On Deficits and Stimulus

I had quite a lively response to my previous post "Are Wars Good for the Economy?", and decided a followup post was in was in order.

I don't disagree that government spending can boost the economy, by definition it adds to GDP. The only concern I have is with deficits and debt. When the the economy is doing well, you should balance your budget or run a surplus, and when the economy is doing badly, you should borrow to increase GDP through spending or tax cuts (which one you choose can be battled out later, I actually like that this one has a mix of the two). The problem as I see it is that we were running huge deficits before the economic crisis, and while it is definitely in our short term interest to go even more into debt to get us out of the economic funk, it is in our long term interest to show the international markets we're borrowing from that we're going to spend responsibly in the future and that we won't run huge deficits when our economy is growing again. If our international lenders don't think we will be fiscally responsible in the long term, they would stop lending and things would get much worse and fast.

And small note on war and the economy, there have been significant extenuating circumstances the times when war has been seen as stimulative in the past, and there are even more examples of when it has been anything but stimulative. I hope that spending that money on making stuff at home instead of on blowing stuff up overseas might have a slightly more stimulative effect. My fear is that looking back we'll find that it doesn't matter what you spend government money on, it matters how you finance it.