How Government Crowds out Private Investment

Investment capital is scarce, which necessarily implies that there is a trade-off between government bonds and other types of economic activity. Put another way, investing $1.00 in government debt ensures that the same $1.00 will not be used for private investment or goods and services. According to historian Stephen Davies, government spending will almost always (or perhaps always) be less productive than private spending. This is because government agents spend other people’s money on somebody else. Additionally, government spending operates outside the realm of profit and loss, making it difficult to detect whether or not resources are being wasted.

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