News Do wars create wealth? aka, How did WWII help to end the Depression?

[Proton Soup]

who are you trying to win an argument with, Ivan?

 

[mheslep]

So then you agree that if indeed WWII is what cured the depression, any spending must be good because we get no net benefit from building bombs and weapons.

Well I don't know that WWII did fix the depression.

And you would also agree that anyone claiming that the depression was cured by WWII, but who opposes a large spending package, esp one aimed at growth, is inconsistent in their logic.

No, that would require the WWII fix proponent to go further and say the WWII fix was due only to generic government spending. As I said above, a) economically WWII was a lot more than just government spending, b)there are different types of spending, some more effective than others, and c) the economic conditions at the time matter.

 

[Supercritical]

I would wager that there's a law of "conservation of money," i.e. government spending in either infrastructure or defense puts money in the pockets of workers and corporations which, in turn, provides a local tax base for schools, roads, etc.

In any spending, the government is shoring up the finances of a segment of the population. The difference is whether the money spent produces durable goods/services.

I think this is where Ivan asserts that the money might as well go toward something that lasts, and will keep "giving back" well into the future, as opposed to consumables like bombs and bullets.

But the end-use is only part of the equation. At a certain level, the government is saying what kind of workers the US needs. Is the US a country of construction workers, automakers and financiers? The stimulus/bailouts are decisive votes in that decision.

It's really not a money issue. It's an issue of whether the government determines that labor specialties are useful and deserving of continuation when market forces threaten them.

So, to answer the question: yes, wartime spending can end a "depression." But should the government decide which workers get bailed out, and which don't? Or should we have faith that the market is correctly nudging the economy to realign in different specialties?

 

[mheslep]

I think this is where Ivan asserts that the money might as well go toward something that lasts, and will keep "giving back" well into the future, ...

Appropriations to support projects designed to last well into the future take time and care. That is not what happened here with this 1054 page rush job bill which nobody read, because we'd have a 'catastrophe' if we don't 'act now'.
"The time for talk is over, the time for action is now." - Feb 5th Presidential speech
BTW, with all of this pending 'catastrophe' Obama has still has not found time to sign the bill which passed Friday.

 

[Skyhunter]

Unemployment declined steadily until Roosevelt, responding to pressure from the right began scaling back the New Deal. He reversed this policy in 1938 because unemployment began to rise again.

Converting from a peacetime economy to a wartime economy is not fixing but instead radically modifying the economy.

 

[Skyhunter]

Appropriations to support projects designed to last well into the future take time and care. That is not what happened here with this 1054 page rush job bill which nobody read, because we'd have a 'catastrophe' if we don't 'act now'.
"The time for talk is over, the time for action is now." - Feb 5th Presidential speech
BTW, with all of this pending 'catastrophe' Obama has still has not found time to sign the bill which passed Friday.

He is still preparing his signing statements.

 

[mheslep]

He is still preparing his signing statements.

 

[mheslep]

Krugman in today's column says WW II ended the Great Depression.
http://www.nytimes.com/2009/02/16/opinion/16krugman.html?_r=1&partner=rssnyt&emc=rss

If you want to see what it really takes to boot the economy out of a debt trap, look at the large public works program, otherwise known as World War II, that ended the Great Depression. The war didn’t just lead to full employment. It also led to rapidly rising incomes and substantial inflation, all with virtually no borrowing by the private sector. By 1945 the government’s debt had soared, but the ratio of private-sector debt to G.D.P. was only half what it had been in 1940. And this low level of private debt helped set the stage for the great postwar boom.

That last reflects the huge pent up demand set free at the end of the war w/ all the rationing and disposable income that went to buying war bonds instead of disposables, not to mention the mind set of 12m returning GIs determined to do some real living after managing to survive. Not sure how one goes about creating similar circumstances absent a world war.

IIRC, I've also seen Krugman say recently that economists don't really know why the depression did not come back after the war.

 

[mheslep]

Unemployment declined steadily until Roosevelt, responding to pressure from the right began scaling back the New Deal. He reversed this policy in 1938 because unemployment began to rise again.

You are suggesting causality between the New Deal and unemployment declines without evidence. Prove it. And Roosevelt decided to balance the '37 budget in part because some of his own people advised it, not 'the right'.

 

[Skyhunter]

You are suggesting causality between the New Deal and unemployment declines without evidence. Prove it. And Roosevelt decided to balance the '37 budget in part because some of his own people advised it, not 'the right'.

The pressure originated with his opposition, the right, not his own advisers. And he reversed the policy when it became clear that they were leading to higher unemployment. I don't know of a better example of correlation.

 

[Skyhunter]

You are suggesting causality between the New Deal and unemployment declines without evidence. Prove it

Not without evidence. There is direct evidence since the New Deal policies actually employed people. And second order evidence that those working people spent money for goods and services provided by others, thereby creating more opportunity for employment.

Is this proof?

No. But then proof here is subjective.

There is ongoing debate among economic historians on how to interpret the depression statistics. And there probably always will be.

 

[mheslep]

Not without evidence. There is direct evidence since the New Deal policies actually employed people. And second order evidence that those working people spent money for goods and services provided by others, thereby creating more opportunity for employment.

Yes, no doubt. The question is how many other jobs did the New Deal stifle or kill off.

 

[Skyhunter]

Yes, no doubt. The question is how many other jobs did the New Deal stifle or kill off.

