Horse 1139 - Government Surpluses and Deficits

Quite aside from whereabouts on the political spectrum you sit, is the discussion of how the economy works. Personally I rather like the "five sector circular flow of income model" because in broad terms it is very inclusive of pretty well much everything.
The Five Sectors in the model are as follows: Households, Companies, Government, Financial Institutions, and Overseas. All of them have different effects and parts to play in the economy.

The basic equation for total income in the economy can be described with a relatively simple equation:

Income = (C+I+G+X) - (S+T+M)

Income = (Consumer Spending + Investment Spending + Government Spending + Receipts on Exports) minus (Savings + Taxation + Payments for Imports)

The reasoning behind this is surprisingly sound. Basic economic theory states that the level of income in the economy is dictated by "all inputs less all outputs". Inputs and Outputs into the economy are otherwise known as leakages and injections, and perhaps it goes without saying that an excess of leakages will shrink the economy and an excess of injections will grow the economy.

The question from my little corner of the Twittersphere has to do with the effects of Government Spending on the economy.

The Government sector in broad terms has both an in box and an out box of money, Taxation and Government Spending. Taxation is a leakage, and Government Spending is an injection.
A Government Surplus occurs when the Government takes more in Taxation receipts than it spends in Spending. Obviously if Taxation is a leakage and Government Spending is an injection and the overall effect is an excess of Taxation, then the net effect is a leakage from the economy and the economy shrinks.
Likewise an excess in the amount of Government Spending, increases the amount of money being pushed back into economy and therefore is an overall injection into the economy and the economy grows.

If I was Grand Poobah and Lord High Everything Else, then I would seriously advocate Surpluses as the economy moved into periods of boom to slow down economic growth and likewise move to Deficits as the economy moved into periods of bust to speed up economic growth.

Of course I realise that Countercyclical Policy sounds exactly like something out of Keynesian economics, but given the results that the Second World War effectively ended the Great Depression, the Stimulus Package in Australia in 2009 meant that Australia was the only country except China in the industrialised world to avoid a recession, and the ongoing policy since 1945 of the USA, I think that it's a sound idea in principle and practice.

Actually when it comes to the overall effect that Government has on the economy it perhaps isn't all that large. Using GDP as a measure, then Government Debt in Australia is only about 8% of GDP and Government Spending accounts for only $71bn which is only 7% of GDP. I don't think people can complain much about that.