A Stimulus Question

by publius

Help me out here economists.  There's always been an incentive among conservatives and pro-monetary policy advocates to argue that the New Deal (as fiscal stimulus) wasn't very effective.  The modern policy implication, of course, is that we shouldn't be doing fiscal stimulus.

The most common variation of this historical argument is the one George Will raises a lot -- namely, that the New Deal didn't end the Depression . . . the war did.  Personally, I take the Krugman view that the New Deal was doing fine until FDR listened to the David Broders of his era and started focusing on balancing budgets.

But anyway, here's what I don't understand about the WW2 argument, which I'll assume is correct only for the sake of argument.  If the New Deal didn't end the Depression, but WW2 did, doesn't that completely undermine the point conservatives like Will are trying to make? 

If what they say is true, the historical lesson I take away is that only a massive fiscal stimulus was able to finally lift us from Depression.  So if the argument is "WW2 ended the Depression," then the modern policy implication is that we need to err on the side of a really big stimulus.  Right?

Comments

[woody]

Fighting a two-ocean war--finding and training and equipping a couple of million soldiers, supplying them with aircraft, ships, and trucks, hauling them into the fray and back again!
That's a farouking STIMULUS package.

The difference between then and now is that the enemy is, a pogo noted, us...

But that doesn't mean there shouldn't be one whopping big "stimulus" to help "us" win...

[AIMAI]

Correct, that is a "farouking stimulous package" and it was all, by definition, government spending and government controlled (my grandfather was a new dealer and, like many another, in the office of Price Control as well.)

This is a feature of conservative arguments, of course, not a bug--that is, that they point backwards and self refute. The same can be said for their arguments against gay marriage "marriage is so very, very, important that people must be prevented from freely entering into it!" And their arguments against increasing teacher pay and decreasing class size "money has never been shown to affect outcomes in education/teachers should not be influenced by mere filthy lucre" when placed next to their arguments for lowering or abolishing the top tax bracket and the estate tax ("without huge windfall profits no important person would be willing to work at all. We'll go all John Galt on you if you try to tax us at 33 percent.")

and etc...
aimai

[AIMAI]

I beg your pardon, that should be "effect" not "affect."

[Elemenope]

Well, the war might have helped end the Depression, but not in the way that is usually meant.

The War killed *a lot* of people who would otherwise be competing for manufacturing and service jobs. As the supply of something goes down, the price goes up (if demand stays even), and so the price of labor went through the roof in the late 1940's. More money in people's pockets means, roughly, more demand-side stimulus; more consumption.

[Thud]

I think the point here is that military spending -- and law enforcement spending -- are the only legitimate forms of government spending in the Conservative mind. Everything else is monkeying with the market. So when they say the war ended the depression, what they mean was the war provided a justifiable conservative excuse for the Government spending scads of money.

[kth]

I guess what the wingnuts would say is that, for the WW2 stimulus to work, you have to have a total command economy, with ration cards and the like. Plus the small matter of a full-employment economy only achieved by sending millions of young Americans to go blow things/people up in foreign lands. And you had somewhat the opposite problem from the Depression: during WW2, wages were good but you couldn't buy anything with them. So obviously there are a lot of reasons WW2 isn't something we want to replicate just for the purpose of jump-starting the economy, though it's less obvious (to say the least) why a stimulus can only work under circumstances as narrowly drawn as that.

I'll admit to being somewhat the stimulus skeptic though. You don't have to be a Depression revisionist to wonder if insufficient aggregate demand is really our problem now (though it's silly and pointless to argue that it wasn't the problem then).

[KCinDC]

The wingnut answer is obviously that only more wars can save us from depression. On to Iran, Syria, Venezuela, and Canada!

[MR]

Ummm, didn't the war go on for more than two years before USA got in? I'd say to be a neutral party in times of a big war is an immense economical boon, of completely different kind than any 'stimulus'.

[John Thullen]

George Will not only happens to know what happened, but he knows what would have happened if what happened hadn't happened.

What does he think would have happened if what happened hadn't happened? Another sort of happenstance, which is what was happening at the time, except for the happenstance that wasn't happening, because there was too much happening and people were too busy dealing with what was happening to spend their time guessing what would have happened if what happened had only partially happened or not happened at all.

If you ask a guy on the street "What's happening?", most of the time he shrugs his shoulders and says "Not much". Maybe we should ask him "What's not happening?" instead.

