Economist's View: Modern Macroeconomic Theory and Fiscal Policy

Fiscal policy is sometimes necessary which implies running a deficit is sometimes necessary. This is one of the lessons of Keynesian economics, a form of macroeconomics that we didn't teach much of for the past 20 years. But "

Generally, demand side policies are the solution when the economy is stuck at the zero bound. Supply side polices such as a capital gains tax cut actually make things worse. The reason is that an increase in supply when demand as already insufficient causes prices to fall, and the fall in the price level raises the real interest rate. At the zero bound, the rise in the real interest rate cannot be offset by the Fed. Away from the zero bound, the Fed can stabilize the real rate and the policy has positive effects, but it depends critically on the Fed's ability to offset increases in the real rate and the nature of the reaction.

If the Fed can't lower interest rates, then monetary policy is practically useless. So deficits become an expansionary policy tool, rather than a symptom of profligate government. See
Economist's View: Modern Macroeconomic Theory and Fiscal Policy