I’ve noticed numerous discussions over the past few of years about the Great Depression and the policy prescriptions that pulled America out of the worst economic disasters our world has ever experienced. The parallels to our current predicament are obvious, so looking to the past for solutions to the problems of today is a reasonable approach.
In general, I would say that opinions about what ended the Great Depression are split right down ideological lines; Liberal and Conservative.
The line parroted by good Libs everywhere is that the New Deal pulled us out of the Great Depression. Only by the grace of Franklin Delano Roosevelt and the all knowing, all caring, all powerful Federal Government did the economy start humming again. Only after tax increases, countless government work projects, targeted welfare programs and carefully written labor and trade regulation did America finally rise like a phoenix from the ashes to become the economic powerhouse we are today.
The line parroted by good Neo-cons everywhere is that World War II pulled us out of the Great Depression. Only by the grace of the Allied Forces and the all knowing, all caring, all powerful Federal Government War Machine did the economy start humming again. Only after war bonds, military campaigns, targeted manufacturing programs and carefully written wage, price, and consumption regulations did America finally rise like a phoenix from the ashes to become the economic powerhouse we are today.
I am not surprised by the Left’s interpretation of the New Deal and how it affected the Great Depression. They favor Keynesian economics, central planning, and government intervention. However, I am supremely confused as to how the Right can look to WWII as the cure for the Great Depression. Just like the Left, they seem to favor Keynesian economics, central planning, and government intervention. I’m lost.
A perfect example of this disconnect happened this week on the Rush Limbaugh radio show. Rush pointed out the absurdity of Paul Krugman’s assertion on CNN that a national mobilization against an impending alien attack would result in a fiscal stimulus that would be good for the economy (even if the threat turned out to be false). Fox Mulder would be so proud.
Here are some quotes from Limbaugh’s show that got me thinking. The full transcript can be found HERE.
“A product's a product. A bomb is a product, whether it's a good thing or bad thing. But it is a thing of economic value; and in his endless arrogance that Krugman doesn't seem to realize that we really were the world's arsenal. People bought weapons and tanks from us with real money”.
And…
“See, this is the hypocrisy with these people. They're all running around saying, "Well, we got all these fake, phony wars. We got a Iraq, we got Afghanistan, the net cost to the economy, we gotta get out of there. Those things are a trillion dollars apiece," and yet if we were attacked by space aliens, that would be legit. Thank you, CNN. “
May I suggest we change old “Rush is Right” bumper sticker to “Rush is Right… Sorta”? The thing is that Limbaugh wasn’t arguing against the notion that a military buildup to ward off a fictitious alien invasion will result in an economic boom. He was pointing out that Paul Krugman types tout the New Deal as the be-all-end-all economic stimulus program as opposed to military spending as the be-all-end-all economic stimulus program. He was actually agreeing with Krugman in a way that military spending on bombs and tanks results in productive, economic growth.
The problem here El Rushbo is that eventually, the war ends, bombs are no longer purchased, the bubble has burst, and you are in the same dire straits as before. As the old saying goes, “Money for nothing and tanks for free” (a little Mark Knopfler humor there).
I hear people on the right espouse this nonsense all of the time. It drives me nuts because you can’t swear off government intervention when it takes the form of the New Deal and in the same breathe credit government intervention because it takes the form of the military industrial complex. They are the opposite sides of the same big government coin.
It is a classic case of the Broken Window Fallacy (or Theory).
In short, the Broken Window Theory suggests that a broken window is good for an economy because the act of replacing the window spurs economic growth. The problem with this logic is that the owner of the window cannot use the money spent to replace the window on a suit, a lawnmower, or a nice meal at a restaurant. Plus, a perfectly good window was destroyed in the process. The owner of the window would be better off with an unbroken window AND a suit, lawnmower, or a full belly.
The moral behind the Broken Window Theory is a parallel to vandalism, war, natural disasters, and redistribution of wealth as a form of economic “stimulus”. They do not stimulate anything in the long term.
Think about it. During World War II, would it have been wise to allow for the Axis Powers to level Los Angeles? Think of all the construction jobs that would have been created to rebuild a city of that magnitude. Think of all the new homes, businesses, and skyscrapers that would dot the landscape. Boom Baby!
Maybe we should have spent millions to construct aircraft carriers, set them off the coast of North Carolina, and sink them with our own submarines. Think of the thousands of jobs created for aircraft component manufacturers that would have benefited from such a ramp up in production. Not to mention, the certain boom for the TMAA (Torpedo Makers of America Association).
Maybe we should pray to the Keynesian gods for a Japanese earth quake or a Sumatran tsunami to level the entire east coast of the United States. The trillions lost in the unimaginable destruction will only lead to trillions found in the glorious rebuilding effort. Plus, the untimely deaths of millions will lower the national unemployment rate. I think we have just stumbled across a pretty exciting solution to America’s woes.
The answer to government prolonged recessions (or depressions) is never more government. If you want to credit World War II for ending to Great Depression, you could say that it effectively distracted FDR from his destructive, big government, nanny state policies that only prolonged the misery. You could also credit World War II for the death of millions and the incapacitation of Europe’s manufacturing base. This allowed America to assume the role of world’s supplier of commodities and consumer goods for years to come. That is a hollow victory in my book.
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