Free Markets, Free People

Krugman admits WWII turned economy around, not “New Deal”

H

e may not have meant too (because doing so undermines the liberal shibboleth that government intervention via the New Deal is what turned the economy around), but Paul Krugman did indeed admits that WWII saved our economy after the Depression, not the policies of the "New Deal":

All around, right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it’s unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus — and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.

All true, but then the US wasn’t carrying a $15 trillion dollar debt load (think huge financial drag) or its equivalent then either. That single fact makes a world of difference. But again, as you can tell, it’s Mr. One Trick Pony again pushing for an “adequate-sized fiscal stimulus”. In the absence of a world war I think it should be clear by now what he’s asking for … again. I mean what’s $16 trillion among friends, right?

He gets a bit cryptic about it, but it’s the same old demand:

There is nothing — nothing — in what we see suggesting that this current depression is more than a problem of inadequate demand. This could be turned around in months with the right policies. Our problem isn’t, ultimately, economic; it’s political, brought on by an elite that would rather cling to its prejudices than turn the nation around.

See … government can fix this, if it just would. So says Paul Krugman. Interesting …”the right policies” were admittedly not the reason for the recovery of the US after the Depression but they are what can save us now. Because, you know, the two situations are just alike, right? WWII and the “right government policies”? Or did I miss something?

And this guy likes to think of himself as an “economist”?

Go figure.

 

~McQ

Twitter: @McQandO

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28 Responses to Krugman admits WWII turned economy around, not “New Deal”

  • I just don’t see it. It wasn’t the expenditures before or during the war that caused the turnaround. It was the war, or more precisely, the aftermath of the war that turned around the economic turnaround.
    Most of the industrial capacity of the world was destroyed by World War II, except in the US. It was this only remainding industrial capacity that made America “great” or ‘exceptional” after the war, and to that extend, the best days of America may be behind her. Creeping Globalization has taken this away.
    Barring a nuclear exchange that leaves America relatively unscaved, this will not repeat again in any of our lifetimes.

    • @Neo_ Correct. It wasn’t the war years themselves that turned the economy around but the demobilization that gets a good part of the credit (along with being on the winning side with our industrial sector not bombed into ruins).
      If a world war were to erupt now the US would hardly be in any financial shape to fight it.
      Krugman is actually the poster boy for why he is wrong. You live within your means so that should a crisis come along you can divert resources to deal with it. Yet the government has not been living within its means so when there is a crisis the only solution is to live outside our means even more. The irony is that the current fiscal crisis was, in part, manufactured by not living withing our means. So in the end, Krugman is demonstrating why he is wrong.

    • @Neo_ ,

      Actually the transfer of Manufacture from Europe to North America had already happened in a large way before the war, fortunately.

      The US was the Japan/China of the 20’s & 30’s.

  • Maybe Krugman is telegraphing a sick hope. liberal idiots.

    • @looker,

      probably making an excuse for war. Think about it, what options does Obama have in terms of gaining support except becoming a wartime president. Worked for Bill.

  • Liberal beatings with the clue stick is the cure for Krugman. He may never get a clue, but the process sure feels good.

  • If most of our consumer goods are made in other countries like China et.el., increased demand does very little to help us/US. Government-driven demand is even more assbackward’ that’s the equivalent of our government redistributing our income to poor Chinese. If High wage demands are what drove industry out, only vastly higher product prices will bring those jobs back, I just can’t conceive of a mechanism that could make that happen, Liberal ideology, not withstanding.

    • @Constitution First,

      the dollar dropping.

      And delaying it makes the situation worse (ourselves propping up the treasuries and kicking the can down the road on unemployment and our trading partners with their currency fixing both have a hand in this). A currency adjustment will happen and because of the delay its like a rubber band that keeps getting stretched longer and longer where it will swing to the far side of a viable equilibrium point. It may swing far enough its become catastrophic in terms of the economy continuing to function.

      And the wage demands driving industry out applies to China, but no one else. The roll is overblown. Only China has the kind of wage advantage that makes a huge difference in most industries. Currency fixing is probably the biggest issue. Especially since it prevents the dollar from reaching an equilibrium to bring it back to competitiveness.

      • @jpm100 and Chinese wages have shot up in the last few years along with inflation. IIRC, they have doubled or tripled, and another minimum wage increase is set for Jan. 1 2012. They are fast pricing themselves out of some markets, but it will take time for markets to adjust.

        • @Harun
          They have an incredibly long way to go before they are even close to our minimum wage, especially in the industrialized centers away from the cities with the people that interface with the west.

  • Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus

    >>> Ok, so people like him always whined that the stimulus was too small. So now we know the proper size – a world war level expenditure. Eeeeeeeesh.

