Keynesians expected 15% unemployment in 1946. The actual figure was 3.9%

By Richard Vedder. Excerpts:

"In the middle of the fighting, America’s leading Keynesian economist, Alvin Hansen of Harvard, said: “When the war is over, the government cannot just disband the Army, close down munitions factories, stop building ships, and remove economic controls.” That’s precisely what happened with almost no notice.

When the sudden end of combat became apparent in late August 1945, economist Everett Hagen predicted that the unemployment rate in the first quarter of 1946 would be 14.8%. Millions of military personnel did become jobless within months and defense spending plummeted, putting more out of work. In June 1946 federal employment was almost precisely 10 million less than a year earlier. Yet the sharp rise in overall unemployment didn’t occur. The total unemployment rate for 1946 was 3.9%—almost precisely the same rate the U.S. had this February before the pandemic’s effects were felt.

Part of the reason was that some workers in the war effort wanted to revert to their civilian roles as parents, housewives and students, so the supply of labor fell. But just as critically, market adjustments prevented massive joblessness. Unemployment exists when the quantity of labor supplied exceeds the quantity demanded at prevailing wage levels. To alleviate unemployment, real wages (adjusted for changes in worker productivity) need to fall. That happened in 1946, aided by rising productivity as resources moved from public to more-efficient private uses, with fewer wage and price controls."

"today, Washington has chosen to fight unemployment with deficit spending, deploying various stimulus efforts and unprecedented massive lending to private borrowers at extremely low interest rates. None of that happened after World War II; monetary growth actually slowed from wartime levels. Yet the economy prospered."