Wars And the Economy (Now)...

Factual Questions
1

I’m sure the story is well-known by now. FDR didn’t end the Great Depression, World War II did. I don’t know exactly how it works, but apparently at one time, wars radically helped the U.S. economy.

Fast forward to the early 90s. George Bush I entered a war in Iraq when Sadam Hussein invaded Kuwait. Did it help the economy? Apparently not. In fact, perhaps coincidentally, perhaps not, we had one of the biggest recessions and/or depressions a couple of years later. George Bush I may have lost his reelection bid because of it.

So how did wars help the economy in the past? And why (apparently-??) is that not the case anymore?

Thank you in advance to all who reply:)

2

Phew. This will take a moment, so bear with me.

No war builds the economy. it can’t help, because a good economy is defined as one which produces more of whatever its citizens wants. Some wars can make some groups better, or individuals better, but as a whole war must inevitably damage the economy. OK, on rare occaisions, you could use a war to basically dispose of population ywhich isn’t producing anything, but situations like that are both rare and generally the product of militaristic tyranny (see Mao’s China, the Roman Empire, etc.)

During WW2, and WW1 for that matter, the US economy virtually shut down. We were totally comitted to beating the enemy, and our nation almost stopped producing consumer goods entirely. Basically, everyone and everything became poorer. Now, this was considered acceptable - people made big sacrifices in order to win. However, it wasn’t something we could maintain. WW2 strained us to the breaking point, and during WW1, the US arguably descended into outright Fascism! Keeping it going would have eventually broke us like it broke Germany in WW1. Even without any battles taking place within its borders, the country collapsed economically. It simply wasn’t able to feed its own people and suply so large an army.

I don’t blame Roosevelt for this. I think his pre-war policies were wrongheaded in general, and he was too popular for his own good. It was pretty much the heyday of the Progressive factions, and every time they get power they wreck things. Nonetheless, we won WW2. Moreover, while it’s generally accepted that Russia primarily defeated Germmany’s armies, Russia was kept in the fight only by massive British and American aid.

3

There’s a bunch of problems with your premises. First off, how exactly do you seperate Franklin Roosevelt from World War II? As I recall, he had a major role in that war. So if WWII ended the Great Depression, then FDR deserves credit for that.

And the only way the claim that the Great Depression wasn’t ended is by imposing a fairly artificial standard. Roosevelt’s New Deal programs turned what had been a declining economy back into a growing economy. The New Deal was a success albeit one that hadn’t completed its final act when the war arrived. If WWII hadn’t occurred the New Deal would have ended the Great Depression within another year or two anyway.

Finally, the basis for the claim that World War II ended the Great Depression is that the war caused the government to raise taxes, increase government spending, and manage the national economy. People were employed because of government created work. Sound familiar? For economic purposes, World War II was an expansion of the New Deal.

4

Strictly speaking, it wasn’t the war that ended the Depression, it was the mobilization. In other words, the rush to produce war material and get people in uniform soaked up all the slack in the economy (and then some).

By the time Vietnam, Iraq I and Iraq II rolled around, the domestic economy was humming along pretty well. Unemployment was much lower and the social safety net was much more secure than it had been in the 1930s. At that point mobilization was added to an economy that didn’t have all that much slack in it. The cost of combat had to come from something, and since the government didn’t want to call for domestic sacrifices (Johnson’s “Guns and Butter” programs and George W. Bush’s post 9/11 “Get on board. Do your business around the country. Fly and enjoy America’s great destination spots. Get down to Disney World in Florida. Take your families and enjoy life, the way we want it to be
enjoyed.”) something had to give somewhere.

5

World war II was kind of a special case because we ramped up production for things like planes and tanks, and those factories were able to easily convert over things like automobiles and other consumer goods after the war. Because we were able to take advantage of the increased manufacturing capability, we were able to turn something that could have been a huge liability to our economy into something that actually helped it.

The first gulf war was also kind of a special case. Reagan had spent huge sums of money building up our defenses in the early 80’s. Because of this, we didn’t need to ramp up production of much for the first gulf war. We just took our huge inventory of weapons and ammunition and used some of it. Normally when you build up for a war, a lot of money gets poured into the defense sector, which ripples through the economy somewhat. This time, very little money got poured into defense. The war was too short for us to ramp up production of ammunition and such.

