The Dynamic that shows that Government Deficits benefit the Private Sector
When people talk about a government deficit, they forget
that this is only one side of the ledger. On the other is a corresponding non-government
SURPLUS. The money the government spends is not lost but shows up in the private
sector as income. When one talks only of the deficit then one can understand that
many think it should be reduced or even converted into a surplus, but reducing
the government deficit reduces private sector income and a government surplus
forces a deficit on the private sector with a potentially devastating
effect on private sector wealth and economic activity. Unless the economy is overheating, government
deficits are usually healthy. For countries that run traditionally a trade deficit,
such as the US they are necessary to maintain economic activity. Consider this
fact: for almost all of past 40 years the US and the UK have run deficits without
any harmful effects!
This video by professor Stephanie Kelton contains evidence that supports the modle.