The trouble with this Austrian balderdash is as follows:
(1) The first part of the video focuses on the post-war economic period after 1945.BIBLIOGRAPHY
Thomas E. Woods asserts that there was no depression after 1945 (11.30), contrary to what some Keynesians (like Paul Samuelson) predicted. In actual fact, if depression is defined as a collapse in real output of 10% or more, then there was a sui generis depression after WWII, which is easily verified in the real GDP data:Year | GDP* | Growth RateNow certain Keynesians like Samuelson were right in saying the end of the war would lead to a sharp drop in real output, but wrong in predicting a long-term unemployment problem or a lack of private sector demand after 1945.
1941 | $1,366,100 | 17.07%
1942 | $1,618,200 | 18.45%
1943 | $1,883,100 | 16.37%
1944 | $2,035,200 | 8.07%
1945 | $2,012,400 | -1.12%
1946 | $1,792,200 | -10.9%
1947 | $1,776,100 | -0.89%
1948 | $1,854,200 | 4.39%
1949 | $1,844,700 | -0.51%
1950 | $2,006,000 | 8.74%
* Millions of 2005 dollars
Woods even tells us (at 15.20) that “Keynesian economists everywhere ... [sc. were] predicting disaster and depression” to occur after WWII. Woods is wrong, and laughably wrong.
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.” (Colander and Landreth 1996: 202).Woods, like other Austrian ideologues, seems utterly ignorant of this. What kind of analysis of the post-war boom ignores what Keynes — the founder of Keynesian economics — thought about this question? The truth is that Samuelson was simply wrong; Keynes was right.
(2) Woods derides the idea that the boom of 1946 to 1948 was caused by the “pent up demand.” He then commits a laughable error by saying that Keynesians simply explain this pent up demand by consumer spending alone. This is utter nonsense: the liberation of demand after 1945 was both a private sector investment and consumer boom, and that is entirely consistent with Keynesian economics. Consumer spending, of course, helped to drive investment, but was only one side of the story. Corporate dissavings were used to finance investment after 1945, and the massive pent-up housing demand was an important factor. Although I have not looked at the figures, I suspect that exports also played a role in the boom. In general, see my post here.
(3) Woods ignores the actual fiscal history of the 1948 to 1950 period. The US government did in fact step in after 1948 to provide macroeconomic stability: the boom of 1948 gave way to a recession from November 1948 to October 1949.
Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP. Moreover, Congress had pushed through a tax cut in 1948, which boosted private spending in 1949. What we have here is classic Keynesian countercyclical fiscal policy. Some of the increases from 1950–1953 were, of course, related to the Korean war, but also to new social, welfare and military programs enacted under Truman. Government spending in both absolute terms and as a percentage of GDP surged from 1948 to 1953, fell slightly from 1953–1954 as the Korean war ended, but remained between about 25% and 30% of GDP throughout the classic era of Keynesian economics (1945–1973) – an unprecedented level to that point in American history. And the economy boomed.
(4) Woods takes a dig at Samuelson’s rather stupid predictions about the Soviet Union, which were indeed wrong, but this proves nothing about Keynesianism in the developed world. Keynesians support mixed economies, where there is a vast space for private sector production. And while the Soviet Union was a horrendous and immoral system that ended in the 1980s in severe economic problems, there is no doubt that it did have real output growth and real per capita GDP growth right up until the early 1970s.
(5) Woods attacks the idea of fiscal stimulus, but uses the Austrian business cycle theory. This theory is false and see my posts here on why it is false:“Austrian Business Cycle Theory: Its Failure to explain the Crisis of 2008,” October 18, 2010.
“The Natural Rate of Interest: A Wicksellian Fable,” June 6, 2011.
“Austrian Business Cycle Theory (ABCT) and the Natural Rate of Interest,” June 18, 2011.
“Austrian Business Cycle Theory: The Various Versions and a Critique,” June 21, 2011.
“Hayek on the Flaws and Irrelevance of his Trade Cycle Theory,” June 29, 2011.
“Robert P. Murphy on the Sraffa-Hayek Debate,” July 19, 2011.
“Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT,” December 27, 2011.
“Hayek’s Trade Cycle Theory, Equilibrium, Knowledge and Expectations,” January 4, 2012.
Colander, D. C. and H. Landreth (eds). 1996. The Coming of Keynesianism to America: Conversations with the Founders of Keynesian Economics, E. Elgar, Cheltenham.