[fennecfoxen]

Basic economists' definition: opportunity cost. If the government spends a dollar and gets a worse result than the dollar would have gotten if it stayed in the private sector, then the economy is worse off. (That includes what the dollar would have bought, and any damage to incentives to work/save/innovate/invest/buy capital/take risks/etc that came from collecting that dollar from its previous owner.)

Of course, if you want to reinvigorate the economy, you'd do better to do something about the bureaucracy first - you know, the bureaucracy that requested stool samples from the guy who wanted to run a (bottled-)olive-oil export website.

[gph1]

No doubt there is plenty of wasteful and inefficient government spending. But I don't think the opportunity trade off works like you suggest.

It's not as if the government is removing otherwise productive dollars out of the economy to fund its deficits. Treasuries are generally purchased with excess reserves from the primary dealer banks that would otherwise just sit there. Or foreign governments, corporations, institutional buyers looking to stash their cash holdings where they will accrue risk free interest.

We can quibble about multipliers, but deficits represent a net income flow into the private sector and hence have an expansionary effect on demand (even if, unfortunately, those dollars are flowing into the pockets of crony defense contractors and what not).

[fennecfoxen]

Deficit-financed credit to expand demand sounds great, just like using credit card debt to finance an expansion in my own personal spending power sounds great: there are some times it makes sense but by and large you're fooling yourself if you think it leaves you more financially sound.

But... Treasuries? Another day, I'd contest your zero-opportunity-cost suppositions (cf. "crowding out") but more importantly, Greece's bonds don't have anywhere near the credibility of Treasuries, and they're having real problems issuing new ones. You can't finance expansion with deficits if no one will lend you money.

[gph1]

Agreed re: Greece. Greece's bonds don't have the credibility because they aren't denominated in a currency that Greece controls.

There's no reasonable analogy between the US running a deficit and anyone's credit card. Again, like the commenter at the top of the thread, public and private finance are two different things. The US has infinite spending power. The constraint is not "affordability" but inflation. That's it. A "financially sound" budget for the US is one that maximizes employment with the minimal amount of inflation. It has nothing to do with deficits or surpluses.

You need to look at the federal budget as part of a closed loop of spending and income flows with the private, public and foreign sectors. Just like every country can't run a trade surplus, the public private and foreign sectors can't all run a surplus or a deficit. It has to net out. If the private sector runs a surplus (spends less than it earns) of 4% GDP and we have a current account deficit of 4% GDP, the gov't deficit will be 8%. It's just accounting.