Post-war “austerity”

I have written a few times about the Keynesian predictions that when WWII ended, the economy would be plunged into Depression and mass unemployment. In Fight of the Century, John Papola and I have Hayek say:

When that war spending ended your friends cried disaster

Yet the economy thrived and grew faster

Those friends were people like Paul Samuelson who had written (HT: David Henderson):

When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable–were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties–then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.

via Post-war “austerity”.

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