"The New Deal didn't end the Great Depression, WWII did!"

Great Debates
1

I’ve seen this claim bandied about in conservative circles. The idea is that the New Deal was largely ineffectual in lifting the country out the of economic stagnation of the 1930’s. All that government spending was just wasted. What really got the U.S. economy going again was World War II. All those defense plants making bombs and tanks and planes meant that suddenly there were jobs again. This, coupled with the fact that a sizable percentage of the adult workforce was in uniform meant that unemployment dropped to almost zero and people had money to spend (even if there were few consumer goods to spend it on).

But those defense plants were humming, and those soldiers were getting paychecks only because the federal government was running a huge deficit to pay for it. Which suggests that if the political will had been there, it would have been possible to end the Depression earlier by implementing a much more aggressive version of the New Deal. The government could have pumped the sort of money into the peacetime economy of the 1930’s that was pumped into the wartime economy of the 1940’s and produced the same effect.

So, although “WWII is what ended the Great Depression” may seem at first as though it’s an argument that the New Deal was too liberal, it’s actually an argument that the New Deal was too conservative. The level of government spending in the 30’s didn’t end the Depression because it was too small. What was really needed was the truly massive burst of government spending that only became politically viable in the 1940’s.

I’m sure I’m missing something obvious here, but I can’t figure out what it is. Can anyone explain to me why “WWII ended the Great Depression!” isn’t an argument IN FAVOR of large-scale deficit spending as a strategy for restarting a stalled economy?

2

No, you’re exactly right. FDR was able to do the New Deal in full by appealing to wounded jingoism after Pearl Harbor. American “Conservatives”, then & since, are a remarkably thick-headed bunch when it comes to economics.

3

Because the large scale government programs didn’t work, and it took a world war to finally get us out of the economic doldrums we were in due to the depression AND the stupid New Deal stuff that only stretched the depression out. I don’t see how that really works for those in favor of government intervention, honestly.

Your logic is truly bewildering. I can’t see how you think that Roosevelt et al were too ‘conservative’, or how you think that building to the same level that WWII caused but without any motive at all save getting out of the Great Depression would have achieved, well, anything save destroying the US economy completely.

This rates an 11 on the 1-10 scale irony meter…

-XT

4

How did having a world war get us out of the doldrums? What was the mechanism?

5

The government spent money during WWII because it was buying stuff…guns, bombs, tanks, uniforms, etc. There was no real alternative. After Pearl Harbor, we had to join the war, so we did what it took to win.

What would the government have bought at WWII emergency spending level, in the 1930s? What would it have done with whatever goods it bought? Why would it be buying all this stuff? Sounds to me like the OP is advocating spending for the sake of spending. That’s nonsense.

6

You are both wrong, the first because you over-simplify the argument grossly, the later because you apparently used the analytical depth of a, well, a singleminded leftist with no ability to look at what people actually say instead of what you’
d like them to say.

For once, go look at the actual economic changes in depth. The New Deal… failed. It failed utterly. It may have brought some economic security to some people, but it failed in any way to help the economy recover. In fact, it created a great deal more uncertainty for most of the job producers, while favoring a few huge employers. Worst of all, it enshrined a few bad ideas as holy writ, while claiming with absurd hypcrosy to be flexible and change what didn’t work.

It didn’t. The new Deal era was a titanic failure in bringing growth or prosperity or opportunity.

World War 2, in and of itself, also failed. It didn’t bring any prosperity. Of course it did. It didn’t produce anything: it destroyed a bunch of shit. The economy briefly became nearly a totalized war machine, producing a bare minimum of anything for people and a hell of a lot for killing people. It was a really bad thing for the economy and could have resulted in a complete economic collapse if it had gone on much longer. Fortunately, our ability to endure was far greater than our adversaries’.

What brought economic growth back was two things. First, we had almost the only export sector in the world anymore given the devastation everywhere. Second, there was a hell of a lot of quiet deregulation in the immediate postwar era. Much of the New Deal was dismantled, while FDR’s pretentious economic advisors had lost power.

Those men deserve a damn lot of opprobrium. I won’t name names, but they were basically the liberal elite Ideal Man - worldly, energetic, trained in the liberal arts - and thought they were all smarter than the people who actually ran businesses. And they spent a lot more time building bureaucracies than growing the economy. Not surprisingly, they went nowhere. It was not until the painful realities became apparent going into the War that things began to change in the White House, though of course Roosevelt couldn’t really admit things failed.

