Deficit Spending

Good or Bad?

What is it?• Basically, Spending more money than

you bring in• Has it’s roots in Keynesian economics

(john Maynard Keynes)• Keynes felt it was key during economic

downturns to stimulate the economy and stabilize things

• Government had a responsibility to deficit spend to encourage growth

How Does It Work (Ideally)?• Government pumps money (through

Borrowing, typically) into the economy in various ways

• This spurs new job growth and new tax revenue from workers

• Workers spend their money and further grow the economy

• Eventually, A budget surplus emerges and the government can repay any debt they may have

An Abrupt Change• Deficit Spending was seen as dangerous

prior to the New Deal• Deficit Spending greatly increases the

national debt• This can make it difficult to borrow money in

the future• Laissez-faire (hands off) economics

dominated for a long time• The New deal was instituted to try and jump

start the economy