A new analysis reveals that long-term economic growth in the United States is significantly dampened by federal deficit spending.
Economists from Penn Wharton Budget Model — a project of the University of Pennsylvania’s Wharton School that evaluates public policy proposals — released an interactive tool that permits users to observe the effects of deficit spending on the American economy.
Under deficit-financed spending proposals of $100 billion, $1 trillion, and $10 trillion, the American economy contracts in the long-term — a reality explained by the “crowding out effect.”
As Penn Wharton Budget Model says of debt that funds public spending:
The government collects real resources via voluntary transactions with economic agents who are willing to trade real resources today for the promise of real resources in the future. Debt buyers, including U.S. households saving for retirement, view this debt as savings, which reduces their savings in private investment. This substitution is called the ‘capital crowding-out effect’ from government debt issuance.
Across the globe, policymakers and