7

Most of the stuff the government bought during World War II was destroyed shortly thereafter. What’s the difference between buying a tank and shipping it off to be blown up in France and buying a car and parking it in the Arizona desert to gather rust?

8

In several ways, some of them economic, some of the psychological. What you are wanting to hear is that they got us out by massively injecting ‘government’ funding into private industry, which put people back to work…and that’s true. But Roosevelt et al had ALREADY injected massive funding from the government into attempts at creating jobs (though not necessarily by injecting that into private industry which may be the key difference), and it didn’t work. The difference was, I think, more psychological, in that the people were motivated towards a common goal (defeating the Japanese and Germans). They didn’t just get jobs building infrastructure or sweeping floors because the government waved it’s magical government wand and created them…the jobs that were produced were meaningful and worthwhile. They were important.

The other thing was that because of the war huge new markets were opened up that weren’t open before due to various factors (such as our isolationism, the fact that while the US was going through a depression so was the rest of the world, the fact that US manufacturing didn’t get the crap bombed out of it, etc etc)…again, not something that the government could have just waved it’s magic government wand at and made all better by MORE government intervention.

From my own memories of history, the Great Depression was more psychological than real. People were afraid and they were in a panic, and a lot of people on the left were injecting their own ideological beliefs and emotions on ‘fixing’ the ‘problems’, while those on the right were wanting to maintain the status quo and felt that the ship would just right itself. Basically, IMHO and FWIW, they were both right and both wrong, and that combined they made the GD last MUCH longer than it should have or would have without the governments ‘help’, or the old guards stubborn insistence on trying to halt change.

-XT

9

The difference is you needed tanks in France to actually fight a war. So you bought them. And you used them for their intended purpose. The guys driving the tanks tried like Hell to not get blown up, but casualties happen in wars.

Building cars just to let them rot in the desert would be wasteful and absurd.

10

But how is it different in ECONOMIC terms? In both cases you expend labor and capital to create an asset which then is destroyed. The fact that in one case the destruction is used to accomplish a political goal, doesn’t change the fact that both assets no longer exist.

11

Previous relevant thread

12

First, you need to realize that the “Great Depression” was actually two depressions. The first ran from 1929-1934; the second from 1936-1941. There was an upward tick at the end of 1934, but the economy went back into recession in late 1935.
Second, the “New Deal” was a ragbag of programs, most of which did little or nothing to help things…like the “National Recovery Act” (NRA)-this was a crack-brained attempt to halt deflation-by fixing pricing and labor wages. It didn’t work, and was declared unconstitutional. The farm subsidy program (intended to stabilize farm prices, didn’t work, either.
The advent of WWII “cured” the economy, because massive government demand (for tanks, airplanes, ships, etc.) eliminated unemployment-and drafting millions of young men dried up the labor market. There was no inflation, because even though workers (in war industries made large paychecks), there was little to spend on (civilian production of cars ended in 1942, tires were rationed, and many foods were rationed).
Basically, the government acted to increase demand on a huge scale-so the depression ended. Could the “New Deal” have done the same? No, because people will not endure things (like the draft, food and goods rationing) unless there is a grave national emergency (e.g. war).

13

Remember when people used to give cites in discussions like this? I wonder whatever happened to that web site.

Here is a graph of unemployment in the 1930s. You can see it rising to near 25% during the Hoover years, to fall to about 15% after the New Deal. It rose again in 1937 - this was when Roosevelt lost his nerve and started cutting the deficit - with the expected consequences. It fell again until 1940 when the draft cut in.

There was indeed no inflation during WW II - but that was not because of the lack of things to buy - people chasing fewer goods not raising the price is economic lunacy. No, the government instituted price controls - my mother worked for OPA for a time. There was also rationing, of course.

There was another reason for the recovery after the War. People with jobs and no place to spend their money saved it by buying war bonds. Thus when civilian manufacturing started up again, people had money to buy the cars they did without during the war. There was a recession after WW I, and Truman was quite concerned about not repeating it. I think the GI Bill probably helped in funneling a lot of GIs into college and not the job markets, besides its other obvious benefits.

As for the factors helping, the FDIC was a major one, in that it rebuilt confidence in banks. Could Roosevelt have done better? Of course - economic theory was still reasonably primitive, and people still didn’t grasp the benefits of the injection of government money for a recovery - and some still don’t.

14

However, four years of war produced tons of soon-to-be-outdated then useless equipment. Perhaps if it was spent on more permanent fixtures (Hoover Dams, Interstate highways, etc.) that would go a long way towards bridging the gap in productivity you see in the situations.

Other than economic prosperity I fail to see what we MADE in wartime that we needed after it.

15

Well the conservative argument never makes sense. We mark the start of the Great Depression with the Stock Market Crash in 1929. The economy looked good on paper, assuming endless appreciation of value in investments. But like the recent market collapse(s), the underlying conditions already existed (according to some anyway). The Crash is a definable point in time, and that’s how we mark the start of the Great Depression. How and when it ended can be defined in different ways, but not reasonably by saying the New Deal didn’t work.
The GDP began to fall faster than it rose at the beginning of the Depression, and unemployment rates soared with equal speed. Hoover addressed the problem by holding down government spending. He was no pure laissez faire ideologue, but he resisted attempts to use Government spending to alleviate the situation. There was no indication that Hoover’s lack of action did anything to improve the situation. The GDP continued to fall at a steady pace. Following FDR’s election in 1932, and the implementation of the New Deal programs, the situtation began a reversal that lasted until 1937. At that point, the GDP had returned to the pre-Crash level. That could be called the end of the Depression in an economic sense. Unemployment did not decrease accordingly though. Clearly much of the economic recovery was funded by the New Deal programs to offset the lack of jobs and consumer spending. In 1937 the economy turned downward again to a much lesser degree, and against all advice, FDR increased spending again, and the previous growth rate continued. By 1940, before the US had entered the war, unemployment began to fall at a rate that would continue well into the war period. The GDP maintained an upward pace from the start of the New Deal, until the end of WWII, with only a small dip in 1937. Its not clear that onset of WWII ended the Depression, but instead, as the OP indicated, continued a period of growth fueled by government spending. The GDP dipped at the end of the war, but then continued on with an average growth rate matching the New Deal and WWII paces.
So finding a clear ending point to the Great Depression is difficult because there was no change in economic conditions to mark the end in the same way that identified the beginning.
The conservative argument is always based on the idea that we didn’t wait long enough for the economy to self correct, and we all would have been better off if the government had done nothing. Sorry if I have misrepresented any Conservatives, but they’re the ones making the claims.
There is an obvious truth to face though. We could not have maintained an economy forever based on government spending. WWII did more than just pump money into the economy to make the disposable tools of war. It seeded development of technology, manufacturing capacity, and educational institutions which led to long term economic stability. But if there had not been an end to the Depression and WWII level spending, that could not have reasonably continued.

16

We were still using quite a bit of that military equipment in Korea.

In terms of tangible economic development, the TVA comes to mind.

And the WPA.

17

We made a world in which no country but the U.S. had a fully intact industrial infrastructure. That was the key to the success of America’s economy until the 1970s.

18

As for the OP…

…I think Edward Harrison makes a compelling argument why massive fiscal stimulus in the U.S. is problematic today:

Essentially, the hope has been that we could make the banks comfortable enough to start lending again by shoving money into the pockets of a bunch of politically connected cronies, and hopefully return the situation to the status quo ante. But getting back to where we were isn’t much of a solution if it involves encouraging a bunch of people already in debt up to their ears to take on even more debt and spend it. If you believe in fiscal stimulus, what you’re left hoping is that the Obama administration can fashion some sort of program that will get people working, reduce their debt load, and regulate away the abuses of the financial industry. I can’t say I see that happening.

19

The bank bailouts obviously have little in common with the New Deal programs, except you and me still footing the bill. But the current economic condition isn’t much like Great Depression either. I think we failed to learn the only lesson we could have from the Depression, lack of financial regulation leads to economic failure.

20

And here’s a timeline with a table showing GDP growth and unemployment during the Depression:

http://www.huppi.com/kangaroo/Timeline.htm

GDP started rising and unemployment started dropping beginning in 1933 after the start of the New Deal, with increased GDP and decreased unemployment in the 1934 yearly figures. Saying the New Deal failed just isn’t backed up by the facts.