We might get an earful, because it only makes sense that when something is happening, there is little room or time left for what is not happening, which is why the latter is not happening, yet what is not happening seems so much more attractive and interesting than what is happening, which seems boring while it's happening.

What is happening is boundaried by the hours in the day and few know what's happening until it's already happened. It's unknowable until it's happened.

What's not happening is by its nature infinite, yet George Will knows what didn't happen.

Here's what would have happened if Andrew Mellon's nostrums (and Will's) for combating the Depression had happened.

Mellon and Will would have been collected off the street by angry, hungry, zombie mobs wielding pots of tar and bags of feathers and hung upside down from poles and made to listen to endless harangues read from Mein Kampf and whatever horseshit Stalin was peddling at the time.

Someone would have shouted out "Hey, let's eat everyone wearing a bow tie, just for starters, and then we'll move on to those with expensive haberdashery for dessert."

Mellon and Will would be thinking to themselves "I can't believe this is happening to us. What should be happening is what is not happening, except we're the only people who know what hasn't happened because everyone else seems preoccupied with what is happening!"

[publius]

MR - that's the best counterargument i suppose. But these arguments -- when they're raised -- aren't really confined to that period are they?

but i'd be interested to hear what others think on MR's point

[Russell A.]

Damn, John T.

>.<

How long did you spend on that?

[Observer]

I think most of these objections are at odds with the factual record.

Elemenope objects that unemployment dropped because all the workers died. In fact, American deaths in the war amounted to 0.32% of the population; given the double-digit unemployment at the onset of the war, the war's casualties had a minimal impact. Moreover, the entry of large numbers of women into the wage labor force during the conflict would have actually had the net effect of vastly increasing the already abundant oversupply of labor after the struggle was over. Higher wages were driven by rapidly rising demand for goods, not by decreasing supply.

kth suggests that "during WW2, wages were good but you couldn't buy anything with them." In fact, the United States was the only country during the war to increase the supply of both military and civilian goods. There were some specific classes of goods that civilians were urged to conserve during the war, but overall, both supply and consumption of civilian goods rose sharply.

MR suggests that the United States prospered as an exporter of goods to war-ravaged countries, even before its entry into the conflict. And that's true. But in 1942, national income stood at $137 billion. By 1944, it was $180 billion. And by 1950, $241 billion. The vast majority of the growth, in other words, came after our entry into the war. And it came not from exports alone, but from revived internal demand. Obviously, our economy cannot function in isolation. But domestic consumer demand is an awesome force.

The truth is that the Second World War undermined Keynesian arguments in some very important ways. Keynes and many of his key promoters in this country assumed that America was reaching economic maturity; that "secular stagnation" had set in; and that a high-level of government subsidy might well be required on an ongoing basis in order to achieve anything approaching full employment. World War II falsified those propositions. It turned out that the American economy was incredibly vibrant, just beneath the surface; and that private enterprise was capable of generating astonishing levels of growth, something that a decade of lavish government spending had failed to do.

So both Conservatives and Liberals have a point. The Conservatives are correct when they argue that the New Deal alone probably was insufficient to dig us out of recession. It was creating an economy in which the public sector was responsible for a large degree of employment, and failed to revive private enterprise as the engine of growth. So if Obama were pushing a scheme in which the government itself was poised to become the employer of last resort, their skepticism would be entirely justified. We don't need another New Deal.

On the other hand, that's not what Obama is advocating. He's drawing more directly on the model of the Second World War - a model which set some key strategic priorities, and then paid massive amounts to the private sector to achieve them. That experience proved that a sufficiently massive short-term stimulus package, targeted to revive the private sector, was capable of doing what the private-sector alone never managed to accomplish.

[John Thullen]

Russell:

I started years ago on that comment, because I knew Publius' post was going to happen before he did.

Incidentally, Observor has a good point about what Obama is trying to do. The difference is that the funeral and embalming and graveyard industries are a little put out that they aren't included in the stimulus package as they were in World War II.

[Elemenope]

Elemenope objects that unemployment dropped because all the workers died. In fact, American deaths in the war amounted to 0.32% of the population; given the double-digit unemployment at the onset of the war, the war's casualties had a minimal impact.

You're missing that the .32% that died were all young and male. In case you've forgotten, the retirement age was fairly low, women did not work in the post-war economy until the 1960s, and children did not work except on farms. The reduction of the effective workforce was probably closer to 4%, which is more than enough to exert serious effects on the economy.

