ABSTRACT
This chapter reviews the debate and failure among economists to reach consensus over the role deficits play in creating high interest rates, and then suggests how this issue influences budgetary policy in the Clinton administration. The careful reader of Aaron Wildavsky’s writings on the federal budget will find that Aaron avoided the error of making false claims regarding the federal budget’s effect on the economy. In How to Limit Government Spending, for example, written in 1979 at a time when pundit and politician alike freely claimed that budget deficits were responsible for double-digit inflation, Aaron refused to offer this relationship as a reason for advocating a constitutional amendment to limit federal spending. William Niskanen expressed his position on the economic effect of deficits in an important article published in 1978 in which Niskanen found no data to support the position that deficits caused inflation and high interest rates.
