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Fiscal deficits describe the year-to-year annual current account shortfalls in a government budget, such as government expenditures exceeding government revenues. There are any number of economists, policy analysts, bureaucrats, politicians and commentators who support the concept of government running fiscal deficits, albeit to varying degrees and under varying circumstances. Government deficit spending is also one of the most important tools of Keynesian macroeconomics. Nearly every contemporary government has more red than black on its ledger.

The first true American government deficit plan was conceived and executed in 1789 by Alexander Hamilton, then Secretary of the Treasury. Hamilton saw deficits as a means of asserting government influence similar to how war bonds helped Great Britain out-finance France during their 18th-century conflicts. This practice continued, and throughout history, governments have elected to borrow funds to finance their wars when raising taxes would have been insufficient or impractical.

Politicians and policymakers rely on fiscal deficits to expand popular policies, such as welfare programs and public works, without having to raise taxes or cut spending elsewhere in the budget. In this way, fiscal deficits also encourage rent-seeking and politically motivated appropriations. Many businesses implicitly support fiscal deficits if it means receiving public benefits.

Government budget deficits have been attacked by numerous economic thinkers throughout time for their role in crowding out private borrowing, distorting interest rates, propping up noncompetitive firms and expanding the influence of nonmarket actors. Nevertheless, fiscal deficits have remained popular among government economists ever since they were legitimized by British economist John Maynard Keynes in the 1930s. Keynes believed that spending drove economic activity and the government could stimulate a slumping economy by running large deficits.

So-called expansionary fiscal policy not only forms the basis of Keynesian anti-recession techniques, but also provides an economic justification for what elected representatives are naturally inclined to do: spend money with reduced short-term consequences.

Keynes originally called for deficits to be run during recessions and for budget shortfalls to be corrected once the economy recovered. This rarely occurs, since raising taxes and cutting government programs is rarely popular even in times of plenty. The tendency has been for governments to run deficits year-after-year, resulting in massive public debt.

Not all see large-scale government debt as a negative. Some pundits have even gone so far as to declare that fiscal deficits are wholly irrelevant, since the money is "owed to ourselves." This is a dubious claim even at face value because foreign creditors often purchase government debt instruments, and it ignores many of the macroeconomic arguments against deficit spending.

Government-run deficits have wide theoretical support among certain economic schools and near unanimous support among elected officials. Both conservative and liberal administrations tend to run heavy deficits in the name of tax cuts, stimulus spending, welfare, public good, infrastructure, war financing and environmental protection. Ultimately, voters think fiscal deficits are a good idea, whether or not that belief is made explicit, based on their propensity to ask for expensive government services and low taxes simultaneously.

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