WWII and the Great Depression

[Middleoftheroad]

Hello all - first time poster (and new member), long time lurker.

I've read on the economics topics a number of times of posters claiming that the massive government spending during WWII put an end to the Great Depression.

Usually it is done by Keynesians/Krugmanites trying to prove that massive government spending is needed to end the current recession, because that is what it did during the early 1940s.

While it did solve the unemplyment problem, I was always taught that many factors were used to measure an economy's health, not just employment. Things like GDP, inflation rates, prices, value of stocks and bonds, etc. etc.

The problem I have is this: it is hard to think of your economy as "growing" and a depression as "over" when 29% of your labor force is conscripted, there is rationing, shortages, price controls, an inability to buy consumer goods, and a longer work week.

Many would argue: after the war was over, in 1946, when government spending fell by 67%, we experienced a tremendous economic boom. Why? because the normal economy was producing the consumer goods people wanted. That's when the Great Depression was over.

If we don't correctly learn from the past, it seems we'll be doomed to repeat it.

Your whole argument is based on the premise that there was an economic boom at the end of WW2. Yet again I post, there wasn't. There was increasing unemployment, and a shrinking real GDP per capita. This economy stagnated all the way until the start of the Korean war, in which the economy boomed again. Immediately after the Korean war, the economy shrank again, and stagnated until the Vietnam war.

Please don't allow this to disrupt your "facts".

 

[Widdekind]

This is classic Krugmanism to explain failed Keynesian policies. It wasn't that massive government spending didn't work; it's just that we didn't SPEND ENOUGH!

imperfect as it was, the New Deal employed more than 10 million Americans; and built up US infrastructure. Government spending re-employed people, and produced productive capital assets

 

[Widdekind]

... economic boom at the end of WW2. Yet again I post, there wasn't. There was increasing unemployment, and a shrinking real GDP per capita.

real GDP per capita peaked in 1944, and did not return to the same level until the late 1950s:

Long-term real growth in US GDP per capita 1871-2009​

Ipso facto, Fiscal stimulus boosted the US economy; Fiscal de-stimulus, after WWII, had the opposite effect

 

[Unkotare]

The Post War Economy: 1945-1960

 

[Widdekind]

The Post War Economy: 1945-1960

please understand the difference between "nominal" and "real". After WWII, from 1945-49, inflation drove up prices by about 20%. Thus, in (inflation-adjusted) "real" terms, US GDP stagnated; and actually decreased, per capita. I.e. the US population was expanding, without generating any corresponding expansion in output -- instead, the rate of unemployment rose by several percent.

when you account for rising prices (inflation), growing population, and rising unemployment, the increase in nominal GDP masked a stagnating US economy, in real terms.

 

[JakeStarkey]

Hello all - first time poster (and new member), long time lurker.

I've read on the economics topics a number of times of posters claiming that the massive government spending during WWII put an end to the Great Depression.

Usually it is done by Keynesians/Krugmanites trying to prove that massive government spending is needed to end the current recession, because that is what it did during the early 1940s.

While it did solve the unemplyment problem, I was always taught that many factors were used to measure an economy's health, not just employment. Things like GDP, inflation rates, prices, value of stocks and bonds, etc. etc.

The problem I have is this: it is hard to think of your economy as "growing" and a depression as "over" when 29% of your labor force is conscripted, there is rationing, shortages, price controls, an inability to buy consumer goods, and a longer work week.

Many would argue: after the war was over, in 1946, when government spending fell by 67%, we experienced a tremendous economic boom. Why? because the normal economy was producing the consumer goods people wanted. That's when the Great Depression was over.

If we don't correctly learn from the past, it seems we'll be doomed to repeat it.

Your whole argument is based on the premise that there was an economic boom at the end of WW2. Yet again I post, there wasn't. There was increasing unemployment, and a shrinking real GDP per capita. This economy stagnated all the way until the start of the Korean war, in which the economy boomed again. Immediately after the Korean war, the economy shrank again, and stagnated until the Vietnam war.

Please don't allow this to disrupt your "facts".