Add in some debts from Reagan’s era that now needed to be paid, and add in some unease in the markets due to the war in general, and it’s not too hard to see why the economy tanked.

6

Historically speaking, all wars produce some blip of increase on the economy, especially to the victor. It also produces a depression. The timing of these things and the severity of these things are all determined by monetary and fiscal policy, and the complexity and free-ness of the market. Is it possible to time and plan things so that the economy is largely unaffected, sure, but you would also be omniscient if you could.

Iraq I and II both stimulated the economy. Iraq I, if memory serves, had a much better turn around than Iraq II. Both had depression periods, too, Iraq I being less severe than Iraq II. The difficulty of quantifying this data is that as the economy becomes more advanced and more globalized, the more difficult it is to ascertain the cause and effect of the wars. For instance, it can be argued that Iraq II wouldn’t have been so bad if there wasn’t an over-reliance on the housing bubble.

In the general sense, though, smiling bandit is correct. It really is a guns or butter decision. In the short term, everyone benefits from war production. People are hired, money flows, things get used, more things get created. However, as war production shifts and as war prolongs, and as casualties rise, the consumer base becomes smaller, demand decreases, but ultimately, more war machines are used and productivity is lost. We eventually become poorer. Economies usually gain to the victor because new resources are found (slaves, gold, land, etc.). A depression will begin because the inflationary pressure from the war (e.g. government increase in demand for all things war related) will correct (e.g. because the government doesn’t need it any more). Additionally, less money is in the economy, until the spoils are split and entered into the economy.

My one friend, in my econ classes, also theorized that war spurs necessity and, therefore, invention (as “necessity is the mother of all invention”). Each war, and he speculates further, particularly prolonged, global wars, spurs technological advances to make us all productive. :dubious: Good, sure, I suppose, if one can stand all the killing, blood, misery and destruction. Two sides to every coin…

7

The WWII argument mainly depends on how much you accept Keynesian economics. Trying to define them in a sentence inevitably simplifies them to the point of distortion, but let’s just say that his view was that in a time of depression - low productivity, high unemployment - the government must pump money into the economy, even at the risk of running large deficits. (The flip side of this is that when the economy has recovered, the government must turn around, increase taxes, and build up surpluses to comfort the next slowdown. Few politicians are ever willing to do this and the consequences have been seen over and over.)

Keynes’ arguments were not well understood and not accepted at the start of the Depression, even by Roosevelt’s advisors. Some of his first acts as President were in effect attempts to try to balance the budget, exactly the wrong steps to take. Some of Hoover’s top advisors remained on to write these bills. (Documented in Jonathan Alter’s The Defining Moment: Franklin Roosevelt and the First Hundred Days.) Roosevelt was not an economic revolutionary. And he was surrounded by conservative voices at all times during the Depression. Every time the economy started to improve he backed away and supported policies that would reduce spending and deficits. And each time he did this the economy took another dive. (You can see this even in a pro-business account of the Depression like the recent The Forgotten Man: A New History of the Great Depression, by Amity Shales. You have to look at what she says rather than what she states to realize this, but she’s honest enough to include the numbers.)

Conditions in 1941, therefore, were not much different from conditions in 1933. The same remedy was therefore still applicable. Huge government spending on munitions and all the subsidiary industries that are required to support a modern war did remove unemployment. Deficits were unprecedented, exceeding even those of the Civil War (which also helped the economy), but the public was more than willing to finance them through endless series of war bonds.

Why didn’t this work in later wars? For one thing, none of the later wars started in a Depression. Vietnam arose in a period of prosperity. Deficits were not a remedy but a problem. WWII, as noted, crushed civilian production. People saved money, mostly by buying war bonds, but also by forced saving through rationing and austerity programs as well as tax increases (some because they now had larger incomes to tax). A return to at least a recession if not a Depression was expected after the war’s end, but the downturn was small and short-lived because of the enormous built-up need for civilian spending and the savings with which to do so. With Vietnam we started with enormous consumer spending in an age of leisure yet tried to pile on top of this an expensive war and expensive domestic programs with the Great Society. Nixon needed to either cut these programs, politically impossible, or raise taxes to cover two sets of spending, politically impossible. Ford and Carter inherited the inflation and stagflation that this lack of decision inevitably caused.

The current wars in Iraq and Afghanistan are economically similar to the Vietnam period. We entered them in a period of prosperity, even with the dot com bust in 2000. Tax increases were declared politically impossible, but spending rose tremendously for war materials and also rose domestically. This caused a recession rather than brought us out of one.

