In his recent column "The Dwindling Deficit", Nobel-prize-winning economist Paul Krugman criticizes the disproportionate focus in Washington and the media on the federal budget deficit.
... [Y]ou’re actually supposed to run deficits in a depressed economy to help support overall demand.
This view can be found in a range of economics references, including for example, the Annenberg Center's Econmics USA website, whose section on federal deficits was written by Alice Rivlin, Raymond Saulnier, Charles Schultze, and Alan Simpson.
"Government budgets should not necessarily be balanced at all times," they write. "Specifically, in a recession, balancing the budget means cutting spending and/or raising taxes—both of which have a contractionary effect on GDP/GNP."
The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.
But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It’s time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.