[Nell]

The reduction of the effective workforce was probably closer to 4%

Once they drove those inconvenient women workers out into suburban bungalows...

[The Crafty Trilobite]

elmenope, a multiplier of 12 sounds much too high. Consider that despite the 'low' retirement age, the average lifespan after retirement was much smaller than now (for those who retired, which did not include farmers and most other self-employed, who were still the majority), so workers too old for the draft were a larger portion of the population. Also, you're ignoring the 'Rosie the Riveter' factor during (and to some extent after) the war, that child labor laws were still new and poorly enforced, that farms were still such a big part of the economy that a lot of children were working legitimately, and that even during the worst of the war, health standards for enlistment were high enough too leave many able-bodied workers considered 4F and confined to the civilian workforce.

[Observer]

Elemenope: Yes, the retirement age was low, and most women exited the workforce after the war was over. But there's fairly good evidence to suggest that their exit was a deliberate choice, one caused by high levels of employment, and not the other way 'round. The fact that their husbands again had (or returned to find) steady employment allowed them to return to the home, which is overwhelmingly what they wanted to do.

In the abstract, a four percent reduction in the workforce would have a huge effect on wage levels. In 1939, however, unemployment stood somewhere between 17-20%, depending on the figures you care to use. Even the massive surge of re-armament programs and exports hadn't lowered it below 10% by 1941. By the end of the war, though, it was hovering around 4%. If it was the removal of men from the labor force, and not simply wartime spending, that accounted for rising wage levels, then the end of wartime spending and the return of millions of GIs to the labor force ought to have produced a massive surge of unemployment in 1946-47. Even with a slightly smaller labor force, a reversion to pre-war levels would have placed unemployment at 13-16%. But that's not what happened. It stayed low. And it remained low for decades after the war. That's because wages weren't raised by competition over a smaller labor force, but by rocketing demand.

[El Cid]

You could also ask the Will types two things:

(1) What was it other than federal and federally-organized spending which dragged the American South in the 1930s and 1940s out of its 3rd world colonial primary product export status economy, hookworm-infected, malnutrition-suffering, no infrastructure hellhole status?

'Cause those right wing, segregationist Southern Democrats enabling Roosevelt's New Deal legislation sure did make sure to get themselves a whooooole lot of gubmit money.

(2) If it was "WWII", was it the actual existence of the war which healed the Depression, or the domestic spending engaged to fight it?

If the latter, then they're just complaining about which decade under which the spending happened.

[Elemenope]

...elemenope, a multiplier of 12 sounds much too high....

Perhaps, but there is another factor being left out of Observer's statistics: You don't have to die in a war to be rendered unable to work. Debilitating injuries (which were not nearly as well tracked then as now) and "battle fatigue" (PTSD) would have taken entire swaths out of the workforce, a number unaccounted for by war deaths (and hard to account for as we were not as meticulous, for several reasons, about non-fatal casualties as we were about those that died).

[Barbar]

The War killed *a lot* of people who would otherwise be competing for manufacturing and service jobs. As the supply of something goes down, the price goes up (if demand stays even), and so the price of labor went through the roof in the late 1940's. More money in people's pockets means, roughly, more demand-side stimulus; more consumption.

Why would the demand for labor stay even? Fewer people = fewer consumers. Fewer people also means less demand-side stimulus, less consumption. A somewhat incomplete analysis, don't you think?

[Bernard Yomtov]

If what they say is true, the historical lesson I take away is that only a massive fiscal stimulus was able to finally lift us from Depression. So if the argument is "WW2 ended the Depression," then the modern policy implication is that we need to err on the side of a really big stimulus. Right?

Seems right to me.

Is Will still talking about this? I would have thought he'd have enough sense to shut up by now.

[Michael Cain]

Any analysis of the war's effect in ending the Depression must consider its impact on jobs and employment, not just on spending. Some of the main points for that include

• Military recruitment put an immediate end to the unemployment problem. Labor became a scarce commodity.
  
• At the end of the war, the GI Bill put a lot of returning military people into college. Without that, unemployment might well have returned to pre-war levels.
  
• Much of the rest of the world's productive capacity had been destroyed, so for a considerable period, there was a continuing high demand for labor in the US.
  

