The effect of an unbalanced budget is hotly debated with many critics of the federal deficit standing on all sides of the ideological spectrum. It has proven to be politically profitable for politicians to attack an unbalanced budget. In spite of this fact there are also many advocates of maintaining an unbalanced budget. This position has many very famous advocates among economists and a very long track record of debate. There are advantages to debt.
The economist who most famously advocated for maintaining an unbalanced budget was the British theorist John Maynard Keynes. Keynes argued that a government should manage the economic cycle by spending into deficits during downturns in order to stimulate demand. An unbalanced budget provides significant advantages in this scenario as a government is able to directly impact the economy in a positive way and help prevent the worse effects of the economic cycle.
Many conservative advocates during the Reagan Administration came to their own modification of Keynesianism by arguing for tax cuts that would lead to an unbalanced budget. According to this understanding, that was labeled "supply side," the government will eventually receive increased revenues by actually cutting the tax rate. In the short term revenues will be reduced leading to an unbalanced budget but over the long term this unbalanced budget will result in surpluses from prosperity.
Starve the Beast
Another argument for an unbalanced budget that was first advanced during the administration of President Reagan was the notion of "starve the beast." According to this understanding, the federal welfare state would only be reduced if it faced a serious shortfall of funding. An unbalanced budget in the short term would be a spur to a more responsible strategy of government spending and funding in the long term and perhaps less government interference.
The political consequences of having an unbalanced budget may present significant advantages for the society at large. Politicians and the political class in general in response to the unpopularity of an unbalanced budget may feel the need to reign in overly aggressive government policy and to be more prudent in their budgeting decisions. As well, many otherwise disengaged citizens may feel a need to take part in the political process due to an unbalanced budget.
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