"What is all this talk I've been hearing about a balanced budget?" the cabbie wanted to know.

"Talk is all it is," I told him. "The Reagan administration talks balanced budget --or at least it used to--but they've got us headed for a $100 billion deficit. Mortgaging our future is what they are doing."

"That's not exactly the question I had in mind," the cabbie said. "What I was really trying to ask is, what is so bad about a deficit?"

I was astonished at his question, and told him so. How could a businessman even shape his mouth to ask such a question? Didn't he understand that if he spent more operating his cab than he earned in fares, he'd soon be bankrupt?

"Of course I understand that," he said. "But, then, I can't print more money when I run out. The government can. So how can the government go bust?"

Sometimes I get the feeling my whole life consists of teaching elementary economics to this maddeningly slow cabdriver. Still, the fellow is so earnest that I keep trying.

"If the government keeps printing money to cover its deficits, the inevitable result is inflation," I told him.

"Why?" he said. "If I had a printing press in my basement that turned out really good- looking $20 bills, would that result in inflation? Looks to me like I'd be better off, and so would the company that finances my cabs, and also the haberdasher and the swimming pool company and maybe a few international travel agents. Would an agent charge me more for my ticket just because I printed my own money?"

I told him that there's a difference between a cabbie printing money and the government printing money."

"What difference?" he said. "If my funny money would help the economy by putting travel agents and swimming pool builders to work, why wouldn't the government's funny money help by putting teachers and soldiers and researchers to work? But never mind; I guess I'm just slow this morning. I don't even understand how the extra money the government prints gets into circulation in the first place. I mean they don't just hand everybody a stack of 50s. They don't send a truckload of new money over to the local S&L. How, exactly, does the stuff get out there?"

I knew the answer to the question as well as you do, but I just couldn't make him understand. "Just take my word for it," I said at last, increasing the money supply causes inflation."

"Okay, he said. Let's say it does. What's so bad about inflation? I mean if prices go up by 50 percent and income goes up by 50 percent, more or less, what's the difference? If I have to hack all day to buy a pair of shoes, what's the difference what particular price tag is on the shoes?"

That one was easy, of course. "We're not just talking about America," I told him. "If the dollar inflates faster than other currencies, our money will be worth less in the international market. If a dollar fetches fewer yen or marks or whatever, the price of foreign products has to go up. Even a cabbie must understand that."

"Sure, I understand," he said, "but what's the problem? See that guy in that Toyota? He probably paid $10,000 for it. But if inflation pushed it up to $25 000, he'd buy a Chevrolet. Same for Japanese televisions and cameras, Italian shoes, German cars, whatever. If inflation pushes the price of foreign cars out of sight, Americans would start buying American cars. Looks to me like that would be good news for GM, Ford and Chrysler, and also good news for my cousin in Detroit who's been laid off. If my cousin gets his job back, he will start buying clothes and furniture again, and that will put more Americans back to work. Matter of fact, the more I think about it the more inflation looks like a pretty good deal."

"Oh, yeah?" I explained.