"since the new deal and Keynesianism failed to end the great depression" That's patently and demonstrably not true. Government spending during WW2 put people to work, put money in their pockets, stimulated private spending and investment, created demand for more products, created the middle class as we know it. Whereas Reaganomics destroyed all of the above. Shipped jobs overseas, gutted the middle class, reduced domestic investment, increased unemployment, lowered wages, deregulated speculators, lowered income taxes on the richest upper class, and facilitated the greatest income redistribution towards the upper classes since 1920s. In other words, created all the prerequisites for an economic collapse, which promptly came in 2008. So now you're argument is: do nothing, don't change anything, keep all the things that brought us here, keep pushing the gas pedal after you've plunged off a cliff and into the sea.
There's a graph somewhere that shows actual consumer goods/jobs continuing to drop during the war years, that is, the depression didn't really end. Resources were used to build tanks, planes, bombs, etc, 16 million people were either drafted or entered service in the US. When the war ended, Truman cut government spending by about 2/3, and a lot of the New Deal policies were ended. This, combined with the fact that the US was the only industrialized nation that wasn't blasted all to hell, resulted in a very strong economic recovery.
The issue is though that WWII didn't end the depression resulting in a net gain for humanity. When the war ended, the globe was immensely more poor than when it started. This INCLUDES the United States. We just didn't feel it as much because all our capital wasn't firebombed away.
This has been brought up countless times. Here's a recent thread. But here's some sources to debunk it:
(also, Tom Woods has spoken a lot on this...)
Thomas E. Woods: The Truth About American History (specifically "The Great Depression, World War II, and American Prosperity, Part 1 & 2")
And of course, Bob Murphy's book:
Also, he's obviously strawmanning you there with the Regaonomics stuff, don't let him get away with that. A shallow look at US taxes and regulation makes it look like there was a strong move towards laisse-faire during the 1980's and 1990's, but this ignores not only the general growth of the US code, but far more importantly the actions of the Federal Reserve, which under Greenspan and later Bernanke, became increasingly loose with money and low interest rates, which directly lead to the financial bubble. Yes aspects of the economy were deregulated, but the Fed incentivized malinvestment in buisness ventures bound to fail.
Government spending during WW2 put people to work,
This is true - it is also true that government spending could guarantee 100% employment by keeping us all in forced-labor camps. Conscription is hardly a model of prosperity.
Regarding "war production" simply ask whether an airplane that delivers passengers or an airplane that delivers bombs is - in the global scheme - more conducive to the increase of wealth. An airplane is an airplane and "creates jobs" either way. The airplane's purpose is what determines whether it is conducive to future economic growth. Don't let him get away with the broken window fallacy ("if we bomb it, even more jobs are created to rebuild it!").
put money in their pockets,
Money - in a fiat monetary system - is neutral to economic growth... any amount of money is as good as any other amount of money since the money solely facilitates exchange. So, any discussion of GDP growth (which is a direct correlate of inflation) is a red herring. If he's simply restating the "put people to work" point above, refute it with the above argument.
stimulated private spending and investment,
Government spending on slave-labor camps would also stimulate private spending and investment. So what?
The root problem with this person's line of reasoning is the Seen vs. the Unseen. Don't allow him to cite benefits without forcing him to also count the costs.
created demand for more products,
Not private demand, that's for sure, private uses of consumer goods were heavily restricted. Pointing to increased government demand as a by-product of increased government spending is just double-counting.
created the middle class as we know it.
What a wild claim. Ask him to prove that and watch him squirm. Note that pointing to post-war prosperity versus pre-war privation doesn't prove anything unless he also shows that this prosperity was not a result of war spoils which the Allies enjoyed through the Bretton-Woods system which permitted the US to inflate dollars and surreptitiously expropriate the peoples of the defeated powers.
