Traditionalists argue that a reduction in the budget deficit will significantly
help the economy in the long run. This theory is based on the logic that when
the government runs a budget deficit, it is spending more than it is taking in.
In this way, national savings decreases. When national savings decreases,
investment--the primary store of national savings--also decreases. Lower
investment leads to lower long-term economic growth. Similarly, lower
investment is accompanied by higher domestic interest rates, which decreases
net exports. Based on this logic, a budget deficit is a long-term drain on the
economy.