Too Many Blank Checks

In the high-ceilinged Senate caucus room, a Senate-House subcommittee headed by Illinois' Democrat Paul Douglas last week tackled three enormous questions: What is the fiscal policy of the U.S.? How can the U.S. manage its money better? And why will there be an estimated $5.5 billion deficit this year during the biggest boom in history? As a start toward getting the answers, the subcommittee got the views, in comprehensive questionnaires, of upwards of 450 U.S. economists, bankers and federal officials.

The biggest news, quite naturally, was made by the man who is supposed to guide the U.S. fiscal policy, Secretary of the Treasury John Wesley Snyder. Said he: "The general economic welfare of the country should be the guiding principle in determining . . . whether the federal budget should be balanced." What he meant was that the U.S. should run a deficit in depression times and pay it off in good times--in other words, balance the budget over a period of years. But if this was the policy, why was the U.S. running a deficit now? John Snyder's answer was at least partly political. The root of the trouble he said, was the tax cut by the Republican-controlled 80th Congress in 1948.

Everybody Happy. But Alfred H. Williams, president of Philadelphia's Federal Reserve Bank, the first witness to appear before the committee in person, thought differently. The inflationary forces in the U.S., he said, were due in large part to the Government's "zeal for social justice," which has led to the writing of too many blank checks to meet demands of "all claimants in such areas as agriculture, veterans' affairs, housing and local depressed areas."

Thus, for all Snyder's talk about periodic balances, this policy of writing blank checks has actually put the budget beyond practical control. Budget Director Frank Pace Jr. admitted as much. Said he: "For any given year, it is unpractical to count on achieving any specific goal, whether it is a balanced budget or a pre-determined surplus or deficit." Such items as crop support, in which the expense cannot be totted "up in advance, "can substantially change the surplus or deficit." In short, neither Snyder nor Pace had any idea when the budget would be balanced.

Everybody Sad? Many of the bankers and economists saw no reason why the U.S. should not cut its spending and put its house in order. They aimed their fire at the Government's multitude of overlapping lending bureaus which had put out more than $20 billions in loans and guarantees. By & large, the bankers thought that some of the agencies, notably RFC, are no longer justified and should be curtailed or eliminated entirely.

In any case, the U.S. could not go on with its present policies without running into serious trouble. "We are so prosperous and rich that we can violate the rules for a time "and get away with it," warned W. Randolph Burgess, executive committee chairman of Manhattan's National City Bank. "But economic laws have a way of working out, and eventually we will have to pay the penalty." For the Government's deficit spending, U.S. citizens may have to start paying the penalty in higher prices in short order. Warned he: the U.S. may be in for another round of inflation.

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