Closing the Deficit

Are deficits a problem? A year ago, the dominant view of Wall Street economists, the media and prominent politicians was that deficits would produce rising inflation, slow growth and a hesitant recovery in 1983. Interest rates could not decline, we were told, in the face of projected Treasury borrowing. Virtually every blip in interest rates was attributed by commentators to changing views about the possibility of financing a $200 billion deficit. A member of the Council of Economic Advisers who suggested, at one point, that there was no accurate or reliable evidence relating deficits to interest rates was made humble for his apostasy.