Deficit spending is the proper Keynesian course now, because unemployment is rising and consumer spending has decreased. Tax increases are the remedy in the future, once the economy has improved sufficiently. They probably won’t happen, even though large increases in government spending are being urged. Tax cuts are the worst possible answer, but some factions will call for them anyway. It’ll be interesting to watch which political faction will win out.

For a good neutral account of the Depression and the scattershot economic policies of the Roosevelt administration, I recommend The Great Depression: America 1929-1941, by Robert S. McElvaine, which should be in most libraries or can be bought cheap used. It was written in 1984, following both the stagflation years and the milder repression of the early Reagan years. His first chapter is an amazing read because it sounds exactly as if he were commenting on the economics of 2008-9. We keep doing the same bad, but politically motivated, economic policies.

Keynes has been out of favor, with the Chicago School in ascendance for a quarter-century. It appears that those roles have been reversed with the recent failures of the system. If Keynesian economics are going to work, politicians need to remember that Keynes has two sides, and one is unpopular but necessary. The necessary part was applied just once, mostly unnoticed because of WWII. That was the difference, IMO. I don’t want to see another WWII equivalent to make it happen again but I’m afraid that’s what it will take.

8

Both Ford and Carter could have done what Nixon could not. So, either cutting programs and raising taxes is a viable solution, or it’s not. IOW, no one has solved the problem of what to do with all that government debt. That’s the problem with economics it needs politics, which I have mentioned many times past, the two should not conflate. It takes political will to make these decisions. FWIW, I do believe that Keynesian solutions can work, but the ultimate solution, or the end game, if you will, is something that no one will implement, so it will never be done, as you said. But, not doing anything, will, in fact, make things even worse down the road, i.e. causing a default on the loans, massive retraction of consumer confidence, and emergence of protected economies. Let’s also not forget what business will be willing to do in order to avoid regulation.

I disagree. Tax cuts can work, but it has to be targeted, and it has to be coupled with business to be able to raise capital. The flip side of the coin, like Keynes, is a solution that nobody wants. Businesses/people have to fail, i.e. there is no such thing as too big to fail. Even financial institutions, to a point (the Fed reserve still has to function, for instance). There has to be turn over. Investors and entrepreneurs and speculators need to be able to get in at all price levels. Taxes should always be raised in good times, and government should build reserves, or buy back bonds when it can. It doesn’t matter what school of thought is employed.

9

“Every gun that is made, every warship launched, every rocket fired signifies in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the clouds of war, it is humanity hanging on a cross of iron.” – Dwight Eisenhower

10

Since most everything I posted was ignored, I will reinterate it.

WW2 did not “fix” the economy. It was economically a massive pile of waste. We were doing little save exporting bombs, bullets, and death. *(Ok, granted, it’s better than consuming hem at home - but the point is we didn’t need any of it.) Heck, we probably wouldn’t have kept the Great Depression around if not for vast economic mismanagement by the government. But even if you agree with Keynesianism and the New Deal, it doesn’t mater. It merely covered ovber underlying problems.

The key here is that economic wealth has nothing to do with jobs or income. That is ultimately paper. Money is literally worth only the paper it’s printed on, and those jobs were paid in… paper! There was basically no functioning economy. Over 10% of the population was geared up for war, while the remainder put msot of their energies into feeding and equipping them. It’s as if today we had a thirty million-man military!

The economy did not return to “normal” until several years after the end of the war. The US economy was liberalized considerably over the pre-war regime.

11

Another way to look at it is that WWII was a giant stimulous package mostly targeting the defense industries. It created a lot of jobs for people, but those jobs went mostly to building bombs, planes, tanks and Freedom. Not building infrastructure or improving the standard of living.

Orwell was mostly wrong in 1984 where he wrote about countries needing war to dispose of “excess production”. If you are going to pay people to build stuff that is just going to get blown up or sent to the bottom of the ocean, you might as well pay them to do stuff that will actually improve their standard of living.

12

I found it non-explanatory. I’ll take more time now to say why.

