Why the Great Depression was so great – Part II

“World War II cured the Great Depression.”

I don’t know about you, but this sounds funny to me.

War = prosperity?

World War II, by definition, was destruction. And did this death and destruction help anyone? The answer is clear. As economist Ludwig Von Mises wrote, “War prosperity is the prosperity that an earthquake or plague brings.”

Even still, many people claim the war brought Americans together, boosted the American spirit and created manufacturing jobs all over the country. These arguments are nothing more than quick hits for people to understand. They are simple. World War II, in a strange way, supposedly saved the economy.

Many like to point out the large drop in unemployment following the start of the war. This is true, unemployment did drop as low as 1 percent during the years of the war. That’s obviously a good thing, right? The thing is, though, this statistic only makes sense if you choose to ignore the details; and as we all know, the devil is in the details.

Throughout the time of the war, as economist Robert Higgs notes, the federal government conscripted about 12 million prime working men and women through the draft and shipped them overseas to fight a war. The government then hired workers to build bombs and tanks for these brave young soldiers. Viola! You have record low unemployment and economic prosperity!

Not so much.

It’s no wonder there were so few Americans looking for work; the government removed 12 million of them from the workforce and sent them overseas to sit in foxholes.

Opponents then bring up the fact that “real GDP” increased a great deal during wartime years. An increase in Gross Domestic Product must be a solid economic indicator, right? Well, from the outside looking in it might make sense and look nice in a school paper. But what about the details? How was the average citizen doing?

To start, it’s very important to note that while there were manufacturing jobs, none of the things that were produced actually served the interests of real consumers. No automobile makers were building cars for citizens. They were building tanks and military vehicles instead. Consumer products were hard to come by as well. Price and rent controls were imposed, causing shortages in housing and food. Meat, sugar, gasoline, shoes, food, coffee and other necessities were rationed as a result.

It’s pretty preverse to call that prosperity.

If you and I were not drafted (thank goodness) and were subject to price controls and rationing of food and gasoline, would we be feeling prosperous?

So what did happen?

I suggest reading a bit of Robert Higgs, Regime Uncertainty, to understand the the intangibles of the time – like the uncertainty of the business community.

But, if you are to highlight one economic statistic that gives a clear and honest indicator concerning the current and future conditions of the economy, you have to look at private investment.

According to economist Robert Higgs, “From 1941 to 1943 real gross private domestic investment plunged by 64 percent; during the four years of the war it never rose above 55 percent of its 1941 level; only in 1946 did it reach a new high.” 1946, by the way, was the year after the war ended. Government also cut spending dramatically after the war ended, and many “experts” predicted the economy would fall into another depression. This was not the case and the economy boomed.

Citing statistics is easy. What matters is how indicative the numbers actually are of the times. The statistics most Americans reference regarding the Great Depression and WWII might make sense on their surface, but once you dig into the details, you find out the war you once thought cured it all, never actually fixed anything.

“We the people” fixed the economy. Government getting out the way and letting our parents and grandparents do what they do best – pursue their own self interest and chase their dreams – cured our economic ills.

Thank your parents or grandparents for rebooting the economy. They’re the real heroes. Not self-righteous bureaucrats and politicians.