policy - The Black Vault

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THE BDM CORPORATION
investigating the proposal.
The administration had fallen into a trap of
its own making. It had purposely hidden the true magnitude of the war's
costs and insisted that the country could afford both the war aad the Great
Society. Moreover, throughout 1965, 1966, and 1967 it had repeatedly
insisted that the military battle was being won and that our involvement
would therefore be of limited duration and scope. This led to a loss of
credibility with Congress and the public, to miscalculations by misinformed
economic planners, and, as in the case of Mills, to a hesitation to believe
that there was a pressing need for fiddling with the country's economic
well-being.
When it became clear by late 1967 that something did, in fact,
need to be done to combat inflation, conservative members of Congress, with
Mills as their spokesman, insisted that any tax increase be linked with
cuts on the domestic side of the budget. When the 10 percent tax surcharge
was signed into law on June 28, 1968, nearly three years after the decision
making such an action inevitable, or at least necessary, it came at the
price of a commitment to trim $6 billion from the government's domestic
expenditures.
too. 25/
Johnson was losing not just the war, but the Great Society
With too little beinn done too late, not even the eventual
con'tination of domestic budget cuts, increased interest rates, and the 10
percent tax surcharge was
sufficient to stop the inflation rate from
rising. The inflation rate was 3.2 percent in 1967 (up from below 2
percent annually in 1963,
1964, and 1965), 4 percent in the early months of
1968, and 4.6 percent for all of 1968. In 1969 it topped 6 percent.
Unlike prior to World War II or the Korean War, there was little slack in
the national economy in 1965 when the US began escalating its war effort in
Vietnam. As increased demand for war-related production caused intense
competition for available industrial capacity,
a classic case of demandpull
inflation developed.
By the end of 1968 this problem was compounded
by the expectation of continuing inflation adding a cost-push element to
inflationary pressures.
Between 1960 and 1964 the public debt increased by
$27.7 billion; between 1964 and 1968, with the government financing much of
the war effort with expanding budget deficits, the public debt grew by
w 4-16
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