I give up. How many?

 

[WhoWee]

That all sounds to me more like a transfer of wealth; not a creation of wealth.

While your point is well taken, I am most interested in the notion that wars fought by the US boost the US economy.

I don't have my numbers to back this up Ivan, so I'll ask a question. Didn't Reagan's defense build-up help pull us out of Carter's recession?

 

[WhoWee]

No. But involvement in terms of war spending did not see any significant increase (long) before Pearl Harbor. And during that time, it is not true that high levels of unemployment were persisting. Furthermore, unemployment is a lagging indicator of the economy.

http://www.usgovernmentspending.com...&stack=1&size=m&title=Total Spending&state=US

You can assume anything you wish. I did not say anything of that kind.

Didn't we benefit from providing supplies to OTHER countries BEFORE Pearl Harbor.

 

[mheslep]

I give up. How many?

I meant that rhetorically, in that its a question that's difficult to answer, but not to be overlooked when considering government deficit spending to create jobs.

 

[WhoWee]

Right now [Feb 2009] our debt as a percentage of GDP is about 71%.
http://upload.wikimedia.org/wikipedia/en/3/3b/USDebt.png
http://en.wikipedia.org/wiki/United_States_public_debt

After WWII we hit a peak of about 122%. To be on par with this level of spending we could add another ~ 7 trillion to our debt.

Obviously nobody would loan us $7 trillion...I wonder how long it would take to print $7trillion worth of $20 bills?

 

[WhoWee]

I was just watching the McGlaughlin group, which tends to provide a moderately conservative representation of current events [Pat Buchanan is one lifetime member of the panel]. The biggest complaint about the stimulus package was that it isn't nearly large enough. They even represented this as a primary reason for the negative reaction from Wall Street.

I did have to laugh at Monica Crowley, once again. In regards to Obama's vetting process and his failed nominations, Crowley asked, "What have they been doing for the last three weeks??"

Let's see, I think they just passed the largest spending program in history, in less than thirty days.

Didn't (President hopeful) Pelosi say she'd been working on the package for a long time?

 

[WhoWee]

I hear debate about the cause of the recovery in regards to events, but the point is that even those who claim the New Deal was not successful simply point to an even larger spending program - WWII. So how then can they oppose the recovery package as wasteful spending? There is nothing more wasteful than buidling bombs.

Oh I don't know...BLOWING THEM UP seems more wasteful to me (in many ways).

 

[WhoWee]

Let's also not forget 1 major difference for us...instead of re-building bombed out cities and searching for food/shelter/medical supplies, our GI's came home and participated in our post war housing boom.

An argument can be made that they MOMENTUM of winning the war took us completely out of the depression.

BTW, did they count the job losses of women who gave up factory jobs after WWII in the unemployment stats?

 

[mheslep]

Obviously nobody would loan us $7 trillion...I wonder how long it would take to print $7trillion worth of $20 bills?

42.618 years non stop, if BEP only printed $20s

 

[WhoWee]

42.618 years non stop, if BEP only printed $20s

Did you do that in your head?

I think we can spend it faster than that...we better either print $100's or write checks.

 

[mheslep]

Did you do that in your head?

Nah, fingers and toes.

 

[Gokul43201]

Didn't we benefit from providing supplies to OTHER countries BEFORE Pearl Harbor.

There may have been some small benefit from that but overall very little money (as a fraction of GDP) went into supplying anyone before PH, and (don't forget that the Export Control Act shut off most trade with Japan). Export receipts increased from about 5% to about 6% in the late '30s and stayed there till '41, when it shot up above 10%.

http://www.freetrade.org/files/images/Exports%20and%20Imports%20as%20a%20share%20of%20GDP,%201900-2006.bmp

http://www.freetrade.org/node/679

 

[Skyhunter]

I meant that rhetorically, in that its a question that's difficult to answer, but not to be overlooked when considering government deficit spending to create jobs.

I understand. I was just being cheeky

 

[chemisttree]

In attachment (when it becomes visible), the first vertical line indicates the approximate timing of the New Deal, and the second roughly marks Pearl Harbor. Unemployment rates were down below 10% - from a high of 25% - before the US declared war on Japan.

The war started in 1939. The decline in the unemployment reflects that almost exactly.
Remember, the US was the "Arsenal of Democracy" before we entered the war.

 

[Skyhunter]

The war started in 1939. The decline in the unemployment reflects that almost exactly.

No it does not.

Unemployment declined until 1937. It climbed in 38 and 39, then began declining again in 1940.

http://fraser.stlouisfed.org/docs/MeltzerPDFs/maremp93.pdf

 

[tormund]

During WWII, most of the men went to war. this opened up many new opportunities for women to get jobs. After the war, when the men returned home, a lot of the women were still able to keep their jobs. This meant more income tax for the government(big surprise there) and thus ended the depression.

 

[Gokul43201]

The war started in 1939. The decline in the unemployment reflects that almost exactly.

Actually, unemployment started declining from '34.

Remember, the US was the "Arsenal of Democracy" before we entered the war.

The weapons embargoes were lifted only in Nov 1939, after which Detroit (and others) got into it big time. But, barring 1938, unemployment rates had fallen every year from 1934. The war effort likely sped up the falling unemployment numbers, but even that really took off only after cash and carry was replaced by the lend lease (approximate names) Act.

http://www.census.gov/statab/hist/HS-29.pdf