U.S. Budget Deficit Good or Bad

Beginning with the "New Deal" in the 1930s, the Federal Government came to play a much larger role in American life. President Franklin D. Roosevelt wanted to use the full powers of his office to put an end the Great Depression. He and Congress greatly expanded Federal programs. Federal spending, which totaled less than $4 billion in 1931, went up to almost $7 billion in 1934 and to over $8 billion in 1936. Then the U.S. entry into World War …

…can be damaging to an economy that is not. A deficit managed properly has the effect of increasing demands. An economy running inside its production possibilities can increase supplies in reaction but an economy that is not can increase demand but its supplies cannot increase causing prices to rise, or inflation. If there is no deficit, then supplies will not increase. A deficit must be maintained to insure that the economy grows with its resources.