With the Federal Reserve announcing QE2, which is exactly what I just talked about in the last paragraph, The Economist picked a good time to talk about the issue. In Britain, they announced some "austerity measures", which is the proper British way to announce that a bunch of government jobs were being cut.
In America, reducing government is of course prohibited by the 88th amendment to the Constitution, so we tried to raise taxes. The money wasn't even used to balance the budget; it was used to pay for new tomfoolery and ballyhoo.
Now, normally this move could be supported by a cadre of Harvard economists. However, in this case, research by professors from Harvard and elsewhere conclude that the 'crowding out' theory holds water:
It found that a 1% rise in government consumption as a share of GDP eventually reduced private-sector consumption by 1.9%. Temporary spending to pick up economic slack may be useful but the long-term benefits of austerity seem clear.