WWII and The Great Depression

Perhaps no economic fallacy has been repeated more than the one shared Saturday at a California Republican Assembly event by U.S. Congressman Duncan Hunter (R-52). The myth that WWII was responsible for pulling our nation out of the Great Depression. Its time to put this farcical tale behind us and begin to learn our economic lessons.


While I agree with the Congressman on 80% of his votes (the Constitutional ones) as a Conservative I need to comment. If the message 'War Improves Economy' is true then we justify a philosophy inconsistent with the laws of nature and our principles (i.e. sound money, free markets, limited government).  We become part of the problem rather than the solution.  We become responsible for increased militarism and debt, not to mention the moral implications and consequences that stem from foreign intervention.


Consider . . . 
During WWII we exchanged debt for lower unemployment and higher GDP numbers.  Our national debt rose from $41B in 1941 to $260B in 1945.  Debt was used to draft/employ 12M of the 17M who were unemployed in 1939.  If we seek a true picture of GDP and unemployment figures I suggest we deduct government spending from GDP and subtract government workers from the employment rolls.


The GDP and unemployment figures recorded during the war give us a false perception of reality as they were the product of  $200B of new government debt.  One may ask, "Why not sin that grace may increase?"  Why not double the debt and improve the figures further?


Consider . . . 
Many of FDR's New Deal programs (CCC, WPA and many others) were killed by Congress during the war to free up scarce resources.  Thus the ending of many of FDR's programs and entitlements during the war led to a stronger recovery after the war.  In other words, many of the government programs that drove our nation into depression were absent in 1946.


Consider . . . 
Lower taxes.  After the war Congress repealed the excess-profits tax, cut the corporate tax, cut the top income tax rate, and sliced the top marginal rate.  In other words, after the war, our government reversed course and moved away from the very policy decisions that created the depression.


Of course, Congressman Hunter is by no means the lone Conservative perpetuating this fallacy, there are many others  doing so as well.  War improves economy?  It just ain't so.


Ideas have consequences.


If we wish to play a part in a more prosperous America we need the right ideas and learn our economic lessons.


When the people lead . . . the leaders will follow.




Sources:
Great Myths of the Great Depression, Lawrence W. Reed
What Ended the Great Depression? Burton Folsom
Depression, War and Recovery, Sheldon Richman