By 1948, with the absorption of returning GIs into the workforce, the continued unleashing of purchasing power from savings and increasing wages into consumer buying, the economy boomed. Include the VA benefits and union wages,the USA was on a roller coaster economy.

Don't let the facts detract you.

 

[Unkotare]

The Post War Economy: 1945-1960

please understand the difference between "nominal" and "real". After WWII, from 1945-49, inflation drove up prices by about 20%. Thus, in (inflation-adjusted) "real" terms, US GDP stagnated; and actually decreased, per capita. I.e. the US population was expanding, without generating any corresponding expansion in output -- instead, the rate of unemployment rose by several percent.

when you account for rising prices (inflation), growing population, and rising unemployment, the increase in nominal GDP masked a stagnating US economy, in real terms.

LOL, be careful you don't get cramps twisting around like that.

 

[Unkotare]

"The automobile industry successfully converted back to producing cars, and new industries such as aviation and electronics grew by leaps and bounds. A housing boom, stimulated in part by easily affordable mortgages for returning members of the military, added to the expansion. The nation's gross national product rose from about $200,000 million in 1940 to $300,000 million in 1950 and to more than $500,000 million in 1960. At the same time, the jump in postwar births, known as the "baby boom," increased the number of consumers. More and more Americans joined the middle class."

 

[Toro]

Period 1.The causes of the depression being unequal distribution of the wealth? Hardly. Read a few textbooks, and you'll see that the culprits were: the Feds easy-money policy which created the stock market bubble; the market crash; the Hawley-Smoot tariff; the Revenue Act of 1932; the massive government spending under Hoover and FDR, which displaced the private economy.

Your father would have been better off without all of these factors; then the depression would have been OVER years before, and he wouldn't have had to depend on the New Deal for his living.

I've read a lot of books on economics - textbooks and others - and your cause of the Great Depression is wrong.

Period 2. Redistribution of income thru taxation gave us "the period of phenomenal prosperity between the 40s and 80s which gave rise to the American Middle Class." You must be kidding, right? For one thing, you must not know that there were very real economic problems and recessions during that 40 year time period. Are you reallysaying there was no middle class before? Interestingly enough, it was the tax cuts and sound money policies of both JFK and Reagan that got us out of the recessions of their times.

Period 3. Your gross misreading of history continues. To believe that there was prosperity between the 40's and 80's that Reagan brought to an end is just plain wrong. Either you are uninformed or just lying. Have you never heard of the 11 year stagflation of the 1970s? Don't you remember it, or were you too young? Unemplyment, interest rates in the 20% range, long gas lines, the "WIN" buttons, etc.

It was Reagan who came in during the early 80s, and through tax cuts and a sound currency ENDED the period of stagflation that idiots like Nixon, Ford and Carter had presided over. THAT started the period of prosperiety, from the early 80's to 2008; the greatest period of sustained economic growth in modern history.

Sounds like you listen to economic conspiracy theorists at worst, MSNBC at best. But the real history is out there, if you cared to explore.

This is a highly ideological and politically biased explanation of that time period, and thus not one to be taken seriously.

Reagan's policies were definitely a positive and helped reverse the statism of the prior decades, but the biggest reason for the boom was that sky-high interest rates implemented by Paul Volcker broke the back of inflation, not Reagan. Reagan's policies of lower taxes and free trade helped but it was the end of the strangulation of the money supply which was the primary cause that lowered the price of credit. Reagan's "supply-side" economics had some very positive effects but it was also partly Keynsianism in drag since government spending never slowed and tax cuts led to big deficits.

And FTR, for the hacks, Volcker was appointed by Carter and fired by Reagan, who then appointed Greenspan. IOW, Reagan fired arguably the greatest American central banker in history and hired the one who may be most responsible for the mess we are in today.

 

[Toro]

The Post War Economy: 1945-1960

My undergrad honours thesis in economics was on this exact topic.

