1) Is there any evidence that the crowding out effect is occurring? Private sector spending has remained robust. And isn't there a counter argument that if spending is on productive investments (infrastructure, CHIPS) that it has a stimulative effect?
2) This seems to neglect the multiplier affect. If we stop sending out social safety net payments, I can guaranty you GDP is going down.
What are you arguing? I was trying to find the first post of yours on this topic and all I saw was "the difference between 20 and 23% is big." It would be helpful to know what you are contending, because otherwise we are speaking in really abstract generalities. But anyway:
1. "Crowding out" isn't really a thing that "occurs." It's a label given to the idea that government spending doesn't boost GDP because GDP growth is hard-capped by the productive capacity of the economy, and mere government spending does little to change that capacity. If we have 10 factories producing at full capacity, and then the government decides to build another battleship -- well, we still have 10 factories producing at full capacity. The objects that would have been sold to consumers is instead sold to the government. So if the private sector spending is robust, that's all the more reason to think that government spending is not juicing the economy on top of that.
Look: economies are complex, and I don't know all the details amidst the weeds. Might a big delta in public spending provide a bit of juice to GDP for a quarter or two? It's possible. Imagine that the government commits to spending $1T more in an economy that is already at full capacity. Well, people can increase their work hours. Maybe some people who work part-time by choice take the opportunity to make some extra money. Maybe firms keep the machines running more of the time. But none of that stuff is sustainable, because they don't change the equilibrium. For instance, if those part-time workers wanted to be full-time workers, they would be. After not too long, they will go back (because if they didn't, we weren't at full capacity). Over a longer term, though, government spending doesn't typically boost GDP unless it increases the productive capacity of the economy more than would the private sector.
2. We need more precise terminology here. "Stimulative" is usually taken to refer the effect of boosting GDP in the short-term. Think about it this way: the economy has a long-run productive capacity. The actual performance of the economy could be 90% of that capacity, as in a recession; it could be 98%, which is a full-capacity story; or 102%, which is an overheating story. When we talk about stimulative effects, we're usually talking about jumping around those figures. In a deep recession, government spending could lift the economy from 90% utilization to 98%. Outside of a recession, it might stimulate if it flickers between 98% and 102%.
When you talk about productive public investment, you're talking about raising the long-term capacity of the economy. That is definitely a good thing! It's not usually considered "stimulative." It's something better, with different words used in different contexts. The interstate highway system didn't stimulate the economy in the 1950s/60s. Well, maybe it did, but that's not why it was important. It increased the total productive capacity of the economy, allowing for more factories to be built, more transport options, etc.
3. The multiplier effect is not a different concept: it's just an arithmetic formulation of the same thing we've been talking about. Let's take a simplifying analogy, and think of the economy as like a huge sporting event. Now, what are the scenarios?
First, the sporting event could be a super bowl. Imagine if the government said, "no seniors can buy tickets" (analogous to cutting off money). It would make not one whit of difference. Demand for super bowl tickets greatly exceeds supply. Maybe, just maybe, you'd see a slight erosion of margins at the scalpers' very highest prices. But for the most part, the story will be the show goes on exactly as before. In this scenario, the multiplier is zero. Whether old people can buy Super Bowl tickets makes no difference at all.
Second, the sporting event could be a UNC football game. Attendance is below capacity, so that means demand is less than supply. Whether seniors can go will affect the production of the football game (economically speaking, the production of an event is value per ticket * tickets sold). But it's not going to meaningfully affect the behavior of the UNC athletic department, which makes capacity decisions on a much longer term basis and has no liquidity crises to deal with. This would be a unity multiplier.
Finally, maybe the sporting event is a minor league baseball game. Here, the attendance of seniors might determine whether the franchise can survive or has to shut down operations. This would be the high-multiplier case. Notice that in each case, the multiplier depends on the state of the economy AND the nature of the stimulus. That's why it's hard to answer these questions across the board.
4. You always have to remember opportunity costs. If you decrease social security payments, that frees up money somewhere else. For instance, it decreases the US deficit, and thus requires investors to buy fewer government bonds, and instead of government bonds they invest in new companies. This is the story told by Republicans from 1980-2016. There's always been some validity to it. The trick is 1) are you getting a dollar for dollar substitution (arguably no) and 2) the wealth distribution effects are highly undesirable.
In the case of social security, there's an additional complication, which is whether the demand has any elasticity to it. For instance, let's suppose all social security money is spent on necessities. Now what happens when you cut social security? Well, someone has to pay the bills. In that case, the cuts to social security will likely fall on children, who now have to spend more money helping their parents make ends meet; or charities, which will raise more money to help the old folks out. Either way, the cessation of payments doesn't actually free up money -- it merely redistributes wealth from the middle upward.
Medicare is different in this regard. If we had no Medicare, health care spending on seniors would dramatically fall. There would be few offsetting adjustments; kids certainly aren't paying the costs that Medicare was picking up. So a cut to Medicare is a direct cut to production. Now, in theory, the economy would rebound -- eventually health care will be cheaper for non-older folks, and perhaps they buy more of it. Maybe deductibles will be reduced. But there would be a big adjustment cost. You'd have a bunch of geriatric specialists who no longer have a job or a practice. Now there has been productive capacity destroyed. Same with nursing homes, geriatric wards at hospitals, the wheelchair industry, etc.
This productive capacity destruction isn't really about levels of spending. It's about exogenous shocks to the economy. Suppose the government said, "we're going to end Medicare in 10 years." The economic impact of that would be considerably less. Few physicians will choose to enter a geriatric field; new nursing homes won't open up; new hospital wings won't be built, etc. Meanwhile, new companies might emerge. Like senior social clubs, where all the seniors who are not going to get life-saving care go to spend their last money and days on hookers and blow. So that type of announced lead time would have fewer effects and arguably a very low multplier.
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