Since 2009, the example of the economic boom following World War II has been used by Keynesians to justify their record “peacetime” levels of borrowing intended to lift the U.S. out of the doldrums. Indeed, the more the contemporary borrowing fails, the more the vast indebtedness of the war years is invoked to reassure us. On occasion a wry lament follows that if only a spaceship full of dangerous aliens were to appear, we might have the requisite excuse to follow our grandfathers into a new collective frenzy of economic stimulus and public debt.
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Citing the benefits that accrued from World War II, of course, is ironic for lots of reasons — aside from the horror of 50 million dead. Modern liberalism has argued that defense spending, in all its manifestations, is ipso facto an uneconomical use of national resources. Money spent building an artillery gun and training a youth to fire it supposedly could be better spent subsidizing higher education or producing a hybrid car — as if the modern college turns out better disciplined, more motivated, and better educated young people than does the Marine Corps or Air Force; as if deterring aggression is more costly than meeting it on the battlefield at a disadvantage; as if the habitual exactness and lasting skills acquired in building a huge fleet carrier are comparable to those required for building a Chevy Volt.
For decades the liberal argument was that the New Deal cured the Depression. But in a new twist, the war has suddenly been reinvented to support the current arguments of the new Keynesians — despite the irony in the embrace of the old right-wing argument that it was the World War II defense spending, not FDR’s New Deal, that finally got America out of a near-decade-long depression.
In ingenious fashion, the new argument insists that the second downward spiral of 1937–38 — formerly ostensible proof that five years of the New Deal and of anti-business rhetoric had not worked — should be attributed only to FDR’s lacking the will or political muscle to stay the course and accelerate deficit spending, redistribute more income, and grow far bigger government. Then luckily the war came along. That crisis provided the necessary political landscape, which had been lacking during the supposed Keynesian backsliding of Roosevelt’s second term, to force through the long-awaited New New Deal. At last, the really big scare allowed the really big borrowing, and the result was the really big prosperity for the next half-century.
But as many have pointed out, there are all sorts of problems with this account. During World War II, the American public scrimped and saved. If household income increased, so did household savings — not surprisingly, given the rationing of many consumer goods and total unavailability of others. Washers, dryers, hot-water heaters, vacuum cleaners — all those and more were bought for the first time after the war, and often without borrowing.
In other words, there was plenty of private postwar investment capital and household money waiting to be tapped when the shooting stopped and millions came home — especially for basics such as new cars, trucks, tractors, and appliances.
But now? Household credit-card and mortgage debt, for all the new frugality, remain high. Consumers are strapped, even those who have jobs and have not lost thousands in collapsed home equity and depleted 401(k) retirement plans, or made nothing in years from near-zero-interest savings accounts. In other words, we do not have a long-deprived public, flush with years of hoarded cash, just waiting with pent-up demand to buy brand new labor-saving devices and shiny new vehicles produced in converted tank and bomber factories. There is no need to add that in a pre–Great Society America, without food stamps, two to three years of unemployment insurance, and housing subsidies, there might have been more incentive to hustle for jobs.
"For decades the liberal argument was that the New Deal cured the Depression."
Nope. I took the New Deal course from one of those typical liberal professors known as a guy who "wrote the book." We learned that the New Deal didn't work, but that WWII did.
Hanson doesn't have to rewrite history to make his point (with which I basically of agree). But he does anyway.
MikeB You can not tell me that you have not heard liberal politicians for decades glorify the New Deal and the liberal policies that went with it, can you? It is true that many people long knew that WWII ended the great depression, in a large part because it destroyed all of our competitors, but Liberal politicians and pundits did not promote that point of view. They proclaimed it was FDR's domestic policies.
Hanson was right to call'em on it. I think Hanson's more telling point point though is that America was an oil producing nation of savers. That I think makes the big difference between then and now.
