Question

What is NEGATIVE about the government engaging in deficient spending?!? Great Depression study guide.

Answer 1

Deficit spending is an accounting phenomenon. The only way to participate in deficit spending occurs when revenues fall shy of expenditures. Nevertheless, most academic and political debate regarding deficit spending centers on economic theory, not accounting. According to demand-side economic theory, a government can commence deficit spending after the economy enters recession. The concept of deficit spending as fiscal policy is typically credited to British economist John Maynard Keynes. However, many his ideas were re-interpretations or adaptations of older mercantilist contentions.

In fact, many of Keynes’ spending ideas had already been tried prior to the 1936 publication of his “The General Theory of Employment, Interest and Employment,” Keynes seminal tome on economics. For instance, Herbert Hoover battled the Great Depression with a 50 percent-plus increase in government and immense public works projects during his four years as President from 1928 and 1932.