Post
Topic
Board Economics
Re: US National Debt / Deficit - How does it end?
by
leannemckim46
on 20/09/2014, 20:40:43 UTC
Wrong, government borrowing doesn't crowd out private investment per se. Government borrowing is a vertical transaction, while private investment is horizontal.

There's an article explaining this fallacy in simple words.
http://econrevival.blogspot.ru/2013/10/crowding-out-and-its-relation-to.html

The blog does have some disclaimers.

Having said all this, is it possible that in some cases government spending influences business incentives to a degree that might cause less private investment. 

I think that when government spending is at lower, "normal" levels then an additional dollar of government spending will cause overall private spending to decrease very little, if anything at all. However as government spending increases to a high percentage of GDP (including spending on interest on debt) then an additional dollar of government spending will cause private spending to decrease by similar amounts (or potentially more then a dollar if government spending is high enough).