Table Of ContentAiUERICAN
FISCAL
POLICY
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MODERN ECONOMIC ISSUES
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LESTER C.TH UROW, theed iotfot rhv iosl uimnte h Meo dem
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tribnuutmeedr aorutsit cotl hesesc hojloaurrnlaaynl idsas ,l tshoe
authoofTrh e Role of Manpower Policy in Achieving Aggregate
Goals, tob ep ubliisnthh een de afru ture.
AMERICAN FISCAL POLICY
Experiment for Prosperity
AMERICFAINS CPAOLL ICY
EXPERIMENFTO RP ROSPERITY
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Copyright © 1967 by PRENTICE-HALL, INC., Englewood Cliffs, N.J.
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Library of Congress Catalog Card Number 67-1869��
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CONTENTS
INTRODUCTION
AMERICAFNI SCAPLO LICY
LestC.e Trh urow1
PARTI DiagnostihnePg r inciopfFl iesscP aoll icy
fotrh Sei xties
TOWA RDF ULLR ECOVERY
CounocfiE lc onoAmdivci se2r9s
THEN EW STAGNATITOHNE ORAYN DO URC URRENT
ECONOMIPCO LICIES
ArthFu. Bru rru 51
THEC OUNCILV'ISE W
CounocfiE lc onoAmdivci se6r2s
GROWTHE CONOMICTSH:E C RUCIAILS SUES
LeoHn. K eyserl7i0n g
PARTII A ProgrtaoRm e acFhu lElm ployment
STIMULATIINNGV ESTMENT
DouglDaisl lo8n1
DOMESTIECC ONOMIPCO LICIFEOSR T HEM ID-1960's
CounocfiE lc onoAmdivci se8r8s
A REPUBLICCARNI TIQUE
MinorMietmyb eorfts h Jeo iEncto noCmoimcm it1t0e7e
LETU SB EGINA:N INVITATITOON A CTION
ON POVERTY
JohKne nneGatlhb rai1t2h3
viii Contents
PARITI IR estraDienmianndg
CHECKT HEB OOM?
JamTeosb i1n3 1
A SADP ARALLOEFL> 57
PauAl.S amuels1o4n2
POLICIYM PLICATIOOFEN XSI STING
INFLATITOHNE ORIES
CharSlcehsu l1t4z5e
EXTENDITNHGE R ECORODF P ROSPERITY
CounocfEi clo noAmdivcis e1r5s1
PARITV FutuFriesN ceaelds
THEF UTUROEF O URF ISCASLY STEM
WaltWe. Hre ll1e6r7
AMERICAN FISCAL POLICY
Experiment for Prosperity
INTRODUCTION
AMERICAN FISCAL POLICY
Lester C.T hu row
SinWcoer lWda rI It,h ree ailn coomfte h typei cafla mihlasry i sen
60p ecre natn,rd e oault phuamtso rteh adno ublAeldt.h otuhgaehb
solguatiean rsle a rtghepe,o strweacroc radbn e i mprofvoeirdti , s
noatsg ooadst haotfm anoyfo uEru ropoerAa sni anteiicg hObno rs.
fouorc casrieocnessc,sa iuosunensde mplotyorm ietsnoe7t p ecre notf
thlea bfoorr Fcreo.1m 9 5t8o1 96u3n emploayvmeerna6tpg eecrde nt;
ovetrhe en tpiorset pwearrii ohtda b se e4n.p 8e cre nt.
Thef ailtuomr aekf eu ulsloe f A merirceas'osuh raclsee tsdo l arge
losisnpe rso duacntidin os nt andoaflr idvsiM nogri.em porsteavnetr,e
socpiraolb leeimtshh aevree m ergoerhd a vbee emna dmeo raec ute
whemna niyn divaindgdur aoluswp esrt eo ltdh atthc eo unwtrayus n
ablteop rovtihdewemi tmhe aningwfourlk .
