will not cost anything. Instead a deficit would allow more people to work, increasing productivity. A deficit does this because it is invested into the economy by government. For example if the government spends deficit money on new highways, trucking will benefit and more jobs will be produced. When an economic system is in recession all of its resources are not being used. For example if the government did not build highways we could not ship goods and there would be less demand for them. The supply remains low even though we have the ability to produce more because we cannot ship them. This non-productivity comes at a cost to the whole economic system. If deficit spending eliminates non-productivity then its direct monetary cost will be offset if not surpassed by increased productivity. For example in the 1980’s when the huge deficits were adding up the actual additions to the public capital or increased productivity were often as big, or bigger than the deficit. This means as long as the government spends the money it gains from a deficit on assets that increase its wealth and productivity, the debt actually benefits the economy. But, what if the government spends money on programs that do not increase its assets or productivity. For instance consider small businesses. If the company invests money to higher a new salesman then he will probably increase sales and the company will regain what it spent hiring him. If the company spends money on a paper clips when they have staplers they will just lose the money spent on the paper clips. This frivolous spending is what makes a deficit dangerous. Then the governments net worth decreases putting it into serious debt. Debt should not be a problem because we can just borrow more, right? This statement would be correct if our ability to borrow was unlimited, but it is not. At first the government borrowed internally from private sectors. The government did this by selling bonds to the ...
