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August 18, 2010

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Eric and Bernard, unemployment in the US was still at 15% in 1940, and even following the chart above, it is clear that the overall size of the economy had not reached 1929 levels until 1940. Sure, there was a return to economic growth. And by that definition of recovery, we have been out of our own recession/depression for several years now (in which case, what are we arguing about again?)

Also, keep in mind that US military spending and preparation for war began well before December 7, 1941. Much of the merchant shipping provided to Britain under the Lend Lease program was new construction, as were most of the aircraft. Nonetheless, from the chart above, and from the unemployment figures, real economic growth began with the massive spending and manpower mobilization of WWII. (And you can see that in other economies -- particularly Japan and Germany's -- as well.)

Eric and Bernard, unemployment in the US was still at 15% in 1940,

Unemployment was greatly reduced from the starting point, and would have been even smaller had it not been for the attempt by FDR to pull back on the throttle.

Sure, there was a return to economic growth. And by that definition of recovery, we have been out of our own recession/depression for several years now

Not really analogous at all. Unemployment in the US is getting worse, or staying the same, not better.

Also, keep in mind that US military spending and preparation for war began well before December 7, 1941

Which is still after 1940.

Nonetheless, from the chart above, and from the unemployment figures, real economic growth began with the massive spending and manpower mobilization of WWII.

But there was nothing peculiar about WWII that made such a massive spike in spending so stimulative. "Real economic growth" happened because of the spike, not because it was tanks and bullets.

"Real economic growth" happened because of the spike, not because it was tanks and bullets.

Not only that, but the growth, all other things being equal, would have been even greater if we had created greater value than was represented by tanks and bullets. You know, like stuff we could have used in this country while not at war - public goods with positive externalities.

we have been out of our own recession/depression for several years now

Uh, no. And "out of our own recession" and "economically fully recovered" are two very, very different things.

Also, keep in mind that US military spending and preparation for war began well before December 7, 1941

Sure. But the Depression is fairly widely held to have ended prior to 1940. GDP began to grow again in 1932 or so and exceeded its 1929 level around 1938. Note that postwar, GDP sharply dipped a couple of hundred billion dollars, which put it roughly back on its prewar trend.

If you imagine there was a trend, anyway. Unemployment, for some reason, didn't do much in the way of correction after the war.

I really don't see how MDF isn't arguing for "massive spending and manpower mobilization" as economic stimulus. Not that Eric hasn't already made that point, but jeez...

Even if we posit that the war hastened the recovery, I'm not sure you want to recommend another World War as the cure for this particular economic downturn.

MDF,

Eric and Bernard, unemployment in the US was still at 15% in 1940,

The word "still" applied to comparisons of conditions in 1938-1939 with those in 1933 is a little deceptive. Unemployment had dropped to about 14% by 1937, from 25% in 1933, then rose again in 1938-9, before dropping back when spending restarted.

and even following the chart above, it is clear that the overall size of the economy had not reached 1929 levels until 1940. Sure, there was a return to economic growth. And by that definition of recovery, we have been out of our own recession/depression for several years now (in which case, what are we arguing about again?)

From 1933 to 1937 the compound annual growth rate was about 11%. When we get there, or anywhere close, I'll be happy to agree that we are out of our current troubles.

What BY and others said.

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