The next time someone argues that the New Deal failed, and only the Second World War ended the Depression, as 'proof' that government spending does not work, one can respond with the details of economic growth and unemployment reduction up to 1940, or one can ignore the claim and thank them for making your case for massive government spending in a deep, broad recession.
Right wing politicians are loathe to credit the New Deal with any success in hoisting the United States out of the Great Depression, but credit World War II for that achievement, believing that that somehow disproves Keynesian economic theory.
That claim, however, undermines their entire premise.
World War II was many things, and one hesitates to write about it as an economic phenomenon for fear of being misinterpreted as claiming that its economic value was of more importance than its profoundly human dimensions. That is not what this is intended to convey.
Rather, this is designed to make the "war economy" more concrete, so that, instead of claiming that the Depression finally being ended by World War II proves that government spending failed, it actually proves the opposite, and that massive spending, commensurate with the depth, breadth and scope of the Great Recession, will indeed work. The inadequately-sized stimulus saved a few million jobs, and has added another 2 million, but that rate is insufficient to make the economy hum, and put millions of people back to work.
Although one suspects that the right wing will take cheap shots at this article, because it undermines their entire philosophy, let me be explicit that this does not suggest in any way that war, or the preparation for wars, is required or justified for economic recovery. As indicated below, there are plenty of "public goods" that we need as a foundation for our economic future that we can spend that money on much more productively than war.
From the perspective of economic theory and practice, government spending during World War II demonstrated not that the New Deal -- programs such as Harry Hopkins's WPA that hired 4 million workers in 4 months, and built or repaired infrastructure that continues to serve as the foundation for our economy -- or government spending does not work, but rather how massive government spending at a time of severe economic downturn and dislocation can indeed get an economy humming again.
What were the macroeconomics of World War II? Government spent money on aircraft, ships, landing-craft, weapons, tanks, trucks, jeeps, food for millions of soldiers, supplies, and so forth. Indeed, while critical for winning the war, many of these expenditures did not have lasting economic value per se, as compared, for example, to the Grand Coulee dam built by the WPA, and still providing irrigation and electricity for tens of thousands of people.
Government spending not only skyrocketed to over 40% of GDP during the war, but it was accompanied by a command and control economy, with civilian agencies directing what was to be produced. Unemployment, as a percentage of the civilian labor force, declined from nearly 15% (down from a high of 25% as the Great Depression took root) to less than 2%. The economy absorbed not only the young who just came of working age after Pearl Harbor, but also those, such as 3.25 million women, who never previously entered the labor force.
Through government spending, the country invested in technological and scientific progress, and touched nearly every aspect of the war effort. In addition to major breakthroughs -- such as the Manhattan Project -- the country also innovated in plant layout, production organization, economies of scale and process engineering. (See David Kennedy, Freedom from Fear: The American People in Depression and War, 1929-1945, p. 648) as referenced here.
The economic lesson, then, of right wing claims that the New Deal accomplished nothing, and it took the Second World War to end the Great Depression, ought to be that truly massive spending by the government would put get this economy humming again as well.
Moreover, instead of spending it on machines of war, we could spend it on rebuilding our decaying infrastructure much of which dates from the Great Depression or the 1950s, and is wearing out. The neglect of the last 30 years, based upon a short-sighted desire to cut taxes on the wealthy, is catching up to us. Rebuilding roads, bridges, upgrading the electric grid, would not only provide jobs today, but create a strong foundation for our economic future.
Instead of spending the massive amount of money on war, we could spend it far more productively on developing home-grown new energy sources. For example, algae (the cells that make up "scum" that grows on ponds) have been engineered to produce oil. Since they use carbon dioxide to make the oil, when that oil is burned as gasoline the net increase in carbon dioxide is close to zero. It could put many people to work at high-paying jobs, including in rural areas, wean ourselves off of oil -- both foreign and domestic -- and power our cars and trucks.
We have a glut of housing today. We could employ those who normally construct new housing in retrofitting existing homes and buildings in every city, suburb and rural area of the country to make them more energy efficient. Every kilowatt saved is saved over-and-over-and-over, and is energy we do not have to produce. It would lower energy costs for homeowners and building owners. It would put people to work, and make the country energy efficient for the future.
We can build high-speed rail so that total journey times rival those of driving to airports, flying, and driving into cities. We can build good, attractive, cost-effective urban mass transit to reduce congestion on the roads, and pollution in the air.
