Conventional wisdom has it that large deficits in the United States budget cause interest rates to rise.  Two main arguments are given for this claim.  According to the first, as the deficit increases, the government will borrow more to make up for the ensuing shortage of funds.  Consequently, it is argued, if both the total supply of credit (money available for borrowing) and the amount of credit sought by nongovernment borrowers remain relatively stable, as is often supposed, then the price of credit (the interest rate) will increase.  That this is so is suggested by the basic economic principle that if supplies of a commodity (here, credit) remain fixed and demand for that commodity increases, its price will also increase.  The second argument supposes that the government will tend to finance its deficits by increasing the money supply with insufficient regard for whether there is enough room for economic growth to enable such an increase to occur without causing inflation.  It is then argued that financiers will expect the deficit to cause inflation and will raise interest rates, anticipating that because of inflation the money they lend will be worth less when paid back.

 

Unfortunately for the first argument, it is unreasonable to assume that nongovernment borrowing and the supply of credit will remain relatively stable.  Nongovernment borrowing sometimes decreases.  When it does, increased government borrowing will not necessarily push up the total demand for credit.  Alternatively, when credit availability increases, for example through greater foreign lending to the United States, then interest rates need not rise, even if both private and government borrowing increase.

 

The second argument is also problematic.  Financing the deficit by increasing the money supply should cause inflation only when there is not enough room for economic growth.  Currently, there is no reason to expect deficits to cause inflation.  However, since many financiers believe that deficits ordinarily create inflation, then admittedly they will be inclined to raise interest rates to offset mistakenly anticipated inflation.  This effect, however, is due to ignorance, not to the deficit itself, and could be lessened by educating financiers on this issue.

The United States government has a long-standing policy of using federal funds to keep small business viable.  The Small Business Act of 1953 authorized the Small Business Administration (SBA) to enter into contracts with government agencies having procurement powers and to arrange for fulfillment of these contracts by awarding subcontracts to small businesses.  In the mid-1960's, during the war on poverty years, Congress hoped to encourage minority entrepreneurs by directing such funding to minority businesses.  At first this funding was directed toward minority entrepreneurs with very low incomes.  A 1967 amendment to the Economic Opportunity Act directed the SBA to pay special attention to minority-owned businesses located in urban or rural areas characterized by high proportions of unemployed or low-income individuals.  Since then, the answer given to the fundamental question of who the recipients should be--the most economically disadvantaged or those with the best prospects for business success--has changed, and the social goals of the programs have shifted, resulting in policy changes.

 

The first shift occurred during the early 1970's.  While the goal of assisting the economically disadvantaged entrepreneur remained, a new goal emerged:  to remedy the effects of past discrimination.  In fact, in 1970 the SBA explicitly stated that their main goal was to increase the number of minority-owned businesses.  At the time, minorities constituted seventeen percent of the nation's population, but only four percent of the nation's self-employed.  This ownership gap was held to be the result of past discrimination.  Increasing the number of minority-owned firms was seen as a way to remedy this problem.  In that context, providing funding to minority entrepreneurs in middle- and high-income brackets seemed justified.

 

In the late 1970's, the goals of minority-business funding programs shifted again.  At the Minority Business Development Agency, for example, the goal of increasing numbers of minority-owned firms was supplanted by the goal of creating and assisting more minority-owned substantive firms with future growth potential.  Assisting manufacturers or wholesalers became far more important than assisting small service businesses.  Minority-business funding programs were now justified as instruments for economic development, particularly for creating jobs in minority communities of high unemployment.

A recent study has provided clues to predator-prey dynamics in the late Pleistocene era.  Researchers compared the number of tooth fractures in present-day carnivores with tooth fractures in carnivores that lived 36,000 to 10,000 years ago and that were preserved in the Rancho La Brea tar pits in Los Angeles.  The breakage frequencies in the extinct species were strikingly higher than those in the present-day species.

 

In considering possible explanations for this finding, the researchers dismissed demographic bias because older individuals were not overrepresented in the fossil samples.  They rejected preservational bias because a total absence of breakage in two extinct species demonstrated that the fractures were not the result of abrasion within the pits.  They ruled out local bias because breakage data obtained from other Pleistocene sites were similar to the La Brea data.  The explanation they consider most plausible is behavioral differences between extinct and present-day carnivores--in particular, more contact between the teeth of predators and the bones of prey due to more thorough consumption of carcasses by the extinct species.  Such thorough carcass consumption implies to the researchers either that prey availability was low, at least seasonally, or that there was intense competition over kills and a high rate of carcass theft due to relatively high predator densities.