Fiscal Differences
To the Editor:
The article by Oscar Gass in your April issue [“The U.S. Economy—1966,”] contains a number of statements, that in the interest of accuracy and fairness, should not go unchallenged. . . .
Mr. Gass states that the cost of the increase in interest rates to those who will be hurt most is from $5 to $10 weekly. Now, an increase of one-half per cent in interest on a debt of $20,000 is $100 annually, or less than $2 per week. To incur an increase of $10 weekly, or more than $500 annually, would mean that the individual had borrowed $25,000, and that his interest costs had increased by one full per cent.
Mr. Gass quickly computes the increase enjoyed by the banks as a result of an advance in interest rates in $300 billion of credit at $1.5 billion annually. Mr. Gass must know that a substantial part of the loans of banks are term loans on which the interest will not be changed except as the loans mature, and similarly the long term investments carry the same interest as before. He must surely know that banks are paying more on time deposits and certificates of deposit.
Further, I am astonished that he knows that Marriner S. Eccles would not have insisted on the independence of the Federal Reserve Board. This is just what he did when he charged that the policies advocated by President Truman and Secretary of the Treasury Snyder were turning the Federal Reserve System into “an engine of inflation”—to quote Mr. Eccles.
Again, Mr. Gass points out that our price stability until recently was apparently one of the reasons that the economy did not grow as rapidly as that of a number of Western European countries. Mr. Gass should know that the rise in commodity prices and costs has troubled those governments. Incidentally, the interest rates of these countries have been substantially higher than in the United States—so that according to the reasoning of Mr. Gass, their rapid growth must have been attributable to higher interest rates.
I also think that it is not “cricket” to suggest that one member of the Federal Reserve Board is a “man of money,” in a derogatory sense, whereas another is not because the former has different views than Mr. Gass. Finally, Mr. Gass might remember that the moves to curtail the rate of expansion of credit may save the families who spend a large part of their income on food and clothing, much more than the larger cost of interest to them by holding down prices.
R. L. Weissman
New York City
