And if you are willing to say that WWII is not an illustration of successful Keynesian policies what is left? Japan of the 1990s?

But regardless of that, the most important point from Barro’s paper for me is that it is currently extremely difficult to measure the non-defense multipliers. And that all the supposed evidence is unreliable. I don’t know what to make of that argument. But if it is correct my view that the stimulus does not pass the “first do no harm” test holds.

And I should also point out – I didn’t dream up that criticism of him myself (the one about rationing). People have brought that up to Barro himself in conferences and have been frustrated that he hasn’t seemed to have done much to address that objection. There’s not much point to professional conferences if you don’t take criticism you get there into account.

In WWII the government enforced strict rationing of private consumption, precisely so they could direct resources to defense spending. Is it any wonder that Barro came up with an insignificant impact of government spending on private consumption?

It’s a bad paper Daniil.

But at least in the case of WWII there were depressionary consitions. The unemployment rate in 1940 was 9,4%. And if these were not depressionary, nowadays’ conditions also aren’t.

As for endogenity issue, the important line from the Barro’s paper is this:

“A common approach in the existing empirical literature, exemplified by Blanchard and Perotti (2002), is to include government purchases (typically, defense and non-defense combined) in a vector-auto-regression (VAR) system and then make identifying assumptions
concerning exogeneity and timing. Typically, the real-government-purchases variable is allowed to move first, so that the contemporaneous associations with real GDP and other macroeconomic
6 aggregates, including real personal consumer expenditure, are assumed to reflect causal influences from government purchases to the macro variables. This approach may be satisfactory for war-driven defense spending, but it seems problematic for other forms of
government purchases. More generally, it is perilous to treat an arbitrarily selected component of GDP as exogenous and then demonstrate a positive, “causal” effect of this component on
overall GDP.”

Of course, it is up to professional statisticians to opine whether Barro is right in this criticism of the aforementioned way VAR is applied.