With the annual Canadian budget announced last week, there has been a lot of discussion in the Canadian press about deficit spending.  That is spending more money than you receive over a specified period of time, e.g., a year.

For me, a lot of the recent discussion is focused on the question ” Can government budget deficits actually be a positive approach to encouraging economic development?

Balanced Analysis

For Canada, the budget is not balanced but the analysis of whether this is good or bad seems to be.  I have read reasonable arguments both supporting deficits or to stay within income limits.

On the overspending side, the arguments largely postulate borrowed money could be used by the government to foster economic development.

Things road, ports and airport construction can act as facilitators of economic development where the benefits often, but not always, exceed the costs.

The proponents often point to the fact the investment fraction of GDP has fallen to half what it was in the decades after WWII when deficits were small and even in surplus a couple of years.

Basically during a rampant period of deficit spending since 19060’s the average economic growth rate has been much less then it was during periods of balanced budgets.

In the End

For me, it is a simple discussion.  If the debt reaches a point where re-payment is unfeasible, the consequences are catastrophic.  Even for immediate term economic benefits, this risk is too high.

Our governments should balance their budgets and pay down the debt in an orderly manner.  Peace of mind and our economic model demand it.