H́nh ảnh trang
PDF
ePub

Chapter Sixteen

GOVERNMENT EXPANSION IN THE 1960s

The 1960s are remembered as a turbulent period, an era filled with civil rights marches, student protests and urban riots. In response to problems underlying these upheavals, the Federal government increased its activities in the social arena. This was the era of the "Great Society" of President Lyndon Johnson, which saw the rise of new government agencies designed to help the poor and the uneducated. It was also a period of war, as the U.S. involvement in Viet Nam escalated. The war abroad and the fight against poverty at home would prove costly to finance, leading to increased borrowing by the Federal government. By the end of the 1960s the Treasury Department and the Bureau of the Public Debt would be facing greater pressures in their joint efforts to manage and administer the government's debt. It should be noted here that the Treasury, and especially the Bureau of the Public Debt, have little influence on the amount of spending and debt which government operations entail. Rather, they implement the fiscal policies determined by the President and the Congress.

It is doubtful that anyone could have forecast this increase of government activity and debt at the beginning of the 1960s. Up to that time, the post World War II period had seen 7 years of government deficits, largely associated with the Korean War or economic recessions, mixed with 7 years of budgetary surplus. The total debt rose by a modest $30 billion, from $260 billion to $290 billion. 1

If inflation were taken into account, the real value of the debt would have fallen during this time period. 2 As a percent of GNP,

1

Gary M. Anderson, "The U.S. Federal Deficit and National Debt: A Political and Economic History," in James M. Buchanan, Charles K. Rowley, and Robert D.Tollinson, eds., Deficits, (New York: Basil Blackwell, 1987), 13-14.

2 Robert Eisner, and Paul J. Pieper, How to Make Sense of the Deficit, in Robert H. Fink and Jack C. High, A Nation in Debt, (Frederick, MD: University Publications of America, 1987), 93.

the total Federal government debt had fallen from its high of 116 percent in 1946 to 56 percent in 1961. 3

The Kennedy Era

The era of the 1960s can be conveniently marked off by the inauguration of John F. Kennedy as President in 1961. Despite his campaign promise to "get America moving again" with appropriate government policies, Kennedy had fairly conservative views about fiscal policy, remaining "skeptical about the capacity of budget deficits to stimulate economic expansions." 4 But Kennedy's economic advisors had been influenced by Keynesian ideas, and when the economy faltered in 1962, they persuaded him to take action. The result was a tax cut, proposed by Kennedy in 1962 and passed by Congress in 1964. It was the largest tax cut in U.S. history to that time, and was the country's first attempt to stimulate the economy by an intentional budget deficit. The tax cut appeared as a great success to its proponents, for the economy experienced a sharp increase in growth; in fact, total income in the economy rose rapidly enough to enable tax collections by the government to increase. 5 With the economy functioning well, government deficits during the Kennedy administration were about the same size as had been incurred in any single deficit year during the previous decade.

However, there was one significant difference. Whereas the previous decade had seen 4 years of budget surplus, the 1960s would have only 1 year of surplus. This new pattern of government finance had its beginning in the shift in emphasis to direct spending on welfare by the Federal government which began in the administration of President Lyndon Johnson. In the Kennedy administration it had been hoped that economic growth would pull individuals' incomes above the poverty level. When this hope was perceived as not having been achieved, more specific programs designed to end poverty were enacted. By 1965, social programs were about 25 percent of the government budget. A typical agency in the anti-poverty program was the Office of Economic Opportunity, but over 150 new agencies were created. During the 1960s,

3 Secretary of the Treasury, Annual Report, (Washington, D.C.: 1961), 83. 4 Robert Lekachman, The Age of Keynes, (New York: Random House, 1966), 271. 5 Herbert Stein, Presidential Economics, (New York: Simon & Schuster, 1984),

101-111.

