Knowledge that Transforms

PpTHE primary purpose of this paper is to compute comparable deficit and surplus data for the central governments of the United States, the United Kingdom, France, and \Vest Germany for the last several years. In these years of emphasis on the relationships between fiscal policy and both economic growth and inflation, there is value in having comparable quantitative central government surplus and deficit data at hand to support or to negate one's arguments. I survey here the data available, and finding it inadequate in detail and in aggregate, compute new figures using the countries mentioned above as subjects of the experiment.

Herbert Stein, Joseph Conard, Carl F. Christ, Comments on Noyes' Short-Run Objectives of Monetary Policy, The Review of Economics and Statistics, Vol. 45, No. 1, Part 2, Supplement (Feb., 1963), pp. 149-155

The history of air traffic forecasting presents some interesting contrasts in methods and results, as well as some useful insights into the cause and effect of trends. The underlying philosophies of past forecasts, along with their special assumptions, showed great variety. As might have been expected, the numerical results were equally diverse, and many of them proved to be remarkably inaccurate. In the lower forecasts, a share of the market approach was used. It was assumed that air traffic would grow as an integral part of the whole common carrier market: this had been stable for 20 years, and except under the abnormal conditions of World War II, no growth was registered. An inherently stable common carrier was therefore a basic underlying premise and within this static the various modes were simply to exchange their relative places. Air travel, it was predicted, would gradually displace rail travel as the dominant form. The measure of such traffic is commonly the revenue passenger mile. The higher forecasts assumed that air traffic would be independent of the total common carrier curve and that, with certain other assumptions, it would follow or exceed recent trends. Professor Wright's I957 forecast forecasted a jet impact which would accelerate an already steep trend. In another case, lower fares, predicated on the higher productivity, were assumed. Instead, fares were raised. The purpose of this study is to develop a better understanding of what has actually happened and to isolate and analyze the underlying historical patterns. The first pattern examined was the tendency of the growth curve to flatten out in I937, I942, I947-I948, and I958. See Chart I. These pauses could not be explained by economic recession. I937 and 1947-8 were not, in the context of the times, recession periods. The leveling off in I942 was caused by war conditions, rather than depressions. Yet, during actual recession years (1938, I949, I953-54), air traffic continued its dynamic growth. I958 is one period in which there was both a recession and a pause in air traffic growth . . . hardly a valid basis for establishing a cause and effect relationship.

C URRENT controversy among economists on systems for recording and classifying Government transactions has focused largely on the choice between the Cash Budget on the one hand and the income and product account on the other; the Administrative Budget seems to have few friends in the profession. A good part of the controversy over budget concepts appears to exist mainly because the major types of Federal economic influence are not being distinguished sharply enough in discussion of the currently available measures of Government activities. In particular, GNPdeficit advocates look for the income and spending effects of Federal transactions, while the Cash Budget defenders seem to be looking principally for liquidity and financial market effects. Lending effects, meanwhile, have been largely left out of the discussion; they are usually mentioned only as an intrusive element of the cash deficit relative to income and spending effects. When lending is recognized as a separate and, at times, sizable force in the economy, and when the spending vs. liquidity distinction is kept in mind, we begin to have a basis for deciding which of the Federal budget figures to use in any particular discussion. What is proposed here is a framework within which each of the budget concepts can be integrated but still distinguished, permitting whatever focus of discussion is desired without foreclosing on the benefits of alternative perspectives. The framework is an adaptation of the account for the Federal Government sector in the Flow of Funds national accounting system developed at the Federal Reserve, and now available on a quarterly, seasonally adjusted basis. This adaptation is based on the following premises: first, no single number can possibly tell all or even very much about Federal economic influences, and we need a set of several figures even to begin to see a picture. Second, the accrual version of Federal transactions in income and product accounts tells more of non-financial influences than the cash version. Third, Federal financial transactionsboth lending and borrowing-are important channels through which the Government can and does influence economic developments and should be included explicitly in any accounting of Government activities. Fourth, lending is different from both borrowing and spending in influence and cannot reasonably be combined with either. Fifth, however, simplicity of presentation is essential if any new version of Government accounting is to achieve fairly widespread use. The form shown in the attached chart tries to meet the preferences and objectives stated above. It delineates in a minimum number of lines the major types of Governmental activities as they affect distinctively different types of economic activity: payments for goods and services and for transfers, receipts from tax revenues, Government lending, Government borrowing from the banking system, and borrowing from the public. A. The upper panel of the chart shows the Government's direct contribution to the spending stream and the amount it taps from this stream through taxes. Changes in the gross size and composition of both spending and revenues are at least as important for economic analysis as a net deficit or surplus on any accounting basis and deserve separate reporting. The figures plotted are those in the national income account, that is, they are the accrual version of Government spending and receipts. It would be definitely desirable, if space permitted, to distinguish spending for goods and services from transfer payments and to distinguish personal from business taxes, but as a * Views expressed here are those of the authors, and do not necessarily reflect the views of the Board of Governors of the Federal Reserve System. ressed here are those of the authors, an do sa il reflect the views of the Board of Governors