June 27, 2004

Truman’s One-Question Interview Defined Inflation

Beltway bean counters are working up a sweat over the 2006 fiscal year budget now under construction by the Bush White House.

Zounds! The president is reported to be considering a smidgen cut in domestic spending while boosting spending on defense and homeland security.

All this after Alan Greenspan, chairman of the Federal Reserve banks told Congress that the record low 1-percent borrowing rate would be allowed to increase at a "measured rate." to 1.25 percent.

As of today, 55 of the world’s largest banks are meeting in Basel, Switzerland, to figure out how to keep inflation low without throttling world economies.

Greenspan is expected to announce a new U.S. borrowing rate on Wednesday.

My economic education – despite a passing grade in college – began with an impromptu one-question interview with President Truman in l952.

Mr. Truman and his press secretary dropped in unexpectedly for lunch at the National Press Club. I happened to be a guest there.

In accordance with custom, the journalist types present pretended not to notice their distinguished visitors. I avoided staring -- but dribbled soup on my chin while ogling sideways.

The president finished his sandwich and coffee and said "Hi, Bill" to a club member passing by. "Hey," said my host, "that’s a signal Mr. Truman is agreeable to visit."

A half-dozen of us gathered around and chatted, politely, about affairs of the day.

I asked: "Mr. President, pardon my ignorance, but the Washington Post this morning carried a front page banner ‘Inflation Hits 3 Percent.’ What is inflation?"

 The word "inflation" was new in the political lexicon.

Mr. Truman laughed. "Don’t apologize. At a cabinet meeting this morning I was asked the same question."

The President’s answer, boiled down, was: "Taking the sting out of growth while keeping the swelling."

Truman hated economics. Like other presidents before and after, he had an "economic advisor" to help him sort out the mechanics of budgeteering.  

He once famously remarked: "Economic advisors tell me that on one hand I should do this, but on the other hand I should do that. I would like to have a one-armed economic advisor."

Since the public’s first notice of inflation 54 years ago, economists have come to agree generally that 3-percent inflation is good.

This is an indication that workers are earning and spending slightly more than is being produced. In economic parlance this is "too much money chasing two few goods."

The Bush tax cuts put money into the private sector. This made it easy – some say too easy—for Greenspan to lower the cost of borrowing by industry to expand and hire more workers to produce more goods to satisfy more demand.

However, extraordinarily low interest rates penalize retirees and other folks living on fixed incomes.

We seem to be able to grow with a 3- percent inflation without killing the economic goose that lays golden eggs.

President Bush’s proposed Y2006 cuts in domestic spending -- while increasing defense spending – has political partisans fuming in this election year.

It all depends upon which end of the microscope we peer through.  

It took 200 years for Congress to reach a $1 trillion budget (1987). But in just the last 15 years, the national budget has expanded another $1 trillion.

Comparatively, Bush’s proposed increases in defense spending -- and decreases in domestic spending -- are mere blips in the national economy.

A fair criticism is that both are too little too late. Defense spending will decrease eventually. Domestic spending – especially for Social Security and Medicare – rushes to bankruptcy.

The Tax Foundation says 28.5 percent of our income is siphoned off for national, state and local taxes.

When Social Security contributions and the fiscal deficit are factored in, the total expense of government is 47.1 percent.

Archeologists specializing in ancient civilizations calculate that those nations collapsed when non-producers (bureaucrats and soldiers) exceeded the number of producers (farmers and artisans).

Producers stop producing and move to a new location to start over.  

Patriot Tom Paine in 1776 argued, "If a king demanded 50 percent in taxes, we wouldn’t pay it."

The Revolutionary spirit still lurks in American breasts.

Lindsey Williams is a Sun columnist who can be contacted at linwms@lindseywilliams.org