When the economy slows, government receipts tend to drop, since taxes generally derive from economic activity (such as sales, salaries, etc). So what really happens when the government starts running a deficit? The government is taking unproductive assets (money parked in low yielding bonds) and putting it to productive use (health care, education, etc). The alternative is to try to take money from taxes, which act as a brake for the exact activity that the government is trying to encourage.
Maybe people just intuitively think about government debt the wrong way. Maybe if it was called “citizen assets”, people wouldn’t automatically think it’s a such a bad thing. If the economy has a lot of slack (people unemployed, assets put to unproductive use), funding the government via these kind of unproductive assets seems like the perfect solution.
This is all related to an economic theory called “Modern Monetary Theory”, which is definitely worth reading about. It will turn your world around once you get it.
Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities per se.
Of course, now that Spain is using a currency that it cannot issue at will, we’re pretty much screwed, unless the Eurozone finally gets its head out of the sand, which is unlikely to happen.
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