Everybody spends more than they take in. You get a car loan, you spend more than you take in; you get a mortgage, you spend more than you take in. You do almost anything in modern world, you spend more than you take in.

It’s just that when you have a surplus of revenue than what you need to operate things at a bare minimum you should be paying down those loans. E.g., if I have a surplus in my budget and I’m only paying the minimum on my credit card, I’ll start to pay more.

This is where it is important to see policy changes: Bush’s tax cuts took a surplus that the CBO projected out of the Clinton years, and cut that entire thing. This meant that when we should have been paying down our debt, we made it so our debt could not be paid down. That’s a huge policy mistake that can be correct now – that’s why it matters how we got here.

I have to disagree with two assumptions/propositions you make here, and they both have to do with one another.
1.) The notion that Regan and the deregulation of the U.S. economy has lead to really free markets. This is something one hears a lot – that Republicans are for free markets, and Democrats for socialism (or at least less free markets). But the reality is that we’ve never really had free markets in the U.S. The concept of a free market is that any product with a demand can find a place to be sold. But this is manifestly not the case in the U.S., and it has been even less so since the Regan revolution. Just look at things like Beer, or better yet, GMO crops. If you are a farmer in almost every part of the country and you do not need GMO seed it doesn’t matter. Gigantic corporations like Monsanto have basically taken this completely out of your reach. There is definitely demand for it, but there is no market. This, I think, is because of the amount of power corporations have within the global village, and especially the legal fictions corporations have been able to concoct to appease governments who desire their money.
2.) This leads to a little quibble with your view of Adam Smith. He actually saw the consequences of government and business in bed, and in his view, it was never free. His solution? Make sure there are strict limitations on the type of practices business can engage in – in other words, some idea of “regulation.”

I guess my point is one of framing. The fact is that government is the only player around (or used to be, in any case) that can effectively set boundaries around a market place. These boundaries are, paradoxically, the conditions of the freedom of the market place, not limitations. So I think you shouldn’t frame this between regulation vs. non-regulation, but between the conditions for a truly free market, and the conditions for the the tyranny of a few business hegemons.