Macroeconomics
Budget deficits today will tend to lower the rate of growth in the economy in the future. Budget deficits result in higher rates of public debt. While the U.S. borrows at very low rates, it nevertheless must pay interest on its debt, and it is that interest that represents a burden on future growth. What happens is that future tax receipts must be used to pay interest and principle on debt created by today's deficits, instead of being invested back into the country in the future. Thus, while running a deficit may create positive economic growth today, it does work to constrain future growth, but placing constraints on the amount of future national income that can be dedicated to growth in the future.
The reasons for the budget deficit definitely matter. As with any spending, there is a difference between spending on things that will build revenue growth for the future and investing in things that will not contribute to such growth (Auerbach & Gale, 2009). For example, investments in education and infrastructure will contribute to future growth, because better infrastructure and smarter people are capable of higher levels of productivity and efficiency. A nation's capital includes all of its resources, so in general any investment on the part of government that either improves the quality of those resources (e.g. education) or the ability of people within the economy to access those resources (e.g. improved transportation infrastructure) is an investment that contributes to future growth. Thus, the investment made today has a payoff in the future. As with any debt, if the debt taken today can be paid off using the proceeds of today's investment, then the debt is going to be worthwhile.
By contrast, spending that does not contribute to future growth -- such as the proverbial $2,000 toilet seat -- is not beneficial to the economy in the long run. In general, any debt that does is not invested in something that will have a payoff greater than the cost of the debt is not worthwhile. Thus, if a government needs to spend money on projects that will have a future payoff greater than the cost of that debt, otherwise the debt is unwise. So it definitely makes a difference what the deficit spending is spent on.
As an example, increased spending on...
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