Clayton -
My argument is that capital was not invested during WW2 but destroyed. And the value of the Dow Jones reflects this. The economy really started to recover when the massive spending in WW2 ended in 1945. But the value of capital did not return to its 1929 levels until November of 1953. That is 24 years of wealth destruction. I would then use this data as follows:
Did the Hoover-Roosevelt policies end the Depression? If so then why did you argue that WW2 ended the Depression? If not then how come the USA did not recover its capital base until 8 years after the end of WW2?
There are two honest ways to answer these questions:
1. WW2 did not end the Depression.
2. The value of the Dow Jones in 1929 was really a paper value and did not reflect the economy. I would respond: But there was massive money printing during the Depression and even more during WW2 so if the value in 1929 was paper value then the value of the Dow Jones was even worse during the Depression through WW2.
I still dunno where people get the "total war = prosperity" idea from. Did they forget about all the: rationing, shortages, price and wage controls, increased taxation, increased debt, death and destruction etc. etc?
Wow, I never think of this. I just listened to the audiobook of What Has Government Done to Our Money yesterday on a particularly long car ride, and now it clicks.
Hard Rain:I still dunno where people get the "total war = prosperity" idea from.
This:
Did they forget about all the: rationing, shortages, price and wage controls, increased taxation, increased debt, death and destruction etc. etc?
No, because the asshats who talk like that weren't there and didn't experience the rationing and shortages. They know nothing....which is kind of why they sound so ignorant.
It's not war as prosperity. It's war as restarting the process that creates prosperity. Pointing out the hardships borne during war is irrelevant.
That's patently and demonstrably not true. Government spending during WW2 put people to work, put money in their pockets, stimulated private spending and investment, created demand for more products, created the middle class as we know it. Whereas Reaganomics destroyed all of the above. Shipped jobs overseas, gutted the middle class, reduced domestic investment, increased unemployment, lowered wages, deregulated speculators, lowered income taxes on the richest upper class, and facilitated the greatest income redistribution towards the upper classes since 1920s. In other words, created all the prerequisites for an economic collapse, which promptly came in 2008. So now you're argument is: do nothing, don't change anything, keep all the things that brought us here, keep pushing the gas pedal after you've plunged off a cliff and into the sea.
No... This is the litany of statist myths that you kids are taught at state school to remain obedient sheep of the ruling class. Things work exactly the opposite way as you think. But that's why they told it to you; it unknowingly turns you into an advocate of privileges for the rich. Notice how that entire paragraph of yours could be boiled down to "the government saved us, without government bad things would happen to us, good we have a benevolent ruling class watching us, let's fight any attempt of implementing any of that dangerous liberalism". So the state saves you and without it you would be exploited by evil capitalists, normal people would have to crouch in the dirt scraping for worms as nourishment. Only the benevolent ruling class saves the little people. Because the ruling class has nothing else at heart than to protect little people from the rich guys. This is akin to North Korean kids who believe that their government saves them from being invaded by evil imperialists. Yet we here in the west know that in reality the troubles of the North Korean people are caused by their own government, who uses imperialists as a scapegoat. Hmm...
With that being said, lets clear up some of the economic misconceptions. A lot of the fallacies stem from confusing money and wealth. Money is just a convenient intermediary we use to allocate resources. Real wealth is useful stuff one has a need for, such as houses, cars and food. More money does not make us richer, obviously government money printing can't create resources out of thin air. Society has the same amount of steel or land available as it would have with less money. (In fact, inflation distorts economic activity, so we have less.) Every ton of steel that is used for public works programs, war or inefficient government services is a ton of steel that is lost to the production of goods that we actually need. Every worker that is used to build bombs is lost to employers wanting to produce consumer goods. All the state can do is to divert resources away from more productive uses. So yes, the state "puts people to work", but it only takes them away from more productive uses. The reason people are unemployed is that government bans work at a wage where they are employable. It is not hard to understand that, in the absence of regulation, everybody would be employed at some wage. (And the sum of all income buys the entire economic output, so lower wages does not make us poorer.) And indeed, during the great depression wages were very high... for those who had jobs, everybody else was priced out of work. So the government bans people from producing useful goