Short answers, pulled from the story.
Crowding out in economics describes how increased government involvement in a sector can reduce private-sector activity. The most discussed form involves government deficit spending raising interest rates as the government competes for investable funds, which then reduces private investment.
Crowding out is most effective when an economy is already at or near full capacity. At full employment, government borrowing competes for scarce resources and can raise interest rates enough to suppress private capital formation. When the economy has excess capacity, as economist Laura D'Andrea Tyson argued in 2012, the crowding-out effect is much weaker or absent.
Paul Krugman observed that after the 2008 recession, U.S. federal borrowing increased by hundreds of billions of dollars and warnings of crowding out were widespread, yet interest rates actually fell rather than rose. This was consistent with the argument that crowding out does not operate when an economy has large amounts of spare capacity.
In health economics, crowding out occurs when expansions to programs like Medicaid or the State Children's Health Insurance Program prompt people already covered by private insurance to switch to the new public program. New Jersey testified to a 14% crowd-out rate in its CHIP program, meaning a portion of enrollees had previously held private coverage.
Crowding out occurs when government deficits raise interest rates and displace private investment. Crowding in is the opposite effect: when excess capacity exists in an economy, higher government spending raises demand and income, which then encourages additional private spending rather than displacing it.
The idea behind crowding out has been discussed since at least the 18th century, though the term itself came later. Economic historian Jim Tomlinson, writing in 2010, traced the recurring British debate from post-World War One spending cuts through the interwar period and into the monetarist arguments of the 1970s and 1980s.