The organization of and political overtones residing in the federal government can, in many circumstances, inhibit politician’s and, in effect, its own efforts to combat the two principal blemishes of our economic system, unemployment and inflation. By examining the various methods the government uses to combat these economic evils and revealing the inherent shortcomings involved, we can decide if there really is a tendency for government to inflate. The economic condition of unemployment is one of very limited of no economic growth. In this state, consumer spending is down, business inventories pile up and there exists little incentive for expansion. This implies layoffs which, in turn, further reduces spending, creating more layoffs and so on. Clearly in this case, the economy needs increased spending, something to stimulate industrial expansion and raise the net national product. There are several methods of achieving this, the first of which involves tax cuts. Tax cuts are a politically sound policy (what politician wouldn’t recommend them/) and supposedly stimulate production (hence employment) by providing consumers with more disposable income to spend on consumer goods. Also, if corporate taxes are cut, business firms have more profits to plow back into their firm. Due to its sheer size, however, it is difficult for the government (Congress) to agree on just how much taxes should be cut. This, when it finally emerges, the tax cut may be too late and may actually worsen conditions (the economy may have shifted to inflation). A second tactic is to increase government expenditures to create jobs for the unemployed (through public works projects, etc.). Here, even more than previously, government bureaucracy inhibits its effectiveness. By the time a project of this nature is drawn up and the appropriate agencies created, months or even years may have passed and the likelihood that the economy is in the same state as before is slim. Finally, the government can institute increased transfer payments to the unemployed (welfare, unemployment compensation, etc.), with similar objectives as with a tax cut expected. Here, in addition to bureaucracy, political considerations manifest themselves (who should and who shouldn’t get benefits), creating controversy. Once any of these actions are undertaken, they are difficult to discontinue. When dealing with inflation, political ties become a much more important and difficult obstacle to surmount. In an inflationary economy, spending exceeds the value of the maximum output at market prices and the economy needs a spending reduction. To combat this, the government must do the opposite of the case of unemployment-i.e. either increase taxes, decrease spending or decrease transfer payments. The first of these is politically untenable. Also, in the case of corporate taxes, industry lobbyists may remind members of Congress that by discouraging firms from investing, it is violating the sacred (to some) “hands off” policy with respect to business. With regard to decreasing government spending, the government itself may discourage it. After all, who wants to curtail vital public works projects and put people out of work? It has often been said that government feeds upon itself. Finally, in cutting transfer payments, opposition is again encountered. There are those who can become accustomed to such payments and who continue spending while remaining unemployed. Hence, each of this last group of actions contributes to inflation and those in the first group (unemployment) can do so under delayed enactment (economy may shift to an inflationary period). Therefore, especially under conditions of preexisting inflation, the government really does have tendencies to promote inflation. A politician introducing anti-inflation bills may well succumb to these pressures. The previous discussion deals primarily with fiscal policy. The government can also attempt to rectify the economy by controlling the money supply (change fractional reserve requirements, discount rates and by selling bonds). Inflation can hinder the execution of the latter of these as demand for bonds at present interest rates will drop (money will be worth less in the future) and more inflation will result. However, despite this flaw (which can be corrected by higher interest rates), monetary policy is generally less susceptible to political influences and bureaucracy than fiscal policy. The existence of “near term” monies (savings accounts, etc.), however, sometimes makes control of the monetary supply more difficult, and, thus both monetary and fiscal policies have their value in regulating the economy. An interesting application of government “feeding upon itself” is the “crowding out” effect, wherein public spending supplants private capital investment. If we consider a growing economy with a steady tax rate and stable government expenditures, one expects government revenues will climb steadily. In a healthy economy this will tend to result in less than full employment. If standard fiscal policy measures (tax cuts, government spending increase or increase in transfer payments) are applied to remove this “deflationary gap” unemployment, although consumers may spend more, due to the “crowding out” effect, private investment will not be sufficient to stimulate the economy. Thus industry will not expand, unemployment will not decrease and the government will run “useless” deficits. This, in turn, places the entire economy in danger of becoming dominated by government spending. Although this situation does not, at present, exist in our economy, it is worth considering in light of expanding government. On the other hand, if the “crowding out” effect is not complete, it may actually aid fiscal measures by creating more (than anticipated) public works jobs and thus remove the “gap”.