We can increase our investments in basic research. For example, the largest and most dramatic reductions in the future costs of Medicare will come with scientific breakthroughs in the treatment of diabetes, Alzheimer's and Parksinson's diseases, all most likely to arise from human stem cell research. Enable people to live better lives and save tens of billions annually? What better bargain is there?
Will there be "waste, fraud and abuse"? Of course. Name the large organization that does not suffer from that. Senator Harry Truman (D-MO) became nationally famous investigating fraud in military procurements during World War II. Does that fraud mean that we should not have provisioned our troops? Or that we should not have fought Hitler, Mussolini and Tojo at all?
Those questions seem absurd, until one realizes that the same arguments about the inevitability of "waste, fraud and abuse" are exactly what are raised against massive civilian government spending and invoked as reasons not to do it.
Should we pay for all this with massive deficits, or by raising tax revenues? During World War II, the tax base was, for the first time, extended to nearly every worker, and those who made a million dollars or more were taxed at a rate of 94%. Today, we are being taxed less than at anytime since prior to the Second World War. So, yes, there is plenty of room to raise revenues by increasing enforcement, cutting loopholes, and raising rates on the wealthiest.
Of course, none of this will ever happen.
But, the next time someone tries to justify opposition to it on the basis that government spending in a profound and prolonged economic downturn doesn't work, remind him of his own argument that massive government spending during World War II worked very well. And, although "waste, fraud and abuse" will occur, it will be sternly punished, and ought not to be an excuse to deny millions of people productive employment, and our economy the foundation it needs for the future.
As in the 1930s we have increased the federal budget 60% since 2005. If we cut everything necessary for there to be a balanced budget now we would experience the same kind of economic recovery that we did in the post war 1940s. And with everyone working again the government coffers would soon be overflowing.
You should mix in a little Robert Higgs and Amity Shlaes with your Krugman and Chomsky. Somehow you've let your ideology skew your interpretation of the facts. I know it might tarnish the Keynesian foil, but you're a decent writer, and I'd like to hear you debate these two wise and valid historians.
Ah, wonderful democratic government in action ! Little men with little minds love Big Gov.
There's nothing to prevent Paul from paying 94% of his income in taxation and you folks up in Washington state can build and pay for your own electricity, ergo for the folks in Tennessee.
Had to post this in three parts due to the word limitations here which I did not know of in advance.
BUNK!
We need to do the same thing again -only it needs to be done here.
In a deflationaÂry financial collapse such as this one, there are two paths to solvency.
You can reduce deficits, slow down economic growth, and balance your budget at a much-reducÂed level of economic output.
Let other countries take our place as an economic leader, then we become a 3rd world country.
Or, you can restore growth by relying on more government spending in the short run, and let improved economic performancÂe and higher tax receipts lead you back to budget balance.
That is the only path to prevent other countries from usurping our leadership role.
Our country was number one before Reagan – now we are number 13.
Government regulation of business was the norm. AND THEN along comes Reagan to drown govt in a bathtub. He succeeded.
What truly made the post war economy great for US mfg was that we were more self sufficient in producing more of what we consumed.
The chief reason we were able to do that was that there were not an industrial base large enough elsewhere to provide for America's demand. The US labor sector existed in a sort of splendid isolation dor decades. That bubble began to burst with Japan's ascedency, and it is today and probably forever more nothing but a memory. The days of great wages for low/no skill labor in the US are gone. We are in uncharted waters, and I think historical analogies are at best useless.
Creating employment's a straightforward craft when the nation's at war, and there's a draft. If every worker was staffed in the army and fleet, we'd have full employment, and nothing to eat.
The great depression did not really end until after WWII when government cut spending dramatically and reduced government worker significantly. Then the Kaynsians declaired there would be a huge depression. Instead the economy boomed after a very short adjustment.
Claiming the unemploynment goes down by drafting people is just as reduculous as claiming that taxing and spending grows GDP. Both are true based on how we measure them. Neither help the economy or create wealth. (Rationed meat, dairy and other goods, does that seem like growth in GDP?????)
To get out of the trap we are in we need to repeat what we learned after WWII. Drastically cut the Federal Gov and public workforce. Reduce government involvement in planning the economy and let the people of America prosper.
The government did shrink after the war because the war was over. Government planners knew that historically nations suffer a economic down turns at the end of wars, the economy has to shift from war to consumer mode. So they devised ways to put people to work building infrastructure, which paid economic dividends for decades.
