WWII Did Not Bring the U.S. Out of the Depression

Anytime war looms, which is almost every year for the United States, always undeclared, of course, but justified somehow through convoluted rationale of a threat to national security, people, in their last refuge of defending the bombing of innocent people love to reference WWII and how that war brought us out of the Great Depression.  “See!  War returned us to great prosperity!”

Here Tom Woods explains the economic basics of that ludicrous position that says let’s bomb other people to have prosperity at home.

Woods cites Robert Higgs’s presentation on this topic.  Check it out.

Check out the rest of the resources that Woods presents.  In his usual, elegant style, Dr. Woods goes meticulously through the reasons why this preposterous claim is wrong.  Worth a listen and a read.  People actually think there was prosperity during the war.  Incredulous.  The evidence in economic circles that is presented to defend that claim is never consistent.

The reasons why this preposterous claim is wrong:

  1. If you draft 10 million people into the armed forces, well, you draft 10 million people and, what do you know, unemployment goes down.  To a large degree that’s the explanation.  Now obviously that’s not the way a healthy economy deals with unemployment.  I mean at any time I supposed you could, if you were perverse and insane line up the unemployed, execute them all, and say, hey, [the economy is doing] great.
  2. Second, if we’re going to believe these crazy GDP numbers from the early 1940’s, that tell us oh, wow, what a great bout of prosperity we had, we also have to believe these same figures when they also tell us that 1946 was a terrible depression year.  Yet we know that 1946 was the probably most prosperous year in all of American history from the point of view of production.  Private production increased by 35% in one year.  We’ve never seen anything before or since that would even touch that.  But according to these same figures, this was a time of depression.
  3. During the war the most skilled sector of the labor force was sent off to Europe or to the Pacific to fight. What did that mean on the home front? That meant that the labor force was increasing composed of people with much less work experience.  Much younger people, or women, many of whom had no prior experience in the labor force or elderly men, and yet during those years when we have this unbelievable and very abrupt resource constraint where the best, most-skilled, experienced workers are gone fighting, and yet we get growth rates of 13% per year which had never been seen since and smashed all previous records.  Is the path to prosperity constraining resources?
  4. During the war, a huge portions of the economy were controlled.  And consisted of government purchases of military equipment.  That’s not a free market.  That’s the government and some firm reaching an agreement and has no basis on consumer choice.  GDP figures for this period are a whole bunch of non-sense numbers added up to give you a giant non-sense number.  Finally economists are looking at it closer and saying the claim is absurd.
  5. 2 our of 5 people in the work force were not producing consumer goods.  Now you may say, “But we needed them to fight the war.”  That’s a separate issue.  Those people are not producing consumer goods.  No consumer buys a tank.  2/5 of the labor force is producing stuff that from the point of view of the consumers might as well never have been produced. All the inputs going into the economy, from the consumer’s point of view, are a waste. Meanwhile, the other 60% are now being taxed to pay for those 40% not to produce any consumer goods.  That means we have less production Less production going on and less monetary wherewithal with which the remainder of the people can buy those goods.  How can that possibly be prosperity?  Not to mention the price controls, not to mention the product quality deterioration which is how private firms have to deal with price controls.  How do you deal with the fact that entire classes of consumer goods could not be acquired during the war?  You put all this together and the result is this was not a time of great prosperity.  It was a time of great deprivation. from the point of view of the private economy.  That’s what matters.  You have to disaggregate from these figures–what were people actually able to buy?  What were the goods that people could buy to improve their standard of living?  Not how many tanks were produced, because nobody could actually, it turns out, eat a tank.
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