1. We had different professors
2. I've have heard plenty of liberals talk about how FDR and the New Deal got us out of the Depression.
3. I've even heard Hoover apologists explain how all FDR did to get us out of the Depression was expand and continue Hoover's relief programs.
World War II didn't lead to prosperity. It killed the global economy. The Second World War hired alot of women on the home front. The men were overseas getting shot at or supporting those who were. When they came home the flood gates were opened. Wartime restrictions were eased.
That is called de-regulation. The wartime taxes were reduced. That is called tax breaks. In Great Britian rationing continued well into the 1950s. The war "liberated" women for a period. Then in the 1950s they went back to the kitchens to the more traditional roles. I remember the 1950's when my folks bought ther first urban housing development tract home. Remember seeing the foundation being poured. There was a sea of new home construction. That was in 1955. That year the foundations of new shopping center two blocks away was being cleared. The immediate post war impact was the large scale shift of the middle class from town centers to the suburbs. There's where the prosperity began. Ike build the superhighways as a military measure and it fueled urbanization also. There was a slight recession later in the decade but life was a pretty optimistic affair.
The real reason WWII ended the Great Depression was because it ended FDR's fixation with grand experimentation to solve America's problems. When he died so did his foolish New Deal ideas. Truman tried to revive the New Deal, but was blunted by a Republican Congress. Hmm, it seems that when politicians want to spend gobs of money by borrowing it, Americans suddenly realize basic economics and reign those politicians in.
Truman inherited much of FDRs Brain Trust. Right before he died, FDR made an important speech (I think it was Jan 1945). In this speech, he outlined a new Bill of Rights with new federal guarentees:
Employment, with a living wage,
Freedom from unfair competition,and monopolies
Housing,
Medical care,
Education, and,
Social security
Truman would have none of that. The New Dealers despised Truman for not being progressive enough. The seeds fo the New Progressivism came out of FDR's Second Bill of Rights. The split between Truman and FDR's intellectuals continues today.
JPK, the problem with your analysis is that many of the things you've cited were implemented before Truman became President. Truman supported all of those things, including calling for national healthcare; let's not also forget that he tried to nationalize various industries, most notably the steel industry for the war effort in Korea.
You also conflate the split of Truman-style Democrats and raving Leftists. Truman-style Democrats definitely believe in using the military prowess of the US abroad, different from the McGovern type Democrat who wants none of that.
The sophistry and disingenuous of these post hoc ergo propter hoc arguments are getting tiresome. The historical context is not analogous. Those who think that a another world war or an alien invasion will right the global i.e. US economy deserve a serious smack down. Enough of this nonsense.
Most modern people can't comprehend WWII any more than they can comprehend what old Sparta was like.
Lets get this point ot America: you did with out. Period. Times didn't start getting good for the USA until the G.I.s started coming home. One G.I. told the tale of he knew good times had come because a meal was served with too much to eat. He had never see that before in his life.
America is slow, lazy, and over regulated. Mark Steyn correctly observed that in less than 4 year after Pearl Harbor the war was won and the wrecks at Pear Harbor were long since salvaged or rebuilt (even Arizona had been stripped). Now look at "ground zero". It is pathetic. The lawyers are still sueing over wrongful deaths, as if the Terrorists care and any business could have forseen the day. The construction companies diddle with earth moving equipment and some cement has been poured. However, the Muslims managed to put up a Mosque in record time after getting permits.
America of 2011 has nothing in common with America of 1945. And G-d rot us all for allowing it to become like this.
Could someone cite the most compelling scholarly arguments on the four sides of this issue: 1) the New Deal ended the Great Depression; 2) the New Deal did not end the Great Depression; 3) WWII deficit spending ended the Great Depression; 4) WWII deficit spending did not end the Great Depression.
John Maynard Keynes failed ideologically based economic theories remain the darling of the liberal set because they presume govt command of the economy, justifying huge govt intervention in our every day lives. The fact they have failed miserably isn't even an inconvenience to his acolytes. It's pathetic that they have to resort to space aliens and animal spirits to attempt to explain why their theories fail.
