Many people seem to expect the government to have an infinite supply of money to hand out.  In the US we have programs like Social Security, Medicare and the Farm subsidies which represent good examples of government giveaways of funds.  Unfortunately such handouts often can be extremely dangerous and result in great harm to the economy.

What is rarely covered is the danger that government spending ends up representing.  The money that governments spend has to be taken from the people in some way, and the way it is returned often results in inflationary pressures on the economy.  Now in the US Social Security avoids the second part of this equation, but the farm subsidies clearly push prices upwards, and government handouts in natiosn with less stable economies are often much more inflationary.

This arises from a simple fact.  Government handouts do not generate any goods or services naturally.  There is no economic transaction where a product is created in exchange for the money being disbursed.  Inflation is created when there is more money available to the economy than there are goods available to be purchased.  Any government program that results in money being handed out without there being production to offset the increased purchasing power available to citizens will create inflationary pressures. 

This is also a danger when high levels of deficit spending begin to appear.  Once again you have money entering the economy without any goods or services balancing the equation.  Worse, any deficit spending means that money that others would like to borrow will instead be borrowed by the government.  This has a tendency to increase interest rates which will increase costs to businesses seeking to expand.  Again this apparently free money comes with costs.  The trick is that government have managed to hide the costs.