Samuelson here, like many noneconomists, fell victim to the fallacy of composition. Wars that make certain farmers and industrialists (and their workers and suppliers) more prosperous do not thereby make society more prosperous. What is true for some in this case is emphatically not true for the group.
I have pointed out that the intuitive appeal of Keynesian economics rests on the idea that the economy is a business. If a business had more demand, it probably would hire more workers. So you might think that if an economy has unemployment, it must need more demand. In fact, the point of PSST is that unemployment is a problem of not knowing which patterns of specialization and trade are sustainable. It is an entrepreneurial discovery problem, not a demand problem.
But how much of the entrepreneurial problem is risk that is too high? The war helped some and hurt others, but it also created a lot of investment that otherwise would not have been made. It turns complacency upside down. It socializes risk. It spurs technology. I used to think we would have still been better without it, but now am skeptical that we would have been. Inertia is great in economies like most human affairs.
Nowadays, it’s not just the entrepreneur’s task to discover “what’s left” that might be sustainable, but to gain permissions to create templates for what is needed, yet is not presently sustainable.
One might also consider that in the education industry, finding optimal delivery is a local entrepreneurial discovery function. Global solutions and The Null Hypothesis are beside the point.
“It is an entrepreneurial discovery problem, not a demand problem.” I would say, sometimes it’s the one, sometimes the other.
Isn’t entrepreneurial discovery about find a way to fill demand?
I agree the goal isn’t about boosting demand, but finding a way to meet an unfulfilled demand is still a demand problem.
The differentiation between Keynesian view and non-Keynesian is just the nature of solving this problem.
Keynes would say solving the demand problem is to increase demand, and that this can be done artificially by pulling future demand into the present.
An Austrian would say that the better solution is to allow people (entrepreneurs) to determine what needs require fulfillment.
The first offers an immediate “solve” which can often be measured or determined to be quantifiable and visible.
The second is organic and real, does not reduce future demand by boosting immediate, but is not always visible or quantifiable.
Keynes offers a politically viable solution. Even von Mises and Hayek recognized political solutions are sometimes ‘preferable’. Austrians don’t offer many politically viable solutions, but they do offer intellectually preferable ones. Unfortunately, most voters don’t recognize the preferable solutions as being preferable….mainly because they don’t see future demand being reduced when there’s a seemingly “easy” way to always boost demand…..
Keynes’ solution is not “artificial”, but it is gov’t directed. And the huge huge benefit to gov’t politicians is that it offers intellectual justification for them to be active — and to claim success for when the real entrepreneurs are supplying the gov’t inflated demand.
It’s a failure of the Lib Party, and the US education system, and perhaps mostly the Rep Party, that small gov’t, lower taxes, and less regulation is not seen as the obvious way to “fertilize” a growing economy.
The PSST solution correctly points to the discovery issue — what works, in this current specific environment? But this reduces direct cronyism and thus few politicians support it now; nor in the near future.
Keynes is’artificial’ insomuch as it is not creating new demand. It’s merely redirecting future demand to the current time frame.
I agree it gives the politicians justification, that was my original point, too. But real growth isn’t taking future potential and applying it to today just because it’s government directed. The government has no clue which areas have the highest likelihood of creating a proper return on each dollar spent. I, as an individual, know which parts of my life and/or business will benefit from borrowing from my future potential.
The late Harry G. Johnson used a phrase that probably should be in common parlance but is not: “Vulgar Keynesianism.”
If I Recall Correctly, he used the term to refer to crude and opportunistic references to Keynes as a way of justifying whatever fiscal lapse was planned. Keynes thus ended up excusing all lack of fiscal discipline, and justifying any unwillingness to maintain a sensible budget.
citation: Somewhere in the essays reprinted in _Economics and society_ published by University of Chicago Press.
Economy is not business but I do believe both concepts are related to each other. Good info from this post indeed. Quite technical but delivered and explained in a simple way.