One of the arguments often put forward by the proponents of massive government stimulus spending as a solution to our economic malaise right now, is that when World War II occurred, the massive level of spending the government engaged in is what created the necessary stimulus to pull the U.S. economy out of the depression it was in (the U.S. economy ran something like a deficit that was 40% of GDP during the war). After the war, the American economy experienced a phenomenal level of economic growth. Their argument thus is that if we engage in deficit spending on a similar scale, that we will see a similar turn around and level of economic growth again. I have a few problems with this argument.
Being a non-economist, my points for skepticism regarding this argument would be the following:
1) World War II itself, in terms of the amount of money spend on research and development regarding engineering and science, and in terms of the industrial base that was built up in America as a result of the war.
2) After World War II, most every other industrialized nation in the world was bombed out and rebuilding. The United States literally had no competition economically. In addition, some nations adopted socialist methods, which hamstrung their economies. Under the Labour Party, the United Kingdom for example nationalized the mines, the railroads, and so forth (which proved disastrous). Germany came close to adopting socialist central planning after WWII, but adopted market capitalism at the last second because the German people wanted nothing to do with socialism after the Nazis. This adopting socialist measures obviously hurt the economies of such nations.
3) Because of the New Deal, a lot of infrastructure had been created throughout various areas of America that had formerly, infrastructure-wise, been completely barren. Many areas had received electricity, plumbing, roads, bridges, ports, etc...and thus after the war, were able to develop into thriving economies. This development of totally rural areas of the nation into thriving economies probably had a lot to do with the big economic growth the nation experienced at the time. You had whole new areas of the country developing economically. It was things like this that endeared the Democratic party to the American people for roughly forty years as well.
An irony here is that if the Great Depression had never occurred (it is believed to have been the result of bad policies from the government and the Federal Reserve), then the New Deal infrastructure projects never would have occurred, and thus the economy may not have boomed after WWII the way it did.
4) During the Depression, the birthrate had declined. As a result, when the thriving economy of the 1950s rolled around, all of the men entering the workforce at the time found jobs ready and waiting for them.
5) The G.I. Bill, which allowed many returning soldiers to go to college or trade schools and learn skills and knowledge which they then used to build the economy.
6) After the war, the United States did not have the massive social welfare state that it has today. There was no Medicare or Medicaid and Social Security was a fragment of what it is today. As a result, the United States was able to quite easily pay down the massive level of deficit and debt it had built up during the war, in addition to helping to rebuild the economies of Europe and Japan.
7) The Interstate Highway System was started during the 1950s, which had a huge impact on the long-term economic growth of the nation.
8) The defense budget and the space program led to the funding of a lot of research at various universities and institutions. It was funding from DARPA that led to some of the key discoveries that allowed the creation of modern computers and electronics, along with the creation of the Internet and the GPS (Global Positioning System). In this sense, the defense budget I'd say served as a form of industrial policy for the United States during the 20th century (and still does to some degree).
Right now, the United States, if engaging in a similar level of deficit spending as what was seen during WWII, doesn't really have any ultra-rural areas that need infrastructure development where we would see thriving economic growth. We have a much larger social welfare state to contend with, we have a large population, and we have a lot of economic competition with other nations today. So I am not so sure the analogy holds in trying to justify massive stimulus today.
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