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WWII ended the Depression, not stimulus?

A post by the always excellent Brad Delong got me thinking about anti-stimulus arguments.

A common argument on the right is that it was WWII that ended The Great DepressionTM not New DealTM stimulus, and therefor claiming the efficacy of New Deal stimulus is not an argument for modern stimulus. On the face of it it’s hard to argue that WWII wasn’t at least part of the equation here and if you leave it at that, well you might just say, “Yeah, it was WWII, not the New Deal that saved the day.”

The problem, and the big thing that everyone misses (including myself until I had an epiphany this morning) is that while it’s certainly sad and deranged stimulus, WWII was stimulus. In fact it was deficit stimulus on a massive scale.

That is, the “war matériel” was not donated out of the goodness of the hearts of the various businesses, but rather was funded by the deficit spending of both Alied and Axis governments. It was also funded by extraordinary tax levies, as high as 87% on upper incomes. See (click to see full size):

Tax For Victory, 1943

Tax For Victory, 1943

Taxes aside, the point is that the argument that WWII ended the depression is actually an argument for stimulus and in fact an argument that stimulus ended the depression. Again deranged stimulus, but stimulus nonetheless.

Yes, on a moral level it’s hard not to argue that said stimulus ideally as Gigot phrases it, “might have put it to more productive” uses, but given the economy and the unwillingness at the time, without other non-war stimulus to fill the gap it’s also hard to argue that the unspent capital would have magically gone to other “job-creating uses”. That is, given the bleak outlook for employers, without WWII or further New Deal stimulus, one has to severely doubt the hoarded (or un-borrowed deficit) capital of the Depression would have actually been used to produce jobs.

The point is, something had to be done, and even though (at least in theory) WWII wasn’t planned, it provided a convenient substitute for other potential deficit stimulus.

Of course again, going back to the taxes above, it wouldn’t be deficit spending if we were willing to tax more, even temporarily. And in fact through much of the great boom following WWII, taxes remained extremely high both on personal and corporate levels. Moreover it was considered patriotic, a duty, to pay those taxes for the benefit of the whole.

But nevermind, we live in new (and more selfish) days.

1 comment to WWII ended the Depression, not stimulus?

  • […] As I’ve argued elsewhere, even if the war was the source of recovery, it isn’t an argument against stimulus in an economic downturn – in fact quite the opposite. It may be a horrible way to do stimulus, but it (war) still is stimulus (ie: government spending to create demand). […]

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