[RyanMcGreal]

> the point is basic principles apply

You make the common mistake of assuming macroeconomics is just microeconomics at scale. A national economy isn't just a really big household.

There has been no correlation between public debt ratios and the Great Recession or its recovery. The Recession was not triggered by high debts, it has not affected countries with higher debts more severely than countries with lower debts, and attempts to reduce debts since the Recession have resulted in slower growth and - oops - higher debts.

[laughfactory]

Hmmm, not true. Your simplistic statement falls short of the facts and research. Here's a quote from a very recent paper which refutes (in part) your statement:

"The results of this paper have two important policy implications. First, since the results indicate a positive effect of government investment and a negative effect of government consumption, a reallocation of resources from consumption expenditure to investment expenditure is likely to reduce the growth impeding effects of public spending. Second, as government investment crowds out private investment, US policymakers are faced with a difficult task of finding a combination of public and private investment that minimizes the crowding out effect of public investment. According to the 2009 CBO report [1], all components of government expenditure will continue to grow over time. Therefore, it is imperative to assess the growth effect of government spending, particularly, the effects of key components of government expenditure on growth because the impacts of different types of government expenditure are not the same." Source: http://www.hindawi.com/journals/econ/2012/383812/

Did you catch that? Government consumption (which is, I would argue, the vast majority of government spending these days and more and more each year) impedes growth; Government INVESTMENT (and not the pseudo-investment that Obama is famous to talking about) enhances growth, but empirically also crowds out private investment.

And yes, while it's much larger and more complex, a national economy really kinda sorta IS a really big household. It still faces very real constraints and consequences. It is not God.

[gph1]

Could you lay out the casual mechanism that this study is claiming, and how they make the distinction between govt consumption and investment?

I'd also like to see an empirical example of the crowding out thesis. The idea that public deficits bid up borrowing rates and reduce private sector borrowing opportunities has been pretty thoroughly debunked.