I will ask the Old Keynesians, here is the report from last week:
“The lack of income growth meant that the boost in spending came from a decline in the savings rate,” said David Semmens, US economist at Standard Chartered.
…The savings rate fell 0.5 per cent in the period, reaching a level last seen at the end of 2007.
I will predict that the savings rate does not substantially rise next quarter. Absolute savings will go up over some time horizon but I don’t expect it to do so immediately for cyclical reasons. Are the Old Keynesians now expecting savings to go up in some manner, due to “the paradox of savings”? After all, spending has risen. Here is a chance for Old Keynesian economics to score some points, so what will happen with savings? What does a liquidity trap model predict? Should savings be higher already, or does it take longer for that effect to kick in? How long?
Note that the New Keynesians generally do not have much to do with the paradox of savings; my view is that it may have applied to parts of 2008-2009 but is unlikely to apply today.
When it comes to Old Keynesian predictions I don’t want to count “money matters” (formerly an anti-Keynesian prediction by the way),”the recession was really bad,” or beating up on various odd right-wing views. I want forcing predictions which discriminate against the best available alternative theories.
In the comments I also would like to hear Keynesian accounts, New or Old, of why gdp growth was suddenly 2.5%, not a great number for a recovery in absolute terms, but was it the predicted number or direction, given that the stimulus was finally exhausted? I am comfortable citing “noise,” but does a liquidity trap model offer this same freedom? Doesn’t the model itself imply that one margin is what matters and you are truly “trapped”?
Drawing really long time-lines to obscure false predictions of the moment does not count as an answer!