Crowding Out? Think Again! How Deficits Actually Boost Private Investment

The fear that government deficits crowd out private investment is a persistent myth that Kelton dismantles in The Deficit Myth.

When the government runs a deficit, it spends more money into the economy than it collects in taxes, adding net financial assets to the private sector. This increase in savings provides businesses with more capital to invest in growth and innovation.

The crowding out argument assumes a fixed pool of savings, but in reality, government spending creates new money, expanding financial resources rather than competing for them.

Historical data supports this view, showing that higher deficits often coincide with robust private investment and economic expansion.

Recognizing this changes how we think about fiscal policy, allowing for strategic government spending that supports a vibrant private sector.

Further insights can be found in analyses by the London School of Economics, Hustle Escape, and SuperSummary [[2]](#__2) [[1]](#__1) [[0]](#__0).