We often hear from left-leaning economists and pundits that government deficits do not cause problems in the economy. On the contrary, deficits are actually good because they stimulate the economy when it would otherwise stagnate.
Critics point to the waste and inefficiencies that plague government spending. Austrian economists also make the point that government forces a perverted allocation of capital by gobbling up resources that would otherwise be used in the private sector. These arguments are used to dismiss Keynesian economics, from which pro-deficit arguments emanate.
I am not going to delve into the theoretical arguments, as I have already provided a libertarian defense of Keynesian economics (see part 1, part 2 and part 3). Instead, this article takes a dispassionate approach to the structural questions that related to the allocation of capital between government and the private sector.