What is the “crowding-out” effect?

Anonymous crowd of people walking on city streetWhen you go into the economy and you issue a bond to build a railroad which will cost one-third of all of the money in existence, you’re pretty much going to put a stop to the rest of human enterprise. Until that railroad is built, and that money has worked its way back into the system, there is no money with which to conduct other commerce. Most of the nation’s labor and material resources would flow to that area. That’s the “crowding-out” effect everyone talks about. Therefore, if the bond issue is too large, it “crowds-out”. People lose their jobs, and politicians don’t get re-elected.