By the 1960s, policymakers seemed to fit in with Keynesian theory. But in retrospect, most Americans agreed that the government made a series of mistakes in economic policy, which eventually led to a review of fiscal policy. In 1964, in order to stimulate economic growth and reduce unemployment, President Lyndon Johnson (1963-1969) and Congress enacted a tax cut bill and launched a series of expensive domestic expenditure plans to alleviate poverty. Johnson also increased military expenditure to pay for American involvement in the Vietnam War. These huge government projects, coupled with strong consumer spending, have pushed demand for goods and services beyond what the economy can produce. Wages and prices began to rise. Soon wages and prices rose in a rising cycle. This overall rise in prices is called inflation. Keynes argues that in times of excess demand, governments should cut spending or raise taxes to avoid inflation. But anti-inflation fiscal policies are politically difficult to sell, and the government refuses to turn to them. Then, in the early 1970s, the country was hit by the sharp rise in international oil and food prices. This poses a serious dilemma for policymakers. The traditional anti-inflation strategy is to curb demand by cutting federal spending or raising taxes. But that would deplete the revenues of economies already suffering from rising oil prices. As a result, unemployment has risen sharply. However, if policymakers choose to offset the loss of revenue from rising oil prices, they will have to increase spending or cut taxes. However, since neither policy can increase the supply of oil or food, stimulating demand without changing supply will only mean rising prices. President Jimmy Carter (1976-1980) tried to solve this dilemma with a two-pronged strategy. He adjusted fiscal policy to deal with unemployment, allowed the federal deficit to expand, and set up counter-cyclical employment programs for the unemployed. To fight inflation, he set up a voluntary wage and price control program. Neither of the two elements of this strategy worked. By the end of the 1970s, the country suffered from high unemployment and inflation. Although many Americans see this “stagflation” as evidence that Keynesian economics does not work, another factor further weakens the ability of the government to use fiscal policy to manage the economy. The deficit seems to be a permanent part of the fiscal situation. During the period of stagnation in the 1970s, the deficit problem attracted people’s attention. In the 1980s, with President Reagan’s (1981-1989) plan to reduce taxes and increase military spending, the deficit problem worsened. By 1986, the deficit had ballooned to $221 million, accounting for more than 22% of total federal spending. Now, even if the government wants to stimulate demand through spending or tax policies, the deficit makes such a strategy incredible.