    Slaughter of the Jews optional I suppose (but for libs, always perferable)

  • Comparing today’s economics with any point in history is tricky business. It would be just as problematic to compare today’s economics with the economics of post WWII as it would be to compare today’s economics to post 30yrs war of the seventeenth century. You just can’t do it.

    That said, I always found it odd to say that it wasn’t the New Deal legislation of FDR that got us out of the Great Depression, but WWII. After all, what was WWII but a massive government spending project?

    As Neo pointed out, it wasn’t necessarily the mobilization to WWII, but the post-war demobilization of the only industrialized nation left relatively unscathed that led to the boom years of the fifties and sixties. But again, it took the US government and their foreign stimulus to close the dollar gap. Without it, US industries would have no foreign markets of substance.

    No matter how you slice it, government interventions in the markets were required.

    So is Krugman right in suggesting that we need a WWII style stimulus? Doesn’t matter. This isn’t 1939, or ’41. or ’45.
    But never forget, what did lead us out of the depression of the thirties – whether it be New Deal, mobilization, or the Marshal plan – government stimulus was present in some way, shape, or form.

    Cheers.

    • @PogueMahone I think in large measure for the Allies it was as much “hope” as any thing else. The sacrifices were made, the good guys won (West of Berlin anyway) and people were relieved there wouldn’t be any more deliberate nation sanctioned killing on a large scale (at least until the clueless of North Korea decided to continue their efforts, and well, who cared about China?).

      Attitude and relief as much as anything else IMO.

    • @PogueMahone no the government was not required in any way. The government caused the great depression, and then deepened it. Then World war 2 caused austerity and hardship, and when it was over and government took a step back, then the free market could thrive.

      And it was not foreign markets that caused the post war boom, it was primarily the domestic market.

  • Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus…

    Wow. Soooooo much wrong with that.

    1. it was not “the approach” of WII; it was not even WWII, though the war created HUGE demand

    2. the economy was still flat AFTER WWII, and would have seen MORE catastrophic years of awful economic performance under Truman’s New Deal

    3. what REALLY DID turn the economy around was the revolution in Congress, and the death of the New Deal following the war

  • Krugman’s been saying this for years and it has been debunked for the same number of years. Krugman uses it as some kind of support for Keynesian stimulus, but he is careful not to note that the Keynesians expected the economy to implode when the WW II spending was withdrawn. It did not.

    Pouge is also wrong in claiming a government stimulus in Europe’s rebuilding. It was no more a stimulus than insurance payouts. Pogue needs to review his Bastiat and the broken windows fallacy. In fact, the Marschal plan was money take from the US which could have been put to alternative uses.

    Among the arguments of the debunking is: it was taking most of the young males and sending them off to war plus the severe rationing of the war years that led to the pent up demand starting in 1946. There was also the baby boom. And, we should mention most of the world’s industrial production capability was destroyed by WW II leaving the US a clear field.

    Krugman is so flat out wrong with his analysis, only a writer as narcissistic as he could continue to claim this theory.

  • Krugman’s been saying this for years and it has been debunked for the same number of years. Krugman uses it as some kind of support for Keynesian stimulus, but he is careful not to note that the Keynesians expected the economy to implode when the WW II spending was withdrawn. It did not.

    Among the arguments of the debunking is: it was taking most of the young males and sending them off to war plus the severe rationing of the war years that led to the pent up demand starting in 1946. There was also the baby boom. And, we should mention most of the world’s industrial production capability was destroyed by WW II leaving the US a clear field.

    Krugman is so flat out wrong with his analysis, only a writer as narcissistic as he could continue to claim this theory.

    Pouge is also wrong in claiming a government stimulus in Europe’s rebuilding. It was no more a stimulus than insurance payouts. Pogue needs to review his Bastiat and the broken windows fallacy. In fact, the Marshall Plan was money taken from the US which could have been put to alternative uses here. It was essentially a “net 0″, not a stimulus.

  • Krugman’s been saying this for years and it has been debunked for the same number of years. Krugman uses it as some kind of support for Keynesian stimulus, but he is careful not to note that the Keynesians expected the economy to implode when the WW II spending was withdrawn. It did not.

    Among the arguments of the debunking is: it was taking most of the young males and sending them off to war plus the severe rationing of the war years that led to the pent up demand starting in 1946. There was also the baby boom. And, we should mention most of the world’s industrial production capability was destroyed by WW II leaving the US a clear field.

    Krugman is so flat out wrong with his analysis, only a writer as narcissistic as he could continue to claim this theory.