400,000 new jobs were added to the Federal government, bringing the total number of Federal employees to about 3 million by 1970, a 15 percent increase. “

When the war in Viet Nam required greater intervention by the U.S., as it did from 1966 onward, the appropriate policy would have been an increase in taxes. Due to Johnson's concern over how a tax increase might effect the economy, and because of the growing unpopularity of the war, taxes were not raised until 1968. 7 As a result, the budget deficit reached $25.2 billion in 1968, the most it had been since World War II. With the tax increase, the budget for 1969 actually showed a surplus of $3.2 billion, marking the last time the Federal government's finances were in the black. In 1970, total debt was $382.6 billion, an increase of about $92 billion over the past decade. It should be noted that on an inflation-adjusted basis, however, the real debt remained nearly constant for the decade. 9

8

The Federal Reserve, by pursuing an expansionary money policy for most of the 1960s, helped the Treasury to manage the continual stream of deficits. In the fiscal year beginning the decade, the Federal Reserve purchased on the open market $0.7 billion in government securities, bringing its total holdings of debt to $25.5 billion (9 percent of the total). 10 At the end of the decade the Federal Reserve was running a tight money policy by purchasing $1.9 billion in 1969, down from the $5.5 billion purchased the previous year; its holdings of Federal government debt had grown to $54.1 billion in 1969 (15 percent of the total). 11

Debt Management Policies

In 1961 more than one-fourth of the debt had to be replaced or paid off during the year. This fact combined with the constant stream of deficits, created debt management problems for the Treasury. During the 1960s, the Treasury continued to improve its ability to manage the debt by lengthening the maturity of the debt,

6

Matthew A. Crenson, and Francis E. Rourke, By Way of Conclusion: American Bureaucracy since World War II, in Louis Galombos, ed., The New American State, (Baltimore: The Johns Hopkins University Press, 1987), 148-151.

7 Stein, Presidential Economics, 1984, 116-122.

8

Anderson, U.S. Federal Deficit, 1987, 13-14.

9 Eisner and Pieper, Deficit, 1987, 93.

10

11

Secretary, Annual Report, 1961, 98.

Secretary, Annual Report, 1969, 13.

thus providing for fewer issues coming due during a year. One method by which this was accomplished, advance refunding, was introduced in 1960. Under advance refunding, holders of outstanding debt were given the option of exchanging their securities for issues with a longer maturity and higher interest rate. This plan enabled the Treasury to market more intermediate and long-term securities, which decreased the problem of frequent sales. 12 For example, in September 1961, holders of $3.75 billion in bonds maturing in 1970 and 1971 exchanged their holdings for longer term issues that were due in 1980 and 1998. 13

Advance refunding was employed quite usefully for the next several years, resulting in the average maturity of the debt being lengthened from 4 years 6 months at June 30, 1961, 14 to 5 years and 4 months at June 30, 1965. 15 By the end of the decade, the larger deficits combined with the Federal Reserve's pursuit of a tight money policy sent interest rates soaring from the 2.5 to 4 percent range in 1961, to the 7 to 7.5 percent range in 1969. As Congress was still imposing a ceiling of 4.25 percent on securities with maturities longer than 7 years, the Treasury was unable to offer any long-term debt for sale. As a result, the average maturity of the debt fell to 4 years on June 30, 1969. 16 Table Ten shows computed interest on the total debt for the Fiscal years 1963 through 1970.

[blocks in formation]

Source: Treasury Bulletin, February 1972, Table FD-2.

Another method by which the Treasury's debt management problems could be reduced would be through the increased sale of Savings Bonds. Since the owners of Savings Bonds held them for

12 William H. Anderson, Financing Modern Government, (Boston: Houghton Mifflin Co., 1973), 254.

13

Secretary, Annual Report, 1961, 17. 14 Secretary, Annual Report, 1961, 84. 15 Secretary, Annual Report, 1965, 28. 16 Secretary, Annual Report, 1969, 12.

« TrướcTiếp tục »