Was World War II good for the American economy?

Put aside Bob Higgs’s points about restricted consumption, Alexander Field has another angle:

Had trends persisted in the absence of war, employment, TFP, and labor productivity would all likely have been higher in 1942…housing construction was robust and growing in 1939, 1940, and 1941, and when the postwar housing boom emerged with full force in 1946, it took off from where it had been arrested in 1941. Since the failure of residential construction to revive fully was one of the major contributors to the persistence of low private investment spending during the Depression, its signs of revival in the years immediately preceding the war suggest that had peace continued, investment, output, and employment growth would have continued as the economy reapproached capacity.

…There continues to be a popular perception that war is beneficial to an economy, particularly if it does not lead to much physical damaged to the country prosecuting it.  The U.S. experience during the Second World War is the typical poster child for this point of view.  Detailed research into the effects of armed conflict, however, has usually produced more nuanced interpretations…In that spirit, the research reported in this chapter represents a revisionist approach to the analysis of the Second World War, although one that is not entirely unanticipated.

You can buy Field’s excellent book here and here is my previous post on the work.  Here is Kling on Field, very useful.

Comments

"Detailed research into the effects of armed conflict, however, has usually produced more nuanced interpretations…": I suppose that that's a nuanced way of saying "Detailed research , however, has usually shown that view to be utter bollocks".

Perhaps the quasi-monetarist answer is that it may have been good because it caused the central bank to emphasize growth rather than price stability?

You also have the nuance of all your competitors being either destroyed, bankrupted, or both.

surely there is a terrific data-set in World War One? Alot of the same broad-stroke phenomenon (US arrives late in an over-seas war, but financed and manufactured for the allies long before soldiers arrived, the "other guys" were wiped out etc)

Why do you never hear about WW1 as being conflicting/agreeing with the initial posit? when you hear the WW2 saved america guys, the world began in 1939

Is this a serious question? How can millions of people dying ever be good for any economy? How can men being forced to fight by either draft or circumstances ever be good?

You would THINK this would be obvious. Alas.

But ... but ... GDP! And, and NGDP, especially!

I don't want to hear you yammering about how "oh, but in a war, that growth doesn't necessarily correspond to the satisfaction of wants, blah blah blah". Numbers don't lie.

Besides other things, Higgs discusses how numbers can lie, especially with price controls in place and much of the economy controlled by the Federal government. In that situation, the prices for transactions are suspect.

But you did not want to hear this, so just ignore it.

A command economy can be immune to cyclical recession, if you don't care about long run growth.

Fluctuation in Soviet bloc:
http://www.jstor.org/pss/2720806

I don't know. Do I really want to spend a couple of hours reading why someone thinks that it's better to lose millions of adult men in the span of a couple of years while your infrastructure and productive capacity are annihilated and your educated elites flee, die or become corrupted by the war? Is there really any way in which the loss of some seventy-odd million people in Europe, the USSR, China and Japan was a net benefit to these countries, putting the US at a disadvantage because they only lost half a million?

Must be nostalgia days at Marginal Revolution.

Yesterday it was 1920's letters by Keynes, today it is "what if no WWII" books.

Progress.

I think the only benefit of WWII was at best a re-balancing of household balance sheets and reducing debt to artificially low levels because of rationing. Of course I doubt that WWII left us anywhere near better off than would have been otherwise.

Excellent blog post.

Many North Americans also fail to recognize how battling with colonies lead to the decline of several European imperial powers.

Violent colonialism is no longer cost effective ex ante or ex post. Times change, empires don't.

Economics in One Lesson has a very good chapter debunking the idea that war is good for the economy. Sad to see that "There continues to be a popular perception that war is beneficial to an economy". I guess war is just a very aggressive stimulus program.

Is there a purpose to this?

Was the attempt to categorize Keynes as a "central planner" an attempt at attacking Keynesianism through guilt by association?

Is the "what if WWII didn't happen" trope an attempt to say that government spending was not responsible for getting the US out of a depression?

In economic terms, WWII was a massive keynesian experiment, much more so than the new deal. Aggragate demand was weak, and the government supplied it. Would we have been better off having the Government buy steel to build bridges than to buy it to build ships that ended up at the bottom of the Atlantic, of course. But even building a ship that sinks puts people to work making the steel and then building the boat. However we could not muster the plitical will to build the bridges. The threat of a lunitic like Hitler provided all the political will and then some to build the ships (and tanks, bombers etc). Rationing kept consumption low, but invetment spending went through the roof. That can only be done in extraordinary circumstances.

