Deficit Spending- Please Explain the Logic

[Mempho]

I know that there is a school of thought that deficit spending is actually good for America. I must admit that I don't understand it very well. I would like to be able to quit being a fiscal conservative but I can't figure out how deficit spending is good. Our elected politicians seem to not have an issue with it and I know that there is a school of economic theory that says that we could not operate as effectively without deficit spending.

Please explain the logic behind deficit spending and why it is good for the average American. Also:

How does deficit spending continue in perpetuity?
What are the potential risks?
What makes it better than a balanced budget?
Does it have any future effects on taxation?

[TomCollins]

If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?

That's the theory for gov't at least.

Also, Mike Matasow has taken this lifestyle and done quite well with it, since there are always people stupid enough to lend him money.

[Mempho]

[ QUOTE ]
If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?

That's the theory for gov't at least.

Also, Mike Matasow has taken this lifestyle and done quite well with it, since there are always people stupid enough to lend him money.

[/ QUOTE ]

I guess I should have entitled this thread, "Convince Me to Become a Neoconservative."

[bluesbassman]

Deficit spending is part of the smoke-and-mirrors approach the government uses to arbitrarily expand spending and taxation. It works in concert with the Fed's manipulation of the money supply, especially the printing of fiat currency.

The ultimate result is both increased government spending and effective taxation, whereby the latter manifests as inflation. It is considered "good" for the country by those who favor a bigger government and taxes, since increasing spending and taxes directly is often politically unpalatable.

[mjkidd]

Well, inflation will bail us out eventually.

[Mempho]

[ QUOTE ]
Deficit spending is part of the smoke-and-mirrors approach the government uses to arbitrarily expand spending and taxation. It works in concert with the Fed's manipulation of the money supply, especially the printing of fiat currency.

The ultimate result is both increased government spending and effective taxation, whereby the latter manifests as inflation. It is considered "good" for the country by those who favor a bigger government and taxes, since increasing spending and taxes directly is often politically unpalatable.

[/ QUOTE ]

I'm all for spending if there is no consequence thereof. Are you telling me that the only consequence is the "inflation tax?" Or is there a much greater day of reckoning coming.

The reason I ask this is because, while I abhor the "inflation tax," I can also plan for it if it remains at the current rate. If there is a looming "doomsday" however, it leaves us short-stacked and out of the money.

[Mempho]

[ QUOTE ]
Well, inflation will bail us out eventually.

[/ QUOTE ]

Hmmm...so, in an inflationary economy, should we be using credit cards to finance things like, hmmmm gambling...since inflation will eventually bail us out?

[TomCollins]

[ QUOTE ]
[ QUOTE ]
If you are starving, have no money, and have a credit card with a high credit limit, deficit spending makes sense so that you can survive for a while, get a job, then pay back the money, right?

That's the theory for gov't at least.

Also, Mike Matasow has taken this lifestyle and done quite well with it, since there are always people stupid enough to lend him money.

[/ QUOTE ]

I guess I should have entitled this thread, "Convince Me to Become a Neoconservative."

[/ QUOTE ]

There may be a few limited occasions where deficit spending is a good idea. If you are going to be invaded by Mexico, deficit spending is a brilliant idea.

If you are talking about continous deficit spending, it might be a good idea if you are getting better returns on your investment than the interest rate you are paying. Most government projects are not designed to increase revenue, so this really doesn't apply.

[maxtower]

You can deficit spend effectively while your income is increasing faster than your deficit spending. (Thanks inflation) But if the rate of deficit spending is increasing faster than income is, then that will eventually be a problem.

In the last 30 years we have flipped between these two scenarios a couple times while deficit spending.

[Bill Haywood]

Deficit spending is a way to moderate the business cycle during down periods, it is not meant to be continuous.

A recession is very hard to get out of. Factories don't produce because consumers aren't buying. Consumers aren't buying because they've been laid off by the factories. The system has stalled, and needs a jump start. The government steps in and buys on credit, or by printing money. The factories now have orders, so they hire people. People have pay checks, so they start buying again. Once the system is rolling again, government retracts and pays off its debts.

There may be inflation due to the government spending. This is considered a tradeoff -- you try to moderate it.

Deficit spending worked brilliantly when World War II ended the Depression. It keeps the economy pumped even now, because going into the red with defense spending is indistinguishable from Keynesian deficit spending.