Recall that in Keynes' day, increased spending translated fairly directly into an increased number of domestic jobs. Global capital mobility and cheap transportation have broken that linkage to a significant degree, contributing to the so-called "jobless recoveries" following the last two recessions. The government needs to focus less on the amount that it spends, and more on whether that spending creates stable jobs that pay well. If they "solve" the employment problem, the spending problem will take care of itself.

[Scott P.]

Elemenope objects that unemployment dropped because all the workers died. In fact, American deaths in the war amounted to 0.32% of the population; given the double-digit unemployment at the onset of the war, the war's casualties had a minimal impact.

Wounded amount to about 3 times the total of deaths. Some of those casualties were also removed from the work force. (Note that I tend to agree that such effects did not have a major economic impact in the U.S.)

[GoodOleBoy]

I subscribe to the points made in Observer's arguments. Much of what pulled us out of the depression was unrelated to traditional thinking about deliberate economic actions such as stimuli. Our society was in the middle of a great transition from rural/industrial employment to industrial/technological employment and several other factors such as the war contributed to that transition. War fatalities and injuries were not really factors. That seems to be thinking derived from some modern view of war's effects.

[Elemenope]

Why would the demand for labor stay even?

Because as I noted earlier, the proportion of the population removed by war is not equal to the number of consumers removed by the same war. To wit, women and children consumed but did not produce.

[ruidh]

Well, the WWII theory is just complete nonsense.

Look at the Wikipedia page ont he depression. Farm prices bottomed out in '33. Industrial production started growing again in '33 with a substancial growth in that year.GDP bottomed out in '33. The problem was that the hole was so deep, it took the rest of the decade to finish climbing out. But we were improving and growing the entire time.

By '38 we'd finally recovered the economy we had in '29 except that it was now on a firm footing and poised for more growth and not poised for a bubble burst. We were prepared for WWII.

[Bernard Yomtov]

Military recruitment put an immediate end to the unemployment problem. Labor became a scarce commodity.

Michael,

Yes. But military recruitment can be seen as just another way for the government to spend a lot of money hiring people.

You're other points relate to post-war events. I think the argument Publius addresses has more to do with the immediate effects of the war, with 1942, not 1946.

[Hartmut]

I am actually quite impressed how full of real substance this thread is and that it is a real discussion, not a name-calling contest :-)
---
My snark line has (unfortunately?) already been taken: WW2 helped the US then, so let's start WWX! (X depending of your personal ideological leaning. Choose any number between III and VI ;-) )
---
As someone said in another thread, the planned expansion of the armed forces and the crisis-produced higher unemployment numbers might be seen as a 'fortunate' coincidence.

[Observer]

ruidh:

That's the danger of using Wikipedia for historical arguments. Yes, the Depression bottomed out - in some ways - in 1933. In other respects, the 1937 contraction was the low point.

But the point that Conservatives are making is, in some respects, absolutely valid. What the early years of the New Deal demonstrated was that government could pick up the economic slack; what the pullback in 1937 showed was that, despite years of improvement, without sustained government spending the economy would relapse. In other words, the New Deal plugged the hole, but it didn't succeed in erecting a self-sustaining cycle of growth to replace the one that had collapsed. By 1938, many economists believed we were on a treadmill - that secular stagnation would require the government to permanently assume the burden of sustaining the economy.

And that takes us to Bernard Yomtov's post. The reason that it's necessary to look after the war to understand the effects of wartime spending is that 1946 turned out dramatically differently than 1937. The first time the government massively scaled back employment and spending, the economy collapsed. The second time it did so, the economy picked up steam and increased the pace of its growth. So we're left two conclude that the two stimulus programmes were fundamentally dissimilar. Only the massive investment in procurement programs succeeded in kick-starting the economy. The Hooverites were wrong to think that the system could self-correct; the Keynesians were initially wrong to suppose that the government could function as effectively as an employer as the private sector. What worked, in the end, was massive government spending funneled through private employers.

A final note. I don't want to discount the importance of long-term government investments in sustaining post-war growth. From the GI Bill to the Interstate System, massive investment in physical and human infrastructure played a crucial role in sustaining prosperity. And we're going to need a similar program of long-term investment this time around, too. But that's somewhat separate from the debate over the proper form of short-term stimulus.

