So one of the things I was thinking with this Russ Roberts stuff is "exactly what did Keynes expect?". It's pretty obvious to me that Samuelson was just working off of some shoddy expectations based on the post-WWI period, but this is obvious to me because I've spent some time reading up on the post-WWI period. What did Keynes say?
I didn't actually ask that in my email response to him this morning, but LK has it:
"In 1943 — the same year Samuelson got it wrong — Keynes was giving a lecture at the Federal Reserve and was asked by Abba Lerner about the possible economic problems of the post-war period. Keynes’s reply is significant:
'Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem'
D. C. Colander and H. Landreth (eds), The Coming of Keynesianism to America, E. Elgar, Cheltenham. 1996. p. 202.
In other words, Americans now had the security of welfare programs that allowed them to free up more of their income in spending.
What kind of analysis of the post-war boom ignores what Keynes — the founder of Keynesian economics — thought about this question? Samuelson was simply wrong; Keynes was right."
It's not exactly the defense I would have expected, but an interesting find nonetheless. The fact is, WWII years were characterized by excess demand which is exactly why you saw massive crowding out of private spending which Bob Higgs documents so well. A sharp drop from "excess demand" does not imply "deficient demand".
Dan Carlin’s “Hardcore History”
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