The Bankers got taxpayer cash at rock bottom loan rates, below $0.01%, taxpayers are paying up to 30% for credit card debt, why not drop the rate on all consumer loans to $0.01, that would free up cash for the economy, instead of bank's coffers.
All I want for American is the deal the bankers got.
Secondly, the economy boomed in the 50's due to consumer confidence and euphoria after nearly twenty dismal years. This had nothing to do with government payroll reductions or any other such nonsense, This was a direct result of a 'consumer driven' economy taking over for a 'government driven' economy due to an increase in confidence.
Personally, I don't believe WWII truly created American prosperity. It was certainly good for business in the military-industrial complex, but many goods were subject to rationing. I believe that prosperity is tied to abundance, not scarcity of goods.
When the war ended, how did the economy not sink back into a depression? The Keynesian model would have predicted devastating effects due to the drop in "aggregate demand." Instead, America experienced the post-WWII economic boom.
If a war time economy produced to prosperity one would think that we should be booming now, Since Iraq and Afghanistan have now surpassed the civil war, WWII and Vietnam in length
War is a drain on resources
The USA industrialized long before Pearl Harbor and became the "Arsenal of Democracy" to sell Great Britian and France weapons of war made in the USA in exchange for the foreign gold owned by Great Britian and France starting in 1938 & 1939.
This need for Great Britian and France to import military weapons and products caused England and France (before France surrendered to and joined NAZI Germany) to export their Gold (and other financial instruments) to the USA in return for Military Weapons and other supplies.
Many of our US located and privately owned Airplane, Tank, artillery, and Army Ammunition Manufacturing Plants were operating and producing large quantities of military goods for export to England in exchange for gold from England to pay the workers salaries in the privately owned US located plants by the time that the Japanese Attacked Pearl Harbor that started WWII with the USA.
Until the USA can re-industrialize and correct our foreign trade deficit, and eliminate our federal government borrowing to pay for government expenses, maybe we cannot afford to have free trade because it will continue to totally destroy the remainder of the US economy.
Truman never cared because he was never looking to get something from the business world. They could go hang for all he cared.
And of course, what Truman said about how he needs help was accurate so the person needs to be demanding congressional members who are also unafraid.
We also know that stimulus provided by World War II was plenty.
What we don't know (I don't think) is how much stimulus is really necessary for a given size economy (our has certainly grown a lot bigger than it was in 1940). I suspect that it would take a lot less than World War II-level stimulus to get the economy going. On the other hand, it might take enough to get unemployment back down to the 4-5% range, usually considered 'full employment'.
It should be standard procedure for the government to execute projects during downturns to maintain employment (those projects, for the most part, should already be planned and waiting to be executed).
Let us beat our swords into fuel cells and our spears into windmills.
The total for defense spending is between $859 billion and $1160 billion in 2009.
Replace the Military-IÂndustrial Complex with a Green Energy complex with just a portion of this and it will cost us nothing.
The cause of our wars is oil.
No need for oil means there is no need for most wars.
No wars, more money.
I would suspect and hope that all of this new technology would spur innovations that we couldn't even dream of now.
Look at all the new weapons that were invented by the MIC. lol
Great comeback.
War didn't end the depression. War spending did. What could be better a better economic stimulus than war spending without the war? If Republicans want war, call it a "War on the terror of unemployment."
Why then do we so resolutely retrace the same disastrous path? The answer is for the same reasons. The plutocracy, who have no interest in "promoting the general welfare," are pulling the strings They are out for number one. Period. They have mastered the art of manipulating the government with legalized bribery and manipulating the credulous public with brilliant propaganda. Their only goal is to line their own pockets. They hate social welfare programs. They hate taxes.
They are the top of the top 0.5 percent, whose trickle-down has created the economic collapse of the "bottom 99 percent." Many consider themselves libertarians, but actually they are sociopathic anarchists who would do away with government and live in a Randian Valhallah of virile tycoons with private security forces behind their gated communities. They love the idea that greed is a virtue and generosity is weakness. At present they own the Republican party outright and are renting the Democrats. Sauve qui peut.
In the '30s we had a) govt and deficit spending, and the economy grew, unemployment fell, and the GDP came back to pre-Depression levels; and then b) balanced budgets and spending cuts, after which the economy contracted; and then c) modest spending growth and some recovery until the "big bang" of WWII spending kicked in, and the economy took off. So, in scientific terms, there was a policy with one set of effects, it was withdrawn and the opposite effects occurred, and then reinstituted with effects in the same direction as originally.