UptonStellington Posted January 16, 2009 Report Share Posted January 16, 2009 I'm looking to see what people's thoughts are on whether WWII brought us out of the Great Depression, and IF it did, WHY? The argument has become a dangerous one lately, as people are saying things like: Massive government spending for WWII brought us out of the Great Depression. And that was on a war. Imagine if we spent the same amount on something productive instead, like green technology or healthcare? One problem I have with the standard argument that WWII brought us right out of the Depression are that, as far as I know, it's not as if WWII started and things were going great all of a sudden. The bear market that characterized the Great Depression didn't even end until 1948 or so. But the bigger problem I have with this line of argument is that even IF WWII brought us out of the Depression, the United States then and the United States now are two different animals. As far as I know, before WWII, we were running a current account surplus, and though there may have been large deficits run during WWII, we had a manufacturing base and exportable goods and services to back that deficit up. In other words, we were running deficits with the aim of improving industrial capacity in order to be more productive. Today, we are already faced with massive deficits that have gone to finance not production, but consumption. And we'd be borrowing even more money to invest in things that would be only questionably productive. Quote Link to comment Share on other sites More sharing options...
aequalsa Posted January 16, 2009 Report Share Posted January 16, 2009 I'm looking to see what people's thoughts are on whether WWII brought us out of the Great Depression, and IF it did, WHY? Something that is always left out of the purely Keynesian explanation is that in addition to the Lend lease program which left most of Europe in debt to us, most of the industrialized worlds economies and infrastructure were in shambles, leaving one place from which to buy. I would suggest that the fact that we were the only store left in town had a bigger amount to do with our financial success than did the creation of more paper to represent the same amount of wealth. Quote Link to comment Share on other sites More sharing options...
SD26 Posted January 16, 2009 Report Share Posted January 16, 2009 (edited) One problem I have with the standard argument that WWII brought us right out of the Depression are that, as far as I know, it's not as if WWII started and things were going great all of a sudden. The bear market that characterized the Great Depression didn't even end until 1948 or so. I think that is the important part. After the WWII Victory, people returned home, and they looked to build lives. Better lives with their families and new dreams. That developed a prosperity that businesses, and people that worked for them, were able to build upon in supplying pieces and parts of those dreams. Houses, electricity (our old family farm didn't get electricity until 1953 or so), cars, motorcycles, the TV, etc. I think WWII mobilized some of the people that weren't working, and there was rationing too of basic staples: gas, sugar, etc. That isn't part of an economic boom. Edited January 16, 2009 by SD26 Quote Link to comment Share on other sites More sharing options...
softwareNerd Posted January 16, 2009 Report Share Posted January 16, 2009 "War prosperity" is one of those strange, but enduring myths. Wars themselves are clearly destructive. The points mentioned above speak to the reality: To the extent that one did see U.S. prosperity, it should be termed the "peace prosperity". In both WW-I and WW-II, the U.S. did not enter the war immediately. Also, we have this advantage of being miles away from (most) bombs. Both these meant we were at relative peace while the world was at war, and -- as aEqualsA pointed out -- that we escaped with far less damage. Neither of these is an argument for government spending. Government spending cannot create wealth, because it is a diversion of private spending. That's the shortest -- though incomplete -- answer. Quote Link to comment Share on other sites More sharing options...
SD26 Posted January 16, 2009 Report Share Posted January 16, 2009 Government spending cannot create wealth, because it is a diversion of private spending. That's the shortest -- though incomplete -- answer.That does rock for a simple answer though. Excellent! Quote Link to comment Share on other sites More sharing options...
Steve D'Ippolito Posted January 16, 2009 Report Share Posted January 16, 2009 Also, in general, be it natural disaster or war, the fact that money must be spent to repair damage does not make the damage an economic stimulus. (This is my reaction to the occasional asshat asserting that a hurricane was good for the economy because it causes a construction boom.) Furthermore, the "productivity" that produced, say, a bomb, is completely wasted from an economic standpoint--the bomb--and the wealth that went into it--is consumed and not in an economically productive way. (Of course one should not argue that we should not have fought the war. That would be taking the economy out of the larger context of the need to defend its very existence.) Quote Link to comment Share on other sites More sharing options...
softwareNerd Posted January 16, 2009 Report Share Posted January 16, 2009 Also, in general, be it natural disaster or war, the fact that money must be spent to repair damage does not make the damage an economic stimulus. (This is my reaction to the occasional asshat asserting that a hurricane was good for the economy because it causes a construction boom.)Yeah, sometimes people get too focused on the rate rather than the absolute. Imagine a farmer whose barn is destroyed in a hurricane. Suddenly he has that much less wealth, and works many hours every day to build a new barn. We see a day when his wealth dropped; then, as a result, we see a few months, when his wealth went up more than usual. Some "war propserity" people look at those months and say "ah! if only we could have another hurricane". Hazlitt's broken-window parable. Quote Link to comment Share on other sites More sharing options...
mrocktor Posted January 18, 2009 Report Share Posted January 18, 2009 Hazlitt's broken-window parable The broken window is an example created by Frederic Bastiat, which Hazlitt credits Quote Link to comment Share on other sites More sharing options...
softwareNerd Posted January 18, 2009 Report Share Posted January 18, 2009 The broken window is an example created by Frederic Bastiat, which Hazlitt credits Thanks. As an aside: There's also another "broken window". I suppose we can call it Giuiliani's broken window, though it was based on the work of some social science researcher who's name I forget. The thesis was: fix the broken windows, take the bums off the street, and more serious crime will also fall. Quote Link to comment Share on other sites More sharing options...
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