[byrningman]

You need to consider the changing structure of the global economy. The reason why the New Deal alone could not restore the US economy to its prior health, although it certainly helped, was that the pre-WW1 trade-friendly structure of the global economy had collapsed. There was less exporting going on, hurting an economy like the US which, although it had an enormous domestic market, was very trade-oriented too.

WW2 changed this; in fact it was the two world wars that turned the USA into the hegemonic economic and financial power of the world. The European powers (Britan, France, USSR essentially) depended on US loans and US exports long before the US itself actually entered the war (not just for military material, but foodstuffs etc. too, boosting all sectors of the economy). Thus, apart from the war economy providing a massive domestic stimulus, even greater than the New Deal had, the US was now suddenly the workshop and creditor for the world (well, the non-German and non-Japanese world). Until recently perhaps, the dollar has been the de facto currency of last resort ever since, occupying the place the gold standard did before WW1, in some respects.

[Whammer]

US growth post-WW2 was helped tremendously by the lack of industrial/technological infrastructure in the rest of the world. Most of the other industrial countries in WW2 had their infrastructure blown to smithereens in the war.

[burritoboy]

"Much of the rest of the world's productive capacity had been destroyed, so for a considerable period, there was a continuing high demand for labor in the US."

Actually, that factor has tended to be a bit overemphasized in talking about the post-WWII era. Even the destruction of German industry has been overplayed (yes, some of the industrial infrastructure of Germany was destroyed by WWII, but a substantial portion of it - at least half -remained intact unlike the common perception). Germany's economy expanded 400% from 1948 to 1958. Most Western European industrial plants outside Germany proper (i.e., in France, the Netherlands, etc) were not destroyed. Meanwhile, industrial infrastructure both in the UK and some parts of it's empire rapidly increased by the same mechanisms that drove US industrial growth during the war.

[Bernard Yomtov]

The reason that it's necessary to look after the war to understand the effects of wartime spending is that 1946 turned out dramatically differently than 1937. The first time the government massively scaled back employment and spending, the economy collapsed. The second time it did so, the economy picked up steam and increased the pace of its growth...

What worked, in the end, was massive government spending funneled through private employers.

Looking at comparative GDP growth, I'm not sure how to respond. GDP in 1938 was $880 billion (2000 dollars), down from $911 the year before. The drop in govt spending had led to a 3.4% reduction.A year later GDP was back to $950, an 8% increase, and growth continued thereafter.

Indeed, during the mid-30's, GDP growth was much larger than the growth in govt deficits, and unemployment dropped substantially even without taking public employment into account. So there was growth in private activity.

The 1945-46 drop, by contrast, was about 11%, and GDP did not recover to the 1945 level until 1950. So the big post-war growth in the US came more than five years after WWII.

Of course the after-effects of WWII were still a major contributor, but why a difference in the channels through which the govt spent money is a critical distinction between the two periods is not clear to me.

[mikkel]

I think a lot of post WWII growth was from all the technologies developed for the war (and more generally all the massive infrastructure put in place during the New Deal and the War to enable that) as well as the suburbization of America and the interstate system. Combine that with increased trade and don't underestimate the "clean slate" that the war provided and it was a potent mix.

That said, the whole debate about the effect of stimulus back then is meaningless today since we're the #1 debtor instead of creditor. Like Yves Smith keeps saying, Keynes would be rolling in his grave that so far all our actions are to exacerbate trade imbalance instead of correcting it.

I think it's obvious that the New Deal really helped the country be better than it would have, but in the end I am skeptical that any program could make such a large problem go away any sooner than it did. It just takes a really long time to have structural changes take place, and in that sense the war did help accelerate them (through both birth and destruction).

[ruidh]

Nice try, Observer. Wikipedia is just a convenient source for data. I was looking for economic measure and there were a couple of very nice charts illustrating my point. There really was quite rapid and aggressive growth. '37 was a relatively minor retrenchment. As I said, the problem was that the fall was so deep it literally took 5 years of growth to climb out. That's not to say that it wasn't painful, it was. But it was also not going to be cured overnight. It is certainly wrong to say that without the war the depression would not have ended. It already *had* ended.

[efgoldman]

You know, FDR could have ended the depression, and won the war, and put millions of Americans back to work, and wiped out cancer and unsightly teenage blemishes, and invented Ben & Jerry's chocolate mint chip, and a certain kind of GOP apparatchik would never, ever, ever give him any credit.

But you remember who Saint Ronnie invoked when he was trying to slam Laffer's idiot economic ideas through? Why yes, it was that very same FDR.

