Blueprint for Balance

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Like any citizen who is spending more than he makes, the U.S. Government is doing a poor job of running its fiscal affairs. How can it do better?

To find out, a bipartisan Senate-House subcommittee, headed by Illinois' Democrat Paul H. Douglas (TIME, Jan. 16), put this question to almost 500 U.S. economists, bankers and federal officials. Last week, in a clear, plain-speaking 50-page report that was notable for its lack of political partisanship, the subcommittee laid out a blueprint to put the U.S. fiscal house in order.

Its most important conclusion was that in prosperous times like the present the federal budget, instead of running $5.6 billion in the red, should be balanced. Admittedly, the U.S. should not commit itself to balancing the budget every year, the subcommittee said, for that would mean "drastic increases of tax rates or drastic reductions of Government expenditures during periods of deflation and unemployment, thereby aggravating the decline." But if the U.S. ran into the red in depression years, it had to show a surplus in prosperous years—and that meant now.

The subcommittee made no mention of doing this by a tax increase or a cut in vital expenditures, but simply by removing "waste in government." That meant no hit-or-miss reductions, but a paring down all along the line. "The quest for economy," said the subcommittee, "must be continuing and unrelenting; it must not be limited to any one phase of the business cycle."

Job Not Done. The ups & downs of the business cycle, the subcommittee found, could be evened out if the Government wisely used its broad fiscal, credit and monetary powers. The Government should rely on its powers rather than on the system of direct controls, i.e., price and wage controls. The use of fiscal powers is "more consistent with the maintenance of democracy and . . . free competitive enterprise," said the report, than would be the only alternative—"an elaborate system of direct controls."

In the current boom, the Government has failed to make full use of its broad fiscal powers, said the subcommittee, chiefly because of the family rows between the U.S. Treasury Department and the Federal Reserve Board. The chief task of FRB should have been to restrict credit during the boom, by forcing interest rates up. But the Treasury, insisting on a cheapmoney policy, fought any change, because a change would have meant an increase in the cost of carrying the U.S. debt. Time & again FRB failed to do its job, and went along with what FRB's Marriner Eccles called the Treasury's "general easy-money bias under almost any and all circumstances."