The Paradox of Thrift

The countries’ government and its citizens are tied very closely together from the financial stand point. The government develops the policies and laws that regulate the citizens of the country to pay taxes and tariffs. These policies and laws are created to give an equal opportunity to all the citizens to generate the income. On the other side, the government invests and often supports the citizens and their business, yet the government cannot exist without the funds collected from the citizens in the forms of the taxes and tariffs. The government puts back the funds collected in the improvements within the country. However, often times the government spending may exceed its inflow of taxes and tariffs revenue. In this case the government finds itself in the deficit spending. Beside the deficit spending there is government debt that is affected by the deficit spending, which accumulates annually if the deficit spending occurs.

Also, there is short term economic stimulus that is referred as a running deficit. In the US government the Democratic Party describes the running deficit an increase in spending, however the republicans express it as a decrease in tax rates. The running deficit can gradually become a long term debt with a long recovery by the taxes increase or increase in the interest rates (moneychimp.com, n.d).

The deficit spending may be seen from both positive and negative view of the country’s overall economy. There are benefits of the deficit spending. When the government spend large amount of funds, for example, on the education – the governments makes the investment in the education, untimely an investment in their citizens. If the calculations, forecasting and execution of the plan is done well – there is a positive outcome from government spending exceeding its annual revenue intake. In the long run the funds spend in one fiscal year will pay off over several years and most likely exceed initial amount spend. The students that were...