04.27
Uh, no. It didn’t. This is one of the most persistent of the Great Depression myths. And it’s easy, in one sense, to see why it’s an easy concept to believe. After all, if your government wages a huge war, it’s going to need millions of workers producing war-time goods in order to fill demand. You’re also going to have hundreds of thousands of soldiers getting paid for active duty service. The numbers bear this out as well. In 1944, the unemployment rate was 1.2%. That’s an astonishingly low figure. It would seem that, at least in the employment category, WWII ended the Great Depression. But, there’s a small problem with that interpretation.
Firstly, the most glaring problem is that it’s dubious, at best, to lower the unemployment rate by drafting the unemployed into military service. In 1939, there were 9.5 million unemployed workers in the U.S., reflecting an unemployment rate of roughly 17%. By contrast, there were 370,000 military employees at the time. But, by 1944, military employment had risen to roughly 11.5 million people; thus, virtually canceling out the unemployment problem. However, drafting able-bodied workers into anything will reduce the unemployment rate. You could draft them into painting interstates green, or draft 10 million workers into digging holes and then filling them back in. That doesn’t end a depression, it just shuffles people around from one place to another. And, remember what a draft is. It’s a legal mandate. You either submit, or go to prison. But, somehow, when it’s a war draft, people see it differently. All of the sudden it becomes an economic magic wand to eliminate bad economies. Hogwash.
Secondly, you mustn’t forget that when a State nationalizes industry for war-time goods production, it is by default robbing labour and capital from it’s citizens. In other words, that new garden hose that Mrs. Johnson desperately needs in order to water her garden is now unavailable. Instead, it’s been made into jeep tires for the war. That doesn’t make Mrs. Johnson’s life any better. It makes it worse. Her husband might have a job. But that’s small concession if she has to ration food just as much as she did before he had one. We saw this all throughout the war years with every product that included steel, copper, rubber, etc. Consumers needs were not being met because all of the capital goods were being forced into making war materials for the almighty State. Again, just because those confiscated goods were going to be used in war doesn’t make it ok. It’s the same as the State taking all of that rubber, steel and copper and building an enormous 2000 square foot head of F.D.R. in the middle of the Utah desert. There is no difference. When resources are stolen, then wasted, it doesn’t matter in what manner they are wasted. The fact remains.
Thirdly, WWII economic numbers such as GDP, GNP and CPI are generally ignored by any economist worth his salt. That’s because of the horrendous skewing of numbers that result from government price controls, rationing, labour drafting and currency manipulation. You simply can’t trust any of the figures put out by the government from ’41 to ’47. They reflect a phony economy being manipulated by government. David Henderson sums it up well:
The point is that it’s not prosperity to produce things that government quickly destroys. So, if we factor out this 38 percent[war-time GNP gain], we’re left with virtually no increase in real gross national product per capita between 1940 and the last fiscal year of the war.
It’s actually worse than that. Despite various policies of Franklin Roosevelt that extended the Great Depression, the economy was coming out of the Depression in the prewar years. The unemployment rate, which had reached 24.9 percent in 1933, the worst year of the Great Depression, had fallen to 17.2 percent in 1939, 14.6 percent in 1940, and, as mentioned, 9.9 percent in 1941. Relatively-free-market economies, as the U.S. economy was, even after eight years of FDR, tend to recover from recessions and depressions as businesses find valuable uses for previously unused resources. The odds are high, therefore, that the unemployment rate would have continued to fall, absent U.S. participation in World War II, possibly reaching as low as 6 or 7 percent by 1944. This means that GNP per person, properly measured to reflect consumers’ values, would have been well above its actual level in 1944. Whatever the value of U.S. participation in the war, for Americans’ standard of living, World War II was a bust.
Wars don’t help economies. They ruin them. I’ll talk about that in more detail next time.
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