One of the considerations that comes up in the debate about fiscal stimulus is whether the government crowds out private market actors through its diverting of resources and capital towards its particular projects. And most of the time, when I hear that conversation play out, it is framed in the context of interest rates -- i.e., there is only a finite amount of savings upon which to draw the needed capital to implement any particular project, and so the act of government drawing from that base serves to prevent someone else from doing the same, driving up the cost of capital.
But, then I caught the following comment over at Scott Sumner's blog, which I think expands the definition of "crowding out" in a useful way that I hadn't really contemplated (even though it should be rather intuitive). Given that I think government policy is imprecise at best, the notion that it could target only idle resources is simply naive. Inevitably, it will capture some portion of the resource base that is already being utilized, to the detriment of other actors. And, so, it is not simply about a competition for savings (that will cause interest rates to spike), but also a competition for any components of the production process (which might not manifest itself through interest rates).
