An excellent post by Prof. Mark Thoma. It's a bit dated, but the theory still holds. It's also long, but it sheds a good light on the on-going debate over the proposed budget and current/projected deficit. The bottom-line is summarized well by Robert Frank on his blog post:
The consensus is that short-run deficits help end recessions, and that whether long-run deficits matter depends entirely on how government spends the borrowed money. If failure to borrow meant forgoing productive investments, bigger long-run deficits would actually be better than smaller ones. [NYT]
Also, watch an excellent investigative piece on Frontline this week called Ten Trillion and Counting.
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