Strange, isn't it?

[Bernard Yomtov]

There's a lot to what efgoldman says.

It does seem to me that there has been some sort of concerted effort on the right to discredit FDR entirely. This is not just normal historical analysis, showing that perhaps he doesn't quite deserve the adulation he gets in Democratic circles - fair enough.

It strikes me more as an effort to completely discredit the man, possibly with the objective of establishing Reagan as the great 20th Century President. Pretty damn silly, if you ask me, but that's my sense of it.

[JanieM]

Ah yes, that Reagan....

"The epitaph of the Reagan presidency will be: 'When Ronald Reagan became President, the United States was the largest creditor nation. When he left the presidency, we were the world's largest debtor nation.'"
--Lester Thurow, MIT professor of economics

Quoted http://www.geocities.com/thereaganyears/economicpolicy.htm>here.

[JanieM]

@!*&#^(*

http://www.geocities.com/thereaganyears/economicpolicy.htm>Fixed link.

Sorry about that.

[Omega Centauri]

There is a crucial difference between peacetime stimulus, and war stimulus. One of the problems of recession/depression is that there is less demand for goods than capability to produce them. In a war, lots of stuff is made, simply to be blown up or otherwise destroyed.

Peacetime stimulus is tougher. We could of course build bridges to no-where , we won't need to destroy um, they will simply sit unused until they rot. If we were smart, we would spend the stimulus building things we will need to (for instance) get off of oil. But with the speed is of the essence mentality prevailing, I'm afraid our ready fire aim, programs will generate a lot of waste.

In any case, a good case can be made that FDRs Keynesian stimulus was only half sized, and that the half sized recovery shouldn't be unexpected.

[Bob Loblaw]

I think Observer, Michael Cain & byrningman all have a piece of it. Don't forget that for years during the war the government was employing millions of the workforce and providing for their room & board while also purchasing massive amounts of high tech equipment and research. By the end of the war there was massive amounts of cash pumping through the system.

[Lurker]

The difference is that the funeral and embalming and graveyard industries are a little put out

Actually, none of the US armed services even tried to take their dead back home. The fallen soldiers, sailors and marines were buried on the far-flung foreign battlefields or into the sea. There were a lot of memorial services, but few funerals. This was by no means uncommon. Almost none of the WWII combatant nations retrieved their war dead from the battlefield.

The only exception that I know of is Finland, where the dead soldiers were meticulously collected and send back home, to be buried at their home churchyards. Still, those well maintained graves at every town and village remind the Finns of the sacrifices of their ancestors. However, in Finland, the furthest home was only 500km from the front. The US fought its battles half-way round the world.

[Hartmut]

The anti-FDR mania of parts of the right verges on 'damnatio memoriae'. Remember the 'replace FDR with Reagan on the currency' campaign that even Nancy Reagan found so disgusting that she publicly protested against it?

[John Thullen]

Lurker:

You make a good, sad point. Thank you for the correction.

Ultimately, though, these sober, mournful facts strengthen the case for all-out global war as the most efficient method of reinvigorating the world's economy.

No doubt economic scholars at the American Enterprise Institute and Chinese government economic strategists, not to mention Putinistas in Moscow, reading this thread are hard at work now fashioning position papers touting the ultimate manpower and capital efficiencies of beating our idle plowshares into swords, rather than bailing out failed, but living, people.

The prospects of outsourcing the body-handling, and let's not forget the reduced pension and healthcare costs of the outsourced dead, will be footnoted and roundtabled at NRO, FOX, the Wall Street Journal editorial page, and whatever other outlets the economic retionalists will use to disseminate their views on the matter.

As you probably realize by now from lurking here, and you contribute good stuff by the way, sober economic discussions, like George Will's, send me immediately to the land of straight-faced whimsy because even I realize the most efficient and cost effective between me and the burlap sack full of rational lentils is a good larf.

Incidentally, Hartmut, I believe Grover Norquist came up with the "Reagan on the currency" campaign. He is another one of the economic rationalists whose face has graced out national facebook over the last 30 years, but who at least realized that we would require frequent threats about what the NRA would do to us if we didn't immediately adopt his program.

[Gary Farber]

"The difference is that the funeral and embalming and graveyard industries are a little put out that they aren't included in the stimulus package as they were in World War II."

