The case against balancing the budget
“If the government is able to reach a surplus, that means it’s draining funds out of the economy,” Tymogine explained. “It’s taxing away more money from the other sectors than it’s injecting.”
The lesson here is that it’s much more sustainable for the government sector to be in deficit, because — unlike the other two sectors — it isn’t cash-constrained. The U.S. government sector controls the supply of U.S. dollars, so in a pinch it can always print more to pay off whatever debt obligations it has stocked up. This carries inflationary risk, but it also means it’s basically impossible for the government to suffer a debt crisis. And you can see that in the chart: The government has been in deficit basically forever, and we’ve yet to have a debt crisis.
Meanwhile, the private domestic sector is cash-constrained, and can suffer a debt crisis quite easily. It only went into deficit a little bit for short periods in the late 1990s and 2000s, and that was enough to blow up the entire economy.
So next time you hear someone praising the Clinton economy and federal surpluses, remember sectoral balances. And think twice.
This article shows that a government surplus is actually bad for the private sector (that’s you and us) because a government surplus is a deficit for us.