 

[Widdekind]

Average Income in the United States (1913-2006)
​

real (inflation-adjusted) income, per house-hold, stagnated, and even decreased slightly, after WWII, until the Korean War (1945-50). Now, some specific sectors may have grown, e.g. auto industry, which plausibly benefited from WWII investments, in machines & factories, for building tanks, which were quickly converted to cars. But, generally, real incomes stagnated, apparently until re-stimulated, by (war-related) government spending, in the 1950s.

Meanwhile, in longer-term trends, US real per capita income did increase, overall, from the 1930s to 1960s. The post-WWII period was one slump, below trend.

 

[Unkotare]

The Post War Economy: 1945-1960

My undergrad honours thesis in economics was on this exact topic.

That must have been interesting.

 

[Toro]

The Post War Economy: 1945-1960

My undergrad honours thesis in economics was on this exact topic.

That must have been interesting.

Not really.

 

[Unkotare]

My undergrad honours thesis in economics was on this exact topic.

That must have been interesting.

Not really.

Oh. Why not?

 

[Toro]

That must have been interesting.

Not really.

Oh. Why not?

It's pretty dry and unexciting.

 

[Unkotare]

Not really.

Oh. Why not?

It's pretty dry and unexciting.

Did you regret your choice of major?

 

[Flopper]

Hello all - first time poster (and new member), long time lurker.

I've read on the economics topics a number of times of posters claiming that the massive government spending during WWII put an end to the Great Depression.

Usually it is done by Keynesians/Krugmanites trying to prove that massive government spending is needed to end the current recession, because that is what it did during the early 1940s.

While it did solve the unemplyment problem, I was always taught that many factors were used to measure an economy's health, not just employment. Things like GDP, inflation rates, prices, value of stocks and bonds, etc. etc.

The problem I have is this: it is hard to think of your economy as "growing" and a depression as "over" when 29% of your labor force is conscripted, there is rationing, shortages, price controls, an inability to buy consumer goods, and a longer work week.

Many would argue: after the war was over, in 1946, when government spending fell by 67%, we experienced a tremendous economic boom. Why? because the normal economy was producing the consumer goods people wanted. That's when the Great Depression was over.

If we don't correctly learn from the past, it seems we'll be doomed to repeat it.

I don't have any doubt that war helped pull the country out of the depression. Pent up demand for goods and services during the war lead to a robust recovery once the country adjusted to a peace time economy. The US came out of the war as the only major power that did not suffer damage to it's ability to produce goods and services. The war made us the greatest economic power as well as the greatest military power.

 

[Toro]

Oh. Why not?

It's pretty dry and unexciting.

Did you regret your choice of major?

No, not at all. I love what I do. I was referring to my thesis topic being dry and boring.

 

[Unkotare]

What would be a more exciting topic for you?

 

[Toro]

Hello all - first time poster (and new member), long time lurker.

I've read on the economics topics a number of times of posters claiming that the massive government spending during WWII put an end to the Great Depression.

Usually it is done by Keynesians/Krugmanites trying to prove that massive government spending is needed to end the current recession, because that is what it did during the early 1940s.

While it did solve the unemplyment problem, I was always taught that many factors were used to measure an economy's health, not just employment. Things like GDP, inflation rates, prices, value of stocks and bonds, etc. etc.

The problem I have is this: it is hard to think of your economy as "growing" and a depression as "over" when 29% of your labor force is conscripted, there is rationing, shortages, price controls, an inability to buy consumer goods, and a longer work week.

Many would argue: after the war was over, in 1946, when government spending fell by 67%, we experienced a tremendous economic boom. Why? because the normal economy was producing the consumer goods people wanted. That's when the Great Depression was over.

If we don't correctly learn from the past, it seems we'll be doomed to repeat it.

I don't have any doubt that war helped pull the country out of the depression. Pent up demand for goods and services during the war lead to a robust recovery once the country adjusted to a peace time economy. The US came out of the war as the only major power that did not suffer damage to it's ability to produce goods and services. The war made us the greatest economic power as well as the greatest military power.

War is the ultimate government stimulus program.

It wasn't just the pent up demand from WWII. It was also from the Great Depression the decade prior. You essentially had a generation of pent up demand that led to a huge consumer spending boom that lasted for decades.