That's exactly it. We measure GDP, or the circular flow of money caused by producing and consuming goods. That's something quite different from welfare, or happiness, or felicity. It's the monetary world. And war production does increase production and the circular flow of money.... which does creates jobs and low unemployment. Just like it does nowadays: all kind of very bright people who are paid to develop ever more destructive weapons, like cluster bombs. World War II did end the Great Depression and, in the USA, poverty and the like. No if's there: the Manhattan project alone occupied 200.000 people (and killed as many). We do pay people to kill people, which shows up as GDP. Morally: bad. Looking at the circular flow of money: consistent accounting. Building statues for dictators does rtequire scarce resources and labor.

Economics is not about morality - it's about the choices actually made. Let's bring them out into the open.

The war generated a lot of productive technologies, such as jet engines and synthetic rubber, which almost certainly contributed to post-war growth. The pace of these developments was most likely faster than it would have been if there had been no war. But that's a vastly different conclusion from WWII as some kind of vast Keynesian stimulus which ended the depression. In fact, investing so many resources in activities that became mostly useless immediately after the war probably had the opposite effect.

The aftermath of WWII put most of the countries of Europe on a de facto Dollar standard, which increased the demand for our currency (which eventually led to massive dilution. We also destroyed everyone else's productive capacity and installed puppet governments, which couldn't have hurt. Yet everyone wants to focus on 'stimulus'.

(which eventually led to massive dilution, but would have given an initial boost to purchasing power adjusted GDP)

The 'war is good for the economy' very much mimics the broken windows fallacy . The idea is that if a boy breaks a window then the economy benefits as it enables a worker (the guy who fixes windows) to work for money. It makes the inherent assumption though that the man whose window was broken had no other investment or consumption decisions that he was considering at the time, or was underutilizing his resources. If he did, he probably could have engaged in transactions that enhanced his productivity, or even benefit another sector of the economy (i.e. if he retiled his roof). This is more or less how Keynes' interpreted it. I think the war argument however does sometimes forget that the focus on the military disrupts investment in other parts of the economy.

If you hadn't said it, the next comment at the end of the thread would have been me saying:

Broken windows. Broken windows. BROKEN WINDOWS!

You are absolutely right. Treating war as a Keynesian stimulus is exactly the broken window fallacy. (WWII is a little complicated because war would have happened sooner or later between USSR and Nazis, but think of WWI.) Just how much richer would the world have been in 1920 if the European powers hadn't pissed away lives, time, gold, and resources on their little turf fight? Just how much richer would the world have been in 1950 if the Japanese and Germans hadn't gone imperializing their neighbors? If the US hadn't bombed Japan into the ground and the Soviets not steamrolled their way back across eastern Europe? What was the cost of rebuilding two civilization on two continents?

Nobody ever bothers to ask or answer questions like this when they're talking about WWII as a Keynesian stimulus. "It jolted us out of the Depression," sure, maybe, but was the world better off 30 years later? So kudos to you for pointing it out.

I've obviously not read the book, but how are 1939, 1940 and 1941 pre-war?

Higgs' podcast discussion with Russ Roberts is pretty interesting, especially where he discusses the artificiality of prices under wartime controls, and the deterioration of product quality.

People who say war is good for economies have a fun time examining the national income statement. However, the don't look at the national balance sheet!

War destroys and redirects vast amounts of resources. If the US had a national balance sheet, it would have to write down all the men and materiel lost during the war. In a proper income statement, these write downs would be expensed. But GDP accounting doesn't do this.

In economics, we understand that there isn't merely a tradeoff between guns and butter. War reduces current production possibilities by the destruction or disrupted supply of resources. War might spur technology which will increase economic growth, but from a lower base.

Our economy advanced during and after the war largely because our allies and enemies suffered more damage to their infrastructure than we did. We had little competition. And our soldiers came home to a welcome desire to buy houses and have babies. Also, during WWII we expanded our production possibilities by bringing blacks, Hispanics, and women into our labor force - some on a permanent basis.

It's noteworthy that growth began to stall when our competitors had rebuilt and when Krugman's baby boom generation reached their unproductive teenage years.

Why is it Krugman's? Did he spawn them?

On a lighter note, I agree with most of what you say.

You can also view economic growth through a demographic lens, which suggests that growth will decline as people leave the labor force in increasing numbers as they retire and become net consumers. You will have a situation where the total labor force declines, but there could be lower unemployment as the lucky post-baby boom generation find it easier to find a job as the older generation retires. Unfortunately, the older generation is spooked--threats to SS, medicare, and the last and current recession--so, but for these man made events, that generation would be setting pretty.

I say this because one of my clients services (through software) a large number of the HR consulting firms. Before this last recession, their clients were envisioning a very tight labor market as the baby boom generation began to retire. Last time I checked with them, they claimed the system was getting clogged as older workers were holding on to delay retirement.

So much for projections.

Yes, the war began in 39 and no doubt we would have been ahead if we never had to fight it but probably worse off after if that led to an Axis hegemony and definitely worse off if they had expansion plans for the new world. Isn't everyone better off if they don't have to fight a war? That doesn't mean they are better off surrendering.

