This should be my last post on this topic, so hopefully it clears up the majority of questions related to it. You can probably get through it without having read the previous four posts, but the reasoning behind the assumptions made here can be found there.
Anyways. Here goes...
Government debt effects the individual negatively in one of two ways.
The more common affect is increased inflation. This occurs as the money supply expands and confidence in the financial stability of the government drops. While inflation is not necessarily a bad thing, and is even healthy for the economy at low levels, this can become a problem when it pushes inflation upwards well in excess of economic growth.
The second affect is that of financial instability. As the government has an incredibly stable cash flow in the form of taxes, this usually has zero impact on the individual beyond the ordinary impact it has on the value of the currency. However, in cases where paying off interest becomes prohibitive to the government's functioning, reduction of services and the potential of insolvency are both issues that affect the individual in a number of major ways, which I will not elaborate here.
(If you want to examine what happens when a government declares bankruptcy, take a look at Greece.)
The ideal positive impact of government debt is that the individual stands to gain from the additional services that the government provides as a result of deficit spending.
From here, we can then attempt to answer a rather important question: when is it a good idea for the government to run a deficit?
First and foremost, the problem is one that must be examined dynamically, rather than statically. Therefore, impacts of deficit spending will be examined in the future as well as in the present.
Now, let us say that there is a service the government must run a deficit to provide. Let us further assume that the service is a net benefit to society, as, at least in my opinion, the government should be offering no services that do not have a net positive benefit to society.
If the service is one that will be provided through a number of payments over a year or even a few years, deficit spending can be the proper thing to do. It obviously depends on the magnitude of the benefit of the service provided, but there is no theoretical reason as to why deficit spending could not be a good decision in this scenario.
On the other hand, if the service is one that necessitates a certain amount of funding every year over an arbitrarily long period of time, deficit spending leads, eventually, to a debt that the government cannot handle. Even small amounts of regular deficit spending will eventually cause the interest payments on the debt to eat into the budget, requiring additional deficit spending which, in turn, yields higher interest payments. This is obviously not sustainable over the long run.
We can then say that if the service requires capital every year to continue to be provided, either the service should not be provided at all, taxes should be raised to accommodate higher necessary spending, or other services should be cut to fit the necessary budget within current tax revenues.
These two scenarios are the extreme cases, so it can be said that they may never occur. However, from them we can come to a conclusion as to when the government should decide to run a deficit, and it can be stated in a single sentence...
Governments should run a deficit only when providing a beneficial service that requires only a few infusions of capital over a short period of time.
So, yeah. Hopefully the conclusion makes some amount of sense. A lot of the reasoning is in the other posts, so I advise you read those before asking any questions.
Also, I will not pretend that the conclusion holds in all cases, as there are very few economic laws that do, let alone little ideas like this one.
Anyways. I have a few ideas for my next few posts, but if any of you can think of something in particular you'd like to see me discuss, just leave a comment and I might get around to it. Eventually. Maybe.
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