Deficits and Surpluses

8 Basic Lessons in Economics #2

It's time for one of the most basic lessons in all of economics. It is often advantageous for the government to run a deficit. Perhaps that seems counter-intuitive ... especially if you are a conservative ... but it is true. Deal with it.

Here's the rules: when the economy is going well, it is advantageous to run surpluses. When the economy is not doing well, it is better to run deficits and pump money into the economy. Do you know when we were last running surpluses? That would be when Bill Clinton was President in the late 90s.

Don't forget the following: it is not always a good thing to balance the budget. In fact, it can make a bad economy much, much worse. Is this wrong? No. It is not. As Charles Wheelan says in Naked Economics ...

Herbert Hoover's insistence on balancing the budget in the face of the Great Depression is considered to be one of the great fiscal follies of all time.