    Pouge is also wrong in claiming a government stimulus in Europe’s rebuilding. It was no more a stimulus than insurance payouts. Pogue needs to review his Bastiat and the broken windows fallacy. In fact, the Marshall Plan was money taken from the US which could have been put to alternative uses here. It was essentially a “net 0″, not a stimulus.

    • @rickcaird Some of the Mashall Plan was just financing US capital exports to Europe, I believe. We had a boom of exports after WW II

  • So, you’d think Krugman would applaud Bush as a master economist, with his invasion of Iraq timed for maximum spending in 2007?

    No?

  • It’s hard to believe that Krugman writes the things he does. The big full employment program of WWII was, of course, the military, which put millions to “work.”

    But a factor in productive output was that FDR (who had scrambled eggs for brains) stopped attacking industry and began backing off and asking it for help as he grasped that he would be leading a war effort against two murderous regimes and relying on a third murderous regime as his ally. Unleashed, American industry outdid itself in the war effort.

    • The New Deal’s unrelenting bashing of business and the wealthy throughout the 1930s was very reminiscent of today with the exception that, despite having little idea what he was doing, FDR did have a residual sense of patriotism, or at least a survival instinct, that the Obama creepshow doesn’t have.

      The U.S. economy has been poised for recovery since the summer of ’09, but has been besieged by the regime and by “regime uncertainty” with New Deal-like restriction, regulation, and rhetoric and firms have bided their time and tried to wait this political catastrophe out. This should be a minor break-out year since the Obamunists want to hold onto power in November and might pull back a little, particularly as they accept all sorts of cash from “Wall Street” to be left alone for a while.

      Perhaps the swelling ranks of people who vote for a living will realize that fewer and fewer people are available to pay for it. Though human nature suggests that the Eloi class will simply be ground up in the machinery of history before it learns that kind of lesson.

    • @martinmcphillips Except…

      The war years were typified by wage and price controls, a centrally planned industrial output, little in the way of a market for civilian goods (rationing), and little to no regulatory crap if your business held a high priority.

      I agree as to your points about American industry, but not the larger economy. Note that German and Soviet industry also perform wonderfully…for a while.

  • As much of a Keynesian as I am, and the fact that as during the Pre-WW2 New Deal policies, unemployment dropped from 24.6% to 14.6%, the vast war effort saw federal spending reach almost 50% of the GDP, and the government employed more than were previously unemployed either directly or indirectly to support the war effort. This brought unemployment down to a historic low of 1.1%. But this was not what allowed for the massive post-war growth. For that we can thank America’s relative geographical isolation, with her manufacturing capability untouched by war, while the great pre-war manufacturing centers were crushed around the globe. We essentially became THE global supplier by default. So although WWII was stimulus on steroids, and it probably would have ended the long recessionary period of the previous two decades, I think it would be wrong not to give credit to the fact that we were the last producers standing.

  • In 1944, however, as it became apparent that the Allies would prevail, he and his New Dealers prepared the country for his New Deal revival by promising a second bill of rights. Included in the President’s package of new entitlements was the right to “adequate medical care,” a “decent home,” and a “useful and remunerative job.” These rights (unlike free speech and freedom of religion) imposed obligations on other Americans to pay taxes for eyeglasses, “decent” houses, and “useful” jobs, but FDR believed his second bill of rights was an advance in thinking from what the Founders had conceived.

    Roosevelt’s death in the last year of the war prevented him from unveiling his New Deal revival. But President Harry Truman was on board for most of the new reforms. In the months after the end of the war Truman gave major speeches showcasing a full employment bill—with jobs and spending to be triggered if people failed to find work in the private sector. He also endorsed a national health care program and a federal housing program.

    http://www.thefreemanonline.org/columns/what-ended-the-great-depression/

    • More…

      Taft, Wason, and Sloan reflected the views of most congressmen, who proceeded to squelch the New Deal revival. Instead they cut tax rates to encourage entrepreneurs to create jobs for the returning veterans.

      After many years of confiscatory taxes, businessmen desperately needed incentives to expand. By 1945 the top marginal income tax rate was 94 percent on all income over $200,000. We also had a high excess-profits tax that had absorbed more than one-third of all corporate profits since 1943—and another corporate tax that reached as high as 40 percent on other profits.

      In 1945 and 1946 Congress repealed the excess-profits tax, cut the corporate tax to a maximum 38 percent, and cut the top income tax rate to 86 percent. In 1948 Congress sliced the top marginal rate further, to 82 percent.

      Those rates were still high, but they were the first cuts since the 1920s and sent the message that businesses could keep much of what they earned. The year 1946 was not without ups and downs in employment, occasional strikes, and rising prices. But the “regime certainty” of the 1920s had largely returned, and entrepreneurs believed they could invest again and be allowed to make money.