Control of Inflation and Recession

Simultaneous achievement of full employment and reasonable price stability, in ways consistent with sound long-term resource allocation, will require active and flexible use of a wide range of policy tools. Every effort should be made to meet the employment and price goals for mid-1972 cited in the President's economic messages. If additional demand stimulus should be required, the principal added thrust should come from fiscal rather than monetary measures. The full employment budget principle should be interpreted in a dynamic sense to permit use of such measures; even a deficit in the full employment budget may be appropriate at a time of inadequate economic expansion if there are advance prepa rations to avoid deficits at actual full employment—notably, through reliance on expansionary measures that are self- limiting once the economy recovers. Development of more flexible fiscal tools is also desirable. Fiscal measures that help meet long-term social and economic needs should, if at all possible, be given priority over those that do not. To guard against the risk of excessive cost inflation, a major need exists for numerous structural reforms and for more active and systematic use of "incomes" policies.