Oneo ft hcee ntgroaaollfe s c onopmoilcii stc oyi mprtohvueeti liza
tiono ft hceo untprryo'dsu rcetsiovuewr ictehcsor ueta ottihnpegrr o b
lemssu,ca hsa ne xcesrsaiotvfeie n flaTtoio opne.rc altoets oce arp acity,
recesmsuisboteen lsi miannatdth egede nelreavolefa l g gredgeamtaen d
musbteh elcdl otsote hrse u pplliym itoaftti hoeenc so noSmiynfi.cs ec al
poliacriteeh spe r immaeraynf sor ra isoirln ogw ertihanegg g regate
demafnodgr o oadnssd e rvtihceepysl ,aa yc entrroalilena chieving
thmea ximuutmi liozfpa rtioodnu rcetsiovuer ces.
Decistiovo anrsgy o vernsmpeenntda inndtg a xaerste h teo oolfs
fiscpaoll iCchya.n ggionvge rnmeexnpte ndointg uoroaednsssd e rvices
direcatHleyac gtg redgeamtaena dn,dv arytianrxga toerst ransfer
paymeanlttspe rri viantceo maensdt hupsr iveaxtpee ndiAtlulr es.
expendaintmdua rnetysa xaersde e sigtnoae cdc omsplpiescghio fiacl s,
sucahsi mprotvhiienn gc oomfte h eel detrhlryot uhgSeho cSieaclu rity
systbeumfit;s cpaoll iisic nyt erienhs otwte adax n sdp enddiencgis s ion
raiosrle o wtehrte o tlaelvo efdl e mafnodpr u blaincdp rivgaotoed s
ansde rvriactethshe arhn o wt heayff escpte cgiofiacl s.
Althofiusgcphao ll iibscy yf atrh meo sitm poratnapdno tw ertfouoll ,
iitos n loyno efa l arnguem boefgr o verninmsetnrtu mfeoinrnt flsu enc-
1
2 Lester C.Th urow
ing the economy. Policymakers can also affect monetary affairs through
controls over interest rates and the money supply; incomes through
guideposts for wages and prices, the war on poverty, and unemploy
ment compensation; labor supplies with training programs and a more
efficient Employment Service; the balance of payments with exchange
controls and interest equalization taxes; and many other areas. By using
a coordinated set of instruments, policymakers can come closer to achiev
ing their goals than by using any one policy alone. Ifspe cific balance
of-payments measures can be devised to produce a viable international
account, fiscal policies can be used to pursue full employment without
worrying about hitting a balance-of-payments constraint before that
objective is obtained. Ifoth er measures are not used, the flexibility of
fiscal policy may be severely reduced. By itself, fiscal policy cannot
achieve all of the country's economic goals.
Full employment, rapid growth, stable prices, an optimal income dis
tribution, a sustainable balance of payments, and desirable economic
institutions constitute standards for judging the effectiveness of aggregate
economic policies. Unfortunately, both American and foreign experience
indicate that not all of the goals can be achieved simultaneously. There
is nothing in either the theory or practice of our economic system
guaranteeing that the economy will achieve these goals. On the con
trary, economic history is full of counter-examples illustrating the instabil
ity of economic systems when the government is not pursuing active
economic policies. Even when a full set of coordinated policies is used
in their pursuit, the standards do not necessarily represent a set of
obtainable goals. Many factors can make the simultaneous achievement
of all of the goals impossible, but the basic incompatibility in a system
where private individuals have the right to set prices and wages lies
between full employment and stable prices. Practical experience in every
Western country indicates that there is no way to achieve maximum
employment without encountering slowly _rising prices.
Ifthe se goals cannot be achieved simultaneously, they have to be
balanced to produce the maximum social benefits. Economists can
identify the points of conflict and can outline the connections between
policies and goals, but the primary job of weighting the relative im
portance of the different goals must be done by the public through
their elected representatives. Value judgments, in addition to economic
knowledge, are essential ingredients.
It is almost impossible to overstress the importance of these value
judgments. Many of the essential differences in economic policies both
