of demand for goods* As long as we have a deficiency of demand, or, in other words, a "surplus of eowodlties** prices instead of soaring to inflationary levels are going to leg in their present depressed condition* 3fhe distribution of purchasing power by the Government, through Its borrowing and spending opera-* tions, tends to sustain demand at something like a tolerable level* Bat with the tremendous productive poser that both industry and agriculture in this coimtry have developed, th© amount of purchasing power necessary to raise prices even by a small amount would have to he notch greater than at present. As the money consumers have to spend increases, the flow of goods industry end agriculture s&ll put on the market will also increase* Only ssfcen m have absorbed all of our idle Ben and resources and the factories and the fame of the nation ere producing at full blast can there wen begin to bo talk of inflation* But consider for a accent *fcat would happen to the Te&aral Governments financed if we reached that happy condition of full «a®loysient and full productive activity! Tax yields* without any Increase in tax rates, isoiiId increase so tremendously that the necessity for further t&rrosing to finance eaqaenditures tsould automatically cease* If there be any doubt as to the accuracy of thla statement X need only call attention to studies of the Treasury ahich she* that the budget will be balanced with an #30 billion national income* This level of Income* according to the estimates of expert s9 will still be scoterahat short of the amount necessary to employ our aaen and our resources fully* Putting th* whole thing in a nutshell* &$y Increase in the total spending of the nation that would tend to Bake prices rise mold call forth a tremendous increase in industrial and agricultural product tion* Slightly higher prices, together with increased production and increased employment, nould mean larger incomes and hence larger revenues for the Treasury* Hwi necessity for further borrowing would cease and theflungerof inflation through further increases in the public debt «ould automatically disappear*
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