Because I can't resist being an historical nitpicker, even to a John Thullen flight of fancy, let me note that unlike modern wars, relatively few bodies were returned to America during WWI or WWII; that's why there are vast American graveyards in Europe and on Pacific islands. We didn't have air capacity to spend on shipping bodies overseas, and sea travel would have taken far too long, again with little capacity to spare.

[mckinneytexas]

Further to Observer, the WWII economy took 12 million men out of the civilian workforce and put them in uniform. Additionally, the feds spent relatively insignificant amounts on entitlements, education and other non-defense items before, during and after WWII. Defense spending, through the Viet Nam war has always dominated the federal budget. Even with the substantially reduced non-defense budget, American civilians were asked during and after the war to buy bonds and otherwise donate to funding the war. Some stimulus and in no way comparable to our present situation.

If there is a lesson in the New Deal, WWII and all that followed, it is that governments that spend more than they can pay back ultimately break the economy they seek to save. What remains to be seen is whether the Bush/Obama stimuli save the day or destroy it.

[John Thullen]

Gary:

You make a good, sad point. Thank you for the correction.

Ultimately, though, these sober, mournful facts strengthen the case for all-out global war as the most efficient .......

........ aw, cripes! .......

... there is just too much reality and facticity in this what-a-world, what-a-world.

;)

[gwangung]

If there is a lesson in the New Deal, WWII and all that followed, it is that governments that spend more than they can pay back ultimately break the economy they seek to save.

I don't think that follows. Even given your examples, that money still goes into the economy and gets used, which is what the purpose of a stimulus is supposed to be (and I also believe Observer ALREADY discussed the effect of the transfer of males into the military, which isn't what you think it is).

[tomtom]

Pearl Harbor was raided December 7th, 1941.

Unemployment Rates:
1939: 17%
1940: 14.5%
1941: 9.66%
1942: 4.7%

I think any reasonable reckoning shows that preparing for the war pulled us out out of the Great Depression.

Any student of history knows that the national attitude dramatically changed in 1940 and 1941 as FDR spent billions on the pre-war buildup. Millions of jobs were created. Massive migrations to cities with war industries began. The pre-war buildup and WWII itself were huge deficit-fueled stimulus packages.

Those who say that WWII ended the Depression are just looking for any shallow argument to ignore the obvious, which is that massive government spending pulled us out of the Great Depression. It did take a war to pass the needed stimulus because Republican Senators and Congressmen wouldn't pass big stimulus packages unless war was part of the mix.

Republicans are like that.

[Bernard Yomtov]

tomtom,

Note also that unemployment in 1937 was about 14%, down from a 1932-3 high of about 25%. Progress was being made until the 1937-8 foolishness.

These figures count as unemployed participants in various New Deal work programs, such as WPA, etc. Counting participants as employed would reduce the New Deal unemployment figures by about 5-6% a year.

This was the subject of some controversy among various blogs not long ago.

[now_what]

In 1939, however, unemployment stood somewhere between 17-20%, depending on the figures you care to use. Even the massive surge of re-armament programs and exports hadn't lowered it below 10% by 1941

This is wrong. unemployment went below 10% in 1939, depending on whose figures you use. Specifically, the only way you get the higher numbers is count people employed by the government as unemployed. The reason given for refusing to count employed workers as employed is, as explained by your average nutpicker:

Dr Darby’s point, long story short, is that the make-work jobs of the New Deal were not counted in the BLS/Lebergott data. That is true and was intentional. Lebergott and the government believed that it was wrong to count short-term emergency jobs as employment because it was inhumane to pretend that a short-term project that might tide a family over was the same as “regular work.”

If that is the criteria for counting someone as unemployed, it is hard to see why those drafted into the military in World War 2 would count as employed. Given the temporary nature of many political jobs it is hard to see how government workers today are all counted as employed. If we use the criteria being used to highball the numbers in the late 30s, we have 22% unemployment today. And if short-term projects that might tide a family over are not employment, add in all consultants, most self-employed people and anyone else in a industry where it is necessary to switch jobs every few years. We are all unemployed now.

The Great Depression was all but over by the end of 1936. Real GDP was higher than before the crash, the economy was growing at 14% a year. Then it was decided that the country should try the same policies that had started the depression in the first place. I guess they didn't have software development jobs back then to isolate people with that temperament - reboot and let me know if it happens again.

That's the conservative prescription - are you sure Hooverism doesn't work?