Saturday, February 8, 2014

Research on WWII. Did it end the Great Depression?

-Here is a 7 minute by Dr. Thomas E. Woods summarizing the following arguments:
-Robert Higgs lectures about WWII folly (45 minutes):   

-Historian Robert Higgs writes about how producing mass weaponry does not lead to economic prosperity:
Yes, national output as conventionally measured did grow hugely during the war... [G]ross domestic product (in constant 1987 prices) increased by 84 percent between 1940 and 1944. What the orthodox account neglects, however, is that this "miracle of production" consisted entirely (and then some) of increased government spending, nearly all of it for war materials and equipment and military personnel. The private component of GDP (consumption plus investment) actually fell after 1941, and while the war lasted, private output never recovered to its pre-Pearl Harbor level. In 1943, real private GDP was 14 percent lower than it had been in 1941. If a nation produces an abundance of guns and ammunition, it does not thereby achieve genuine prosperity .Those who lived through the war ... forget the scarcity of decent housing, the hassles in commuting to work, and the severe rationing or complete absence of basic consumer goods...Because of the many other ways that the well-being of consumers deteriorated during the war, which the official data fail to capture, actual wartime conditions were even worse than [the] figures suggest.

-Economist Steven Horowitz published an article in the National Review which concluded WWII did not raise living standards, but rather degraded them:

"Whatever the war's effects on seemingly booming conventional macroeconomic   aggregates, it entailed a retrogression in the average American's living standards, and that    disconnect should alert us to those aggregates' limitations……”

“In response to contemporary arguments that the expenditures associated with World War II were a major factor in ending the Great Depression and should therefore be imitated today, we offer historical evidence to suggest that the wartime economy was hardly a model of success in the eyes of most Americans. Expanding on Robert Higgs’ criticisms of the ability of conventional macroeconomic data to tell the real story, we      examine newspapers, diaries, and other primary source material to  reveal the retrogression in living standards in the US during the war. Our investigation suggests  that wartime prosperity is largely a myth and hardly a model for recovery from the Great Depression.”

-Economist Art Carden explains that the WWII GDP figures are misleading:

 “ Gross Domestic Product, one measure of a country's output, is defined as the sum of consumption    expenditure, investment expenditure, government expenditure, and net exports. A serious problem arises with government spending: How do we assess something not traded in markets?......”

 “….This problem was compounded by price controls during World War II — official prices     simply did not reflect the true cost of the war. If we are going to have meaningful economic calculation, we need real market prices. Price controls and similar interventions  introduce arbitrariness and uncertainty. Procurement at below-market prices is a way to mask the cost of any endeavor. Consider the draft, which forces people into military service at wages below what they would earn on the unhampered market. The amount  spent on wages and board for conscripts is an underestimate of the real cost of maintaining the force.”

-An Analysis by economist Richard E. Vedder states:

“Between 1943 and 1945 government deficits ranged between 21 and 27 percent of GDP — in comparison to the size of today’s economy this would be the equivalent of annual deficits of  around $3 trillion to $4 trillion. During these three years, the national debt rose from 50 percent of GDP to over 120 percent. Furthermore, the United States Bureau of the Budget estimated   that at the wartime peak 45 percent of the nation’s civilian labor supply was supported by government spending on the war effort while another 12 million citizens (18 percent of the total  labor force) were employed directly by the military…..”

“…..But the real economic lesson to come out of the World War II era was not that the conscription of nearly a fifth of the labor force into grueling and dangerous working conditions  abroad and the imposition of a command economy at home — complete with rationing, price controls, and government allocation of many aspects of life — could bring unemployment down. Soviet-style command economies had many problems, but unemployment was not typically one   of them.
 Instead, the true lesson from the period can be ascertained from the events of 1945-1947 when   the largest economic “stimulus” in American history was dramatically and quickly unwound, months before most people anticipated it (because the atomic bomb brought a sudden  unexpected end to the war). No other episode more clearly supports the notion that the best economic stimulus is for the government to get out of the way.”

-The Depression of 1946 (related to WWII)
  -An analysis by Jason E. Taylor of the Cato Institute states:

 Historically minded readers may be saying, “There was a Depression in 1946? I never heard about that.”You never heard of it because it never happened. However, the “Depression of 1946” may be one of the most widely predicted events that never happened in American history. As the war was winding down, leading Keynesian economists of the day argued, as Alvin Hansen did, that “the government cannot just  disband the Army, close down munitions factories, stop building ships, and remove all economic    controls.” After all, the belief was that the only thing that finally ended the Great Depression of the 1930s   was the dramatic increase in government involvement in the economy. In fact, Hansen’s advice went  unheeded. Government canceled war contracts, and its spending fell from $84 billion in 1945 to under   $30 billion in 1946. By 1947, the government was paying back its massive wartime debts by running a       budget surplus of close to 6 percent of GDP. The military released around 10 million Americans back into  civilian life. Most economic controls were lifted, and all were gone less than a year after V-J Day. In short,    the economy underwent what the historian Jack Stokes Ballard refers to as the “shock of peace.” From   the economy’s perspective, it was the “shock of de-stimulus.
 - Economists Richard Vedder and Lowell Gallaway studied the “depression of  1946” and concluded:

 “Modern standard statistical sources suggest there was a very severe economic downturn in 1946. The evidence does not support that conclusion, and it is clear  that statistical revisions have served to distort the historical experience.   Keynesian economists ex ante predicted a major downturn after the war, but  when it did not come they ex post abruptly changed their tune…”


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