Federal expenditures have consistently exceeded Federal revenues since 1970. In fact, the Federal government has seen a surplus in only five years since 1950. The symptoms of such fiscal imbalance are, of course, budget deficits. While budget deficits are nothing new in US history, the recent and projected size of the deficit during peacetime nonrecessionary years has been the cause of much concern to academics, the news media, and politicians. This preoccupation with Federal deficits has produced a variety of policy proposals to deal with them.

It is interesting that much of the debate over the recent deficit is more related to allegations about the consequences of unacceptably large deficits rather than about the causes of these deficits. For example, allegations include high interest rates and unfavorable foreign exchange rates.'Even though there exists little, if any, convincing empirical evidence demonstrating a significant relation between deficits and these variables, the lack of evidence has not precluded people from proposing solutions to controlling deficits. Yet the important point is that it seems incorrect to focus on hypothesized symptoms of deficits rather than the cause of deficits. Moreover, the emphasis that these symptoms have received in policy discussions has probably led to proposals aimed at attacking symptoms, not causes, of Federal deficit growth. Any proposal that does not deal with the basic cause of deficit growth will likely result in no lasting decrease in deficits; even though, such solutions may offer a reduction of limited duration.