This is true to an extent. As a more general principle it’s part of the liberal argument against war (now euphemized as defense) spending. However, I find your argument that the economy has only one metric, giving consumers what they want, to be too limiting. Reducing unemployment to near zero was a societal necessity after a decade of high rates. Employing large numbers of blacks and women, groups that had been especially badly hurt by the Depression, was also hugely important. Creating a pool of long-term savings and skills had enormous implications for the post-war era. Although the industries that created the employment were not turning out consumer products, they did develop a host of skills themselves, from large-scale organizational efficiencies and controls to new methods of materials handling and technologies that would create the post-era industrial empire. (As an aside, I always find the nutcases who claim that the aliens gave us new technologies when they arrived as Roswell in 1948 to be idiots not just for the obvious reasons but because every technology they name was actually in existence previously because of the war effort.)

This is wholly wrong in every possible way. There is not a particle of evidence that this is true. Even Amity Shales’ book, which has been hailed by many as providing a popular read that supports this, can’t manage to show that Hoover, who she is quite critical of, or the business opponents of Roosevelt had any possibility of achieving a turnaround.

But the underlying problems are widely acknowledged to be caused by underconsumption. Farmers, manufacturers, home builders, retailers, service providers, none could sell their products because of a death spiral of unemployment, wage cuts, limited hours, and lack of discretionary spending. Business could not reverse this no matter what. The massive war spending did. Unemployment disappeared. Wages multiplied. Overtime became commonplace. Demand for housing soared. It’s true that most consumer products were not available, but many were and those were consumed to the last drop. By the end of the war, the underlying problems had been eliminated and a new economic period started without the flaws either of the 30s or the 20s.

Cool! Just send me all those worthless pieces of paper you have in your wallet!

This is total nonsense, of course. All economists today - except goldbugs and they are as ignorable as creationists - agree that no medium of exchange has intrinsic value.

Already covered.

The economy was expected to go into a long recession, if not depression, after the war ended. It surprised everyone by doing no such thing. I admit it did not return to “normal.” Instead it entered the most abnormal period of our entire history. With the rest of the world’s economies destroyed, the U.S. temporarily entered a utopia, the American Century that Henry Luce of Time magazine proclaimed. GM could afford to give its workers lifetime guarantees of employment and rest of lifetimes pensions. The tidal wave of pent-up savings and consumer need started a half-century of the greatest prosperity the world has ever known. We have been surfing this wave for so long that the 50s have become the new “normal” even though nothing we could do could replicate it.

The rest I covered in my earlier post. Although insane amounts of military spending has been supported by every administration since WWII, and by many factions in society, and the ill effects on the economy do support the criticism you give of it, the spending has taken place in an economic environment so different from that of the Depression as to have opposite results.

That’s why I skipped over your post.

mazinger_z, just like democracy and capitalism are the worst of all possible systems aside from the all the others, Keynesian economics functions the same way in political terms. Roosevelt understood better than any that you can’t get your ideals to pass Congress so you get as many chips in place as possible. The alternative is to do nothing, or worse, to get programs passed (Smoot-Hawley, anyone?) that are wholly negative in effect.

13

I have no dog in this fight,personally I believe that WW2 brought an end to the depression .

But I remember that it was only comparatively recently that the U.K. finally paid off the war loans to the U.S. for WW2,for arms of course but also for food and other necessities that as an island nation we had to have.

The war basically bankrupted Britain,not just then but for decades after.

So while war may have been good for the U.S. economy it was a total disaster for the our economy.

I’ll just add though off topic, this was one of the reasons that Britain didn’t jump into war with Germany with both boots at the first opportunity.

Not only had we taken devastating casualties(Which weren’t easily replaced,many women,not so many men afterwards) in WW1 but we were skint as well.
I’ve never understood why it was OUR duty to to stop the rise of Fascism on our own as considered by the armchair politicians of the present day from other countries.

Chamberlein was a dick but he knew how the first war had totally gutted so many ordinary British families.

14

[quote=“Exapno_Mapcase, post:12, topic:501018”]

That’s why I skipped over your post./QUOTE]

In short, you ciompletely ignore the rather lively debate on the New Deal and that at best it had a very complex economic outcome, all other possibilities, and then have the gall to criticize everything else I say by actually backing me up.

Wow. You fail to even deserve the Pit.

15

The United Kingdom didn’t fight Germany by itself. Other countries like France, Belgium, the Netherlands, Poland, Czechoslovakia, Norway, Yugoslavia, and Greece also fought Germany in the early years of the war. And all of them did so for the pragmantic reason that Germany was a threat to them.