Hi. I often hear Austrians use the term "crowding out". Does this simply mean that the government is using money to divert resources from the private sector to the public sector, or is there more to it?
Crowding out can technically apply to any case of this I think, but it's almost always used in terms of actions by the government. Demand increase while supply remains constant price rises. When the government does this, this means that the amount of a good that will be utilized by the private sector is less because of the higher price.
If the government borrows a great deal of money from the private sector then available loanable funds will decrease and the interest rate will rise. Necessary implication of any action, goods are allocated away from productive private sector use to wasteful public sector employment
Alex:Hi. I often hear Austrians use the term "crowding out". Does this simply mean that the government is using money to divert resources from the private sector to the public sector, or is there more to it?
Yeah basically that's it. Usually more specifically when you hear it these days it is in reference to government borrowing the vast majority of loanable funds, thus "crowding out" other potential borrowers (i.e. private businesses who might like to expand and create jobs). But here's a nice piece on it:
Crowding Out Our Future Wealth
And then there's this: Crowding Out: A Cartoon That’s Making the Rounds
Interesting that it can also be applied to borrowing. Thanks guys!
private charity is another major victim to crowding out