What are the pros and cons of running budget deficits?
A budget deficit is not consistently a good or bad thing. Ordinarily running very large, sustained deficits carries some risks with it, but small deficits may also have some benefits. Modest borrowing in order to invest in infrastructure improvements, education, or other projects that are likely to improve economic growth over the long term can be justified because the benefits that accrue from the investments will more than pay for the interest incurred on the debt. This is equivalent to when an entrepreneur borrows to start a new business or a family takes out a loan to pay for a child’s college education. These are wise uses of borrowed funds, and though the scale of government borrowing is quite different than a business owner or a family, the principle is the same. There is unwise borrowing as well. Too much debt, for instance, can become an unbearable burden as interest payments grow to take up a larger and larger share of expenses. Furthermore, it is difficult to justify running
