Crowding Out and Its Critics

Abstract

OES Government spending displace a near equal amount of private spending? This notion, popularly known as the " crowding-out " effect of Government expenditures, has recently gained wide-spread at-tention at two levels. Fii-st, at the policy level, public officials have expressed concern, that massive current and projected Federal deficits will have a deleterious effect on private capital expenditures for some time to come. Second, at the academic level, " crowding out " is at least one of the issues which helps to dis-tinguish between followers of the t\vo major macro-economic schools of thought Keynesians and monetarists. This article focuses on " crowding out " from more of an academic than a practical policy point of view. Policy implications can he drawn from this discus-sion, but, for the most part, the abstract economic models used in academic circles are not easily adapt-able to observable phenomena. Yet the origins of the recent crowding— out controversy at the academic level are traceable to certain empirical results based on U.S. experience.