Keynesians Crowd Out Common Sense
And don't get me started on Chartalists.
If you'e curious about the subject of "crowding out" investment, this is a great article by Austrian economist Gary North. It is such an elementary concept, you'll be left shaking your head that this is even debated among academics.
David in Qatar
Crowding Out Our Future Wealth by Gary North
If you persuade someone to sell you something, your offer has crowded someone else who wanted to buy it. ...
...The would-be borrower must accept a second-best solution to his problem. That is what crowding out means. He has been crowded out from the best solution by a more aggressive borrower.
The funds used to finance a borrower's project can be used for only one project at a time. The winning bidder for the funds is now able to bring his project to completion. All other would-be borrowers must find other low-cost sources of the funding. They did not have such low-cost alternative sources prior to the winner's bid.
THE WORLD OF KEYNES
This sounds elementary. Anyone should be able to understand it. But Keynesian economists do not understand it. When the government does the borrowing, they insist, there is no crowding-out effect. We read this on a site that provides definitions of economic terms. This is the definition for "crowding out."
"Theory that heavy borrowing by a government (which can pay any interest rate) soaks up the available credit, leaving little for the private sector at affordable interest rates. Opponents of this theory point out that new sources of credit emerge at every stage of an interest rate increase."
Got that? The opponents argue that when Joe cannot borrow money from Fred, because Fred lends the money to their Uncle Sam, Bill will lend Joe the money, but at a higher interest rate. "But," you say, "that is what crowding out means: Joe is crowded out at the low rate that Uncle Sam agreed to pay." You are beginning to get a sense of the level of sophistication of this dictionary.
"But this cannot be representative of common economic opinion," you respond. "This is some sort of oddity." So, I direct you to the definition provided by The Economist, generally regarded as the most sophisticated of all general audience economics magazines.
"When the state does something it may discourage, or crowd out, private-sector attempts to do the same thing. At times, excessive GOVERNMENT borrowing has been blamed for low private-sector borrowing and, consequently, low INVESTMENT and (because the economic returns on public borrowing are typically lower than those on private DEBT, especially corporate debt) slower economic GROWTH. This has become less of a concern in recent years as government indebtedness has declined and, because of GLOBALISATION, FIRMS have become more able to raise CAPITAL outside their home country."
"Government indebtedness has declined." When was this entry written? In Grover Cleveland's Administration? Second, firms can supposedly borrow from abroad. But so can Uncle Sam . . . which he has done incessantly, to the tune of about half of the debt he owes to the public.
The definition assumes that by appealing to foreign lenders, the definition changes. "You see, Joe can now borrow what he wants from foreigners, which he was unaware of before Fred lent Uncle Sam that money." In literary terminology, this is a Deus ex machina, which is a source of causation that was outside the original plot's presentation of the facts. The solution to the plot's otherwise unsolvable problem is delivered from the realm of the gods. Thank Deus!
How can this sort of intellectual subterfuge go on? Because of this: