Sunday, November 23, 2008

War Mobilization Ended the Great Depression

There's a little controversy online today over the effacy of the New Deal recovery programs in restoring growth to the Amercan economy in the 1930s. Here's George Will discussing a "new" New Deal on "This Week":

Here's the take over at Think Progress:

This morning on ABC’s This Week, conservative columnist George Will echoed the false right-wing meme that FDR’s New Deal policies made the Depression worse:

Before we go into a new New Deal, can we just acknowledge that the first New Deal didn’t work?

To back the argument, Think Progress makes an obligatory - though-irrelevant - reference to "Nobel-laureate" Paul Krugman, who's recently promoted his work on "Depression economics." Yet Krugman's Nobel prize, of course, was for his research on international trade theory and economic geography, a far cry from Keynesian demand-side economics used to justify a spending binge, or whatever other new-left growth theories that have come around to rescue that failed Keynesian paradigm.

Think Progress also posts a graph from economist Brad DeLong, which suggests that private domestic investment had returned to pre-1929 levels by 1937. Of course, investments in capital and labor would normally take time to stimulate the economy, so it's not especially clear as to how that's supposed to debunk Will's recitation of the facts in 1937 on the continuing collapse of economic growth during the New Deal period of the Franklin Roosevelt administration.

It's basic historical knowledge that the Great Depression ended as a result of wartime production, which restored a full employment economy by 1943. Even
Wikipedia's main page gets it right:

The Depression continued with decreasing effect until the U.S. entered the Second World War. Under the special circumstances of war mobilization, massive war spending doubled the GNP (Gross National Product) Civilian unemployment was reduced from 14% in 1940 to less than 2% in 1943 as the labor force grew by ten million. Millions of farmers left marginal operations, students quit school, and housewives joined the labor force.
Unemployment was still 14 percent in 1940!

Yeah, sure, let's just jump-start a "new" New Deal!

These progressives are brilliant! And just think, the Huffington Post (Arianna's in the video above) and Think Progress are two of
the top-five bloggers ranked today. Figure that?

At least Barack Obama plans a round of tax cuts with
his proposal today to spend upwards of $700 billion to stimulate the economy. I guess those conservative think tanks might know a thing or two after all.


Laura Lee - Grace Explosion said...
This comment has been removed by the author.
Unknown said...

It's basic historical knowledge that the Great Depression ended as a result of wartime production....

You mean, government spending?

Steve J. said...

Unemployment was still 14 percent in 1940!

And in 1932, it was 23.6%, so it's clear the New Deal helped reduce unemployment by over 1/3rd.

GrEaT sAtAn'S gIrLfRiEnD said...

Cool! fire up cruise missile production - 3 shifts running 24/7 - 365

Anonymous said...

You don't actually address Krugman's argument, you just disqualify his opinion by saying that he didn't earn his Nobel Prize for studying economics relating to the depression. (That might be relevant if you or Will had earned a Nobel prize for such a study, or were even economists.)

Sure, but does that mean that everything he writes outside of the subject of trade isn't worthy of replying to?