Review

The quadrupling of OPEC oil prices in late 1973 and early 1974 had a profound and permanent impact on the U.S. economy. The initial impact was an explosion in the prices of most goods and services, as well as the longest and most severe decline in national output since the 1930s. The recession trough occurred over two years ago and the rate of inflation has fallen substantially since 1974. While the inflation rate remains quite high by historical standards, the primary focus of concern, at least in official circles, seems to have shifted toward the persistence of an unacceptably high unemployment rate and the associated loss of national output.

The growth of the state and local government sector and its increasing reliance on Federal revenues warrant consideration in discussions of stabilization policy. State and local government expenditures and taxes have been growing rapidly in recent decades, both absolutely and relative to that at the Federal level. In addition, grants-in-aid from the Federal Government have become an increasingly important source of funds for state and local governments.

In recent years there has been an apparent willingness on the part of many individuals to accept the present five percent rate of inflation as a more or less permanent feature of our economy. This view may be exemplified by the expression “So what, it’s only a five percent inflation.”