What is crowding out?

Question

What is crowding out? Do you think it is happening today? Why?

Answer 1

In economics, crowding out theoretically occurs when the government expands its borrowing to finance increased expenditure, or cuts taxes (i.e. is engaged in deficit spending), crowding out private sector investment by way of higher interest rates. To the extent that there is controversy in modern Macroeconomics on the subject, it is because of disagreements about how financial markets would react to more government borrowing.

This is not happening much today because the Federal Reserve Bank has been effectively lowering the interest rates.  Remember that when there is crowding out the interest rates rise.  The policy makers are actually trying to increase investment now (through monetary & fiscal policies) in order to avoid a recession.