nistrations did not attempt to simultaneously increase federal government spending, and reduce federal taxation levels. This combination of factors, however, was characteristic of the Kennedy and Johnson Administrations, which also created substantial budget deficits·but nothing on the order of the Reagan/Bush deficits.
In 1980, the conventional wisdom of the economists advising candidate Reagan held that high federal budget deficits would lead to higher interest rates, double-digit inflation, and increased unemployment. Not all economists, however, agreed with this contention; some said that deficits were the result of inflation, and not the other way around.
The economic record of the 1981-1988 period knocked the props from under each of those arguments·at least in the short-run. The Reagan deficits appear to have had Keynesian effects on the economy, to the chagrin of the Administration's economic advisers. The problem with what occurred is that the Keynesian effects of the Reagan deficits were, indeed, short-run, as the economic recession experienced during the Bush Administration demonstrated.
President Bush presented a deficit reduction proposal based on the idea of a flexible freeze. Under this concept, spending on no program or project would be permitted to increase more than the anticipated rate of inflation for the budget year, spending cuts would be effected in some programs, other programs, such as social security, would be protected from spending cuts, and there would be no federal income tax increases. The Republican-controlled Congress in the contemporary period and President Clinton, by contrast, have embraced the balanced budget concept.
When considering a balanced budget agreement, it must be observed that such an agreement in and of itself will not solve all of the federal government's·nor the country's·economic problems. A balanced budget agreement simply states an intent that the federal b...