Deficit spending can stimulate the economy during times of recession from "summary" of The Deficit Myth by Stephanie Kelton
Deficit spending can be a powerful tool for managing the economy, especially during times of recession. When the economy is in a downturn, households and businesses typically cut back on spending, leading to a decrease in overall demand. This reduction in demand can cause a vicious cycle of declining production, rising unemployment, and further decreases in spending. By injecting additional funds into the economy through deficit spending, the government can help break this cycle. When the government spends more than it collects in taxes, it effectively puts more money into people's pockets. This extra money can then be used to purchase goods and services, which in turn stimulates economic activity. Deficit spending can also help to create jobs and reduce unemployment. During a recession, many businesses may be hesitant to invest in new projects or hire additional workers due to uncertainty about the future. By increasing its own spending, the government can help fill this gap in demand and create jobs in sectors that are struggling. Critics of deficit spending often argue that it will lead to inflation or higher interest rates. However, as long as there are unemployed resources in the economy – such as workers who are willing and able to work but cannot find jobs – the risk of inflation is minimal. In fact, deficit spending can actually help to reduce inflation by increasing overall demand and preventing deflation.- Deficit spending should be seen as a valuable tool for managing the economy, rather than something to be avoided at all costs. By understanding the role that deficits can play in stimulating economic growth and reducing unemployment, policymakers can make more informed decisions about when and how to use this important tool.
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