The fact is Keynesian economic theories fail because they have to fail. The emperor has no clothes.
Only the ideological investment of liberal politicians and the MSM keep this failed economic theory from the trash heap of history.
All one needs to do is contrast the Great Depression of 1920 to the Great Depression of 1929 to see the failure inherent to Keynes.
And no, it wasn't the war that 'got us out of' the Great Depression of 1929...it was the peace.
For what it is worth, I believe that the Left has embraced the WWII ended the Depression trope because the war footing economic model implicitly embraces collectivism and demonstrates that a collectivist economic model can be successful. During the war, U.S. workers and consumer accepted low wages and constrained consumption that permitted a "forced accumulation of capital" by state controlled industry in a way that could not be accomplished during peacetime. While Stalin used the oppressive power of the state to extract "surplus value" from the peasants, the war effort encouraged the civilian labor force to voluntarily recycle surplus value to the state in the form of bonds and other savings. Real wages were forced down to provide for the capital investment necessary to achieve high employment in a way that could not be accomplished during the New Deal.
Contemporary liberals view this sort of collective sacrifice as the straightest path to economic recovery. But for collectivism on this scale to succeed, an existential threat must be present to convince the public to accept privations in order to further the cause of the state's spending priorities (perhaps this explains Paul Krugman's musings about an extraterrestrial invation?). But this is neither a desirable state of affairs, nor can it be sustained indefinitely. The U.S. was fortunate that the war ended as quickly as it did and the country found itself in the post-war period as a Colossus standing above a broken world. None of these conditions apply to the current economic circumstances, as Hansen ably points out. While a capitalist collectivism may have helped the U.S. out of the Depression of the 1930's, the conditions required to repeat that experience don't exist today. We need a lot more Hayek and a lot less Keynes and Marx under the current circumstances.
Rather than foreced extraction of wealth from future generations we need to unleash the power of private initiative to address our economic problems by reducing uncertainty and limitations on the exploitation of our resources. Kudos to Hansen for repeatedly pointing out this obvious but rarely stated truth. Encourage a free market in labor to allow wages to gravitate toward a market-determined level (i.e. marginal wages = marginal output) and get out of the way. The U.S. will return to prospecrity in far shorter time than was required to defeat the Axis.
"But for collectivism on this scale to succeed, an existential threat must be present to convince the public to accept privations in order to further the cause of the state's spending priorities (perhaps this explains Paul Krugman's musings about an extraterrestrial invation?)."
My point of analogy thakes your post-war foreign trade factor back in time.
Well before the war, we had a trade war (Smoot-Hawley...)that hurt exports. Even before Pearl Harbor and before our steps to mobilize, we had some relief in that: 1) foreigners who had previously restricted imports of our civilian goods wanted to buy military equipment and supplies from us; and 2) their militarizing of their own industries decreased international competition for our industries.
As an example of the modern analogy, consider that China has long restricted imports from the US and thus contributed to this problem. Over the past 20 years, the money they had been spending on US bonds could have been spent on US cars, planes, etc. and consuming US media (movies, music, etc.). We'd be in a much better place.
If I remember correctly, the federal government kept a tight leash on the economy until 1947-48. Wage and price controls, and other war time regulations coupled with the return of millions of servicemen resulted in a rather sharp post-war recession. It wasn't until after 1948 (when Truman radically cut federal spending, as well as ending war-time command and control of the economy) that our economy really took off.
The UK did much the same thing. It continued to highly regulate both heavy industry and agriculture to such a degree that wartime food shortages continued through 1947. Hunger was such a problem in the UK, that many American church organizations sent millions of pounds of canned food to the UK during the years 1946-1948.
It should also be noted that many of the consumer goods of the 1950s actually were invented during the Great Depression. A lack of capital prevented them from getting to market. The invention of the super-market was the result of 25 years of pent-up invention, capital, and demand.