Despite the destruction there were two silver linings. Wealth redistribution due to it produced a much more dynamic economy and the technological push and educational investment following accelerated innovation, but war is still a cost. Hopefully only a necessary one, not a frivolous one.

Axis hegemony? The Soviets would have crushed the Nazis eventually. The only question was whether it would be in 1944 or 1950.

I'm more interested in this question: Was the Cold War good for the American economy? Obviously some central planning led to the development of technologies we take for granted today. Perhaps they would have been developed faster without central planning -- who knows? Yet it seems some path dependence would apply and that America would look different today, for better or worse, if not for the Cold War investments.

How much did we trade with the USSR? How much could we have traded with Russia and a non-Soviet bloc? (Or even traded with a non-hostile communist bloc?)

Why would you expect the national accounts to tell you much about what the war did or did not do? It did much more than boost government spending - it altered the political balance between capital and labour, empowered large numbers of people, exposed huge numbers to the world in different ways, trained tens of millions (about 80% of soldiers are in technical jobs, not in fighting), altered perceptions of various ideologies... I could go on. But all these changed the political and economic possibilities after 1945 in ways that simply did not exist pre-1945. Alternate history is fun, but it's hard to image the 30s world making the leap into the 50s without the war. Which is not to say it was a good thing.

WW II wrecked all of America's industrial competitors and it's industrial supremacy lasted for thirty years. It could have lasted longer if America had not aided it's competitors' resurgence in the service of it's cold war aims. Americans got used to being the world's rich uncle. The rest of the world has recovered and prewar backward agrarian countries have joined the competition to build successful industrial economies. US no longer enjoys it's prewar and wartime status as an oil exporter either. America's political and economic systems are having difficulty adjusting to it's new and less favorable international position. It's political system has adequate flexibility, but that advantage will be of no avail if it's voters fail to upgrade the political leadership which has been abysmal for at least twenty years and arguably since at least 1968.

The truth is so glaringly obvious, how can anyone miss. Vast numbers of our boys went to war. They were not producing goods and services such as cars, food, consumer goods, housing, travel, entertainment and so on. Neither were many of the folks who stayed at home. They were making bombs and airplanes and tanks and food for our soldiers. Huge investments were made in the destruction that war is instead of investment in the standard of living of this country. It took years of extra effort after the war to recover the standard of living lost in the war.

This is not a commentary on the justification of this or any other war. One must justify war before engaging in it but how can anyone say that war is good for an economy? Nor does wrecking the econmomy of another country help the United States. It only makes them incapable of offering anything of value for our goods.

My parents were 29 when my father was drafted into WWII. He came home at the end of 1945 to no job and was helped by his parents. My mother had worked during the war at a munitions plant.

As a family, they never recovered prosperity. The competition for jobs was fierce. My father maintained a portfolio of part-time jobs and did not have a full-time job until 1963. These were good, prestigious small-town jobs. My mother ran her own business. I was born when they were 37.

After my father's death at age 59, my mother moved into subsidized housing and died broke after years on Medicaid thanks to a long bout with Alzheimer's. This was a solid middle class family.

Perhaps their economic prosperity was bundled in the statistics with that of other age cohorts after years of deferred gratification, part-time jobs, helping other family members, and chronic illnesses. Of course, everyone having children at the same time after the war would have created a bump in consumption. Perhaps a sense of smoothing over age cohorts, and some consideration of the life cycle, would diminish the myth of post-war prosperity.

The infinite net buys the group to buy the ultra low price to let your heart jump crazily does not stop has a look quickly
I believed that you will like her (WWW).(AFFBB).(COM)

The war did provide an excuse to raise pay and living standards through things like the GI Bill and the VHA which moved millions into the middle class. War provides excuses for doing important things that we should be doing anyway like feeding school kids lunch (WWI), sending people to college (WWII), or developing solar power (Afghanistan).

According to Field average annual TFP (total factor productivity, or the residual from in growth after accounting for physical capital and labor accumulation) growth was as follows:

1929-1941-2.8%
1941-1948-0.5%
1948-1973-1.9%

So WW II was a period of stagnation in these terms.

There have been a lot of good comments above and this is not refute or prove one side or the other, but it should be pointed out that the traditional story of Keynesian intervention leading us out of the Great Depression is in no way disproven by Field's evidence of housing construction. If you're looking at government expenditures, 1941 is an arbitrary line. We had already started ramping up production of military hardware and supplies much earlier (like, say, 1939) in support of lend/lease and other intervention on behalf of the Allies. I don't have any numbers in front of me, but I suspect we were starting to build up our own armed forces already in anticipation. So taken alone, I find the housing construction numbers to *reinforce* the theory, rather than disprove it.

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