12/05/2012 11:12 am ET Updated Feb 04, 2013

We Did It Before

There are many answers to why some have called the generation that came to maturity in the 1930s and '40s the "Greatest Generation."' They certainly faced great challenges -- and in almost every case, working together they overcame them. They relied on their common institutions, especially the government, to organize their efforts.

To win World War II, the U.S. government went on an unprecedented spending and borrowing spree. During the war, the government's debt rose to 112 percent of GDP (compared with 72 percent in today's troubled times). Fears about the consequences of this development proved unfounded when rapid post war economic growth and measures like a 91 percent top tax rate enabled the government to pay down the debt surprising easily -- down to less than 25 percent of GDP in 1974.

The story of the efforts to create the "arsenal of democracy" and manage an unprecedented economic conversion is well known. But there is far too little understanding of the lessons from the re-conversion to a peacetime economy. In addition to debt overhang -- the largest in our history -- there was the potential for a massive sudden spurt in unemployment, as 16 million service men and women were demobilized and dumped on the job market. That's a huge number out of what was then a total population of about 135 million. Businesses also faced the dual problem of the loss of billions in federal contracts and significant costs relating to reconversion to the production of peacetime products.

While there were bumps along the road, the dire predictions of post-war economic chaos never were fulfilled. Why not?

There were many reasons, but far too little attention is given to the extraordinary post war spending on social programs designed to benefit veterans. The "GI Bill" and related legislation were seldom explained as economic conversion mechanisms, but that turned out to be the effect.

In the first place, the legislation was part of the expression of a grateful nation for those who had served. In addition, the powerful advocacy of the American Legion and Veterans of Foreign Wars and tremendous grass roots political pressure to do something for the veterans made the political case for major programs irresistible. And finally, a motivating force was the fellowship engendered by the long struggle enduring the Great Depression and the enormous sacrifice demanded by World War II. These shared experiences fostered a "can do" spirit of the war winning experience and the continuing sense that we were all in this together.

The effects of the GI Bill were dramatic: 8 million veterans upgraded through subsidies for higher education and training, dramatically increasing their life-time earnings potential and changing college from a rarity to a mainstream preparation for a career. Over 8 million received special unemployment support for a year, reinforcing consumer demand for goods and services. Four million veterans received subsidies for home mortgages, as well as business and farm loans. The unprecedented support for the veterans helped increase the public's purchasing power and together with the pent-up demand for consumer goods made the transition for many businesses a manageable experience.

The expansionary post-war government support set the table for the great growth and prosperity of the '50s and '60s -- and the baby boom. As late as five years after the war, 25 percent of the federal budget was still paying for these benefits for veterans.

It may be that there is a lesson in all this for the current -- not-considered-so-great--- generation. Their parents and grandparents may well have been the greatest generation but they also got a little help from their friends... in their government. As the popular WW II song went: "We did it before and we can do it again."