Review

The January 1975 Administration forecast of a $52 billion deficit for fiscal 1978 generated considerable concern among the American people that the budget was “out of control.” This concern took the form of uncertainty regarding expected inflation and the future course of interest rates. From early 1975 to the present, the Federal budget (national income accounts basis) has been in deficit, averaging $67 billion on an annual rate basis.

Since the fall of 1973, the economies of each of the world’s ten major industrial countries have been proceeding along individual business cycles that are unique to the post World War II era. The recent cycles have been unique in that each has involved the deepest and most sustained declines in real output of the postwar era, and that each has been accompanied by some of the highest rates of inflation of this period. In addition, the similarities of the individual countries’ experiences, and the coincidence of timing, suggest the possibility of common causality.