Government deficits and debt are surpluses and assets of the private sector of the economy that stimulate private spending. Official measures of deficits are misleading, however, for failing to distinguish public investment from current spending and for failing to adjust for inflation. Correctly measured real deficits have contributed to the growth of gross national product, consumption, and imports, and to investment as well. Optimal policy consistent with balanced growth calls not for elimination of the nominal deficit but rather for prudent deficit reduction accompanied by and stemming at least partly from sufficient monetary stimulus to achieve and sustain relatively full employment.
