Still in the area of fiscal policy, let me say a word about deficits. The myth persists that Federal deficits create inflation and budget surpluses prevent it. Yet sizeable budget surpluses after the war did not prevent inflation, and persistent deficits for the last several years have not upset our basic price stability. Obviously deficits are sometimes dangerous—and so are surpluses. But honest assessment plainly requires a more sophisticated view than the old and automatic cliché that deficits automatically bring inflation.
There are myths also about our public debt. It is widely supposed that this debt is growing at a dangerously rapid rate. In fact, both the debt per person and the debt as a proportion of our gross national product have declined sharply since the Second World War. In absolute terms the national debt since the end of World War II has increased only 8 percent, while private debt was increasing 305 percent, and the debts of State and local governments—on whom people frequently suggest we should place additional burdens—the debts of State and local governments have increased 378 percent. Moreover, debts, public and private, are neither good nor bad, in and of themselves. Borrowing can lead to over-extension and collapse—but it can also lead to expansion and strength. There is no single, simple slogan in this field that we can trust.
Same as it ever was.