Tuesday, April 26, 2011

Conventional Thinking - Possibly Wrong Again

There are basically two main theories as to how "we" got out of the Depression; 1) that the New Deal got us out and 2) that the second world war got us out. I've already addressed the first article of faith in a previous post (concluding that the New Deal was essentially a wash). In this one, I'll examine the latter................................................................................................To those who argue that WW2 got us out of the Depression, these people generally point to the significantly lower unemployment rate and the historic expansion of GDP (they also argue that this is proof-positive that Keynesian economics works). Rather than the New Deal programs (which a lot of these individuals actually saw as too anemic), these people say that it was the amped up production necessitated by the war that finally got the economy moving............................................................................................Of course, what these folks refrain from telling us is that a lot of that reduction in unemployment came from a huge increase in the number of people serving in the military. It was largely this military build-up, and not an expansion of economic activity (not that that wasn't a factor at all, mind you; the manufacturing of weaponry, etc.), that sharply reduced the unemployment rate...............................................................................................There were also other factors indicative of a non-recovering economy. 1) The production of non-durable civilian goods significantly decreased. 2) Consumption itself fell. 3) Rationing increased and increased sharply. 4) Income taxes went up FOR EVERYBODY. 5) Investment spending decreased. 6) Price controls continued and, more than likely, hid significant inflation..............................................................................................So, if the New Deal didn't get us out the Depression, and the second world war didn't get us out of the Depression, what ultimately did. According to a lot of these so-called revisionist historians, the U.S. market didn't really come back to life until AFTER the war. President Truman and the Congress a) lifted price controls and b) peeled back even further on trade tariffs. Rationing ended and a freer economic landscape emerged. Probably, though, the most important factor of all was simply the stark difference between Truman and Roosevelt. While the latter was constantly raising taxes (and/or threatening to), badmouthing the business community, etc., the former put forth a significantly more positive approach....I think that we all know the importance of that these days.

5 comments:

  1. The joke, around people like me, is that all you anti-Keynesians have to jump hoops to show that WWII wasn't proof of Keynesian theory.

    Good luck with that. How long's it been now?

    JMJ

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  2. Let's see, consumption and investment fall, taxes go up, rationing and price-controls are instituted. How, pray tell, are any of these indicative of a bustling economy?

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  3. Hayek had it right all over Keynes JMJ. Unfortunately, those of the progressive {and some of the so called conservative, (remember GWB)} statist mindset must embrace the Keynesian theory of economics. Profligate governemnt spending is all you seem to understand.

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  4. Will - Apparently your sound logic and WELL thought out points escape the finely honed intellect of one JML

    On another note, my father happens to belive Harry Truman was one of the U.S.A.'s greatest Presidents. I don't neccesarilt agree but he can make a strong case for his views... Would I be correct in thinking you may agree?

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  5. The more that time goes by, Les, the more that I appreciate the Missourian's straight-talk/no-nonsense approach. And, yes, I really think that his much more positive approach to business was a hugely important factor in our return to prosperity.......It's also another good example of divided government working.

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