My reply to the discussion question:
What are the advantages and disadvantages of preventing the federal budget from ever being in deficit? In your answer, discuss only public finance aspects of the deficit rather than macroeco¬nomic issues. Explain why the high employment deficit or surplus might differ from the actual budget deficit or surplus.
A federal budget is a tool for planning of the public finances. A deficit budget will mean that some of the federal capital investments will fail to be financed as the resources or revenues are not adequate to provide for the deficit. This will lead to the deference of some priority public projects and decision to look for alternative expensive sources of finance to fund the federal budget deficit. The disadvantage of preventing the federal budget from being in deficit is the government decisions to resort to expensive sources external borrowing to fund some of the projects deemed be not of priority to the common people. External borrowing will lead to an increase in the level of public debt and this is a transfer of an economic cost to future generations of a given country (Baumol 2011).
Fiscal policy in reduction of taxes will lead to budget deficits. Certain types of government spending like social security, welfare spending and unemployment benefits will act as automatic stabilizer of the economy. In the event there is a recession, unemployment will aid to get unemployment benefits as this increase in the level of government spending is an indicator of a budget deficit which is likely to stabilize the economy.
Baumol, W. J., & Blinder, A. S. (2011). Economics: Principles and policy . Mason, OH: South-Western,
Division of Thomson Learning.
Hyman, David N. (2011), Public finance: a contemporary application of theory to policy (10 th
edition),
Mason, Ohio: South-Western Cengage Learning

Response 1
Before debating the merits of deficit financing of the federal budget, me must distinguish between capital expenditures and current expenditures. Capital expenditures are those that are used to construct additional infrastructure whose benefits will accrue in the future. Current expenditures are those that pay for current goods and services as produced by government. The benefits of these expenditures are produced during the present. In reviewing the federal budget, any time that expenditures (capital and current) exceed revenues, government uses deficit financing (borrowing) in order to have the necessary funds to meet the projected expenses.
Therefore this issue of the merits of deficit financing is not a two-dimensional question but rather a multilayered question. On the surface, deficit financing has the effect of transferring the payment of expenditures to future taxpayers. Those who argue that that deficit financing is a negative for the economy point out that using savings to finance the deficit implies that taxes will have to be raised in the future to pay for present day consumption. The longer the period of deficit financing, the higher taxes will have to be in the future to pay for those present expenditures. This will have the effect of slowing future economic growth. Consequently, in their opinion, government should only spend what the current taxpayer is willing to pay for and not burden the future economy for present day items.
Advocates of deficit financing argue the merits of deficit financing on two points. First, it is logical for capital projects whose benefits will be enjoyed in the future to be paid by those future beneficiaries.
They point out that it is unjust for present taxpayers to pay for benefits that they do not enjoy. Therefore, using deficit financing for capital projects has the effect of shifting the cost of the project to the eventual beneficiaries.
Secondly, if the federal budget falls into a deficit position, it is because there is a revenue shortfall due to economic conditions. Furthermore, those economic conditions that caused the revenue shortfall
(economic slowdown) also compound the demands on government services. Therefore, government must meet the increase demands not by increased taxes (which may multiply the demands on a weakening economy) but rather by using future taxpayers to pay for those increased demands. In other words, once the economy recovers, those expenditures financed by deficit financing can be repaid during better economic times.
Because of variations in economic performance, economists have developed the concept of high employment deficit or surplus. Essentially, this concept reviews government operations (expenditures and revenues) assuming a “high level of employment”. For example, the model will view projected government expenditures and revenues in the scenario where unemployment is 5 percent. If the budget is in surplus with employment at that level (95 percent employment), then the budget is considered in high employment surplus.
Note that the budget can be in high employment surplus and be in a deficit position because the actual employment rate may be lower than the rate assumed in the high employment model. Higher unemployment means that revenues are lower and expenditures higher than the high employment model.
Notionally, the high employment deficit/surplus is a theoretical exercise to see what the budget situation

would be IF the high employment scenario occurred. If the budget would be in deficit, this indicates that there is a structural deficit. (Hyman, 2011, p.493-494)
References:
Hyman, David N. (2011), Public finance: a contemporary application of theory to policy (10 th
edition),
Mason, Ohio: South-Western Cengage Learning
Response 2
There are advantages and disadvantages of preventing the federal budget from ever having a deficit.
According to David Hyman, the fluctuations in “deficit” and “surplus” are influenced by the “economy”
(2011. pg. 493). When there is an increase in unemployment, it also causes the “federal government expenditures” to also go up (Hyman, David. 2011. pg. 494). The tax revenues also “decline” with the increase in “unemployment” (Hyman, David. 2011. pg. 494). The unemployment insurance given by the federal government, allows the people to continue “their spending” until they “go back to work”
(Hyman, David. 2011. pg. 494). When the government helps to “stabilize the economy” then it can help move the economy back to “full employment” (Hyman, David. 2011. pg. 491). The federal budget runs on checks and balances. According to Hyman, stabilization occurs when changes occur that “balance the budget” (2011. pg. 494).
When a recession hits then the “deficit grows” as both “revenues decline” because of the lack of
“economic activity” (Hyman, David. 2011. pg. 491). The federal government can help businesses by assisting them to “prevent economic failure” (Hyman, David. 2011. pg. 491). When a deficit occurs, then we know that it can create long term effects on “savings”, “investments”, and “nations long term growth” (Hyman, David. 2011. pg. 491).
The most important thing to know about the federal budget occurs through adjustments. It can be adjusted to the point where it shows “94” to “95” percent of people in “labor force” are “employed” which means that the “deviation” was removed (Hyman, David. 2011. pg. 494).
For reference:
Once again, excellent discussion everyone. Indeed, from a public finance perspective, government budget deficits are very much affected by the business cycle (though the most often cited concern by macroeconomists regarding federal budget deficits is the relationship between deficits and higher interest rates / borrowing costs within the economy).
I offer the article below for a perspective on why reducing the deficit during periods of sluggish economic growth can be counterproductive during recession and post-recession recovery periods. The author’s views are that lawmaker's primary focus right now should be reducing unemployment and not the deficit in order to grow the economy by bringing more workers on to the tax rolls. http://www.usnews.com/opinion/blogs/economic-intelligence/2013/05/16/reducing-unemployment-ismore-important-than-reducing-the-budget-deficit.

I also encourage you to look beyond US macroeconomic and public finance policy for discussion of the advantages/disadvantages of budget deficits. The Eurozone and Japan offer helpful analysis and data regarding the impact of federal budget deficits. Though the discussion gets into macroeconomic issues somewhat, we cannot entirely divorce a discussion of deficits with that of macroeconomic policy. http://www.bbc.co.uk/news/world-europe-22706606 http://www.theguardian.com/commentisfree/2013/aug/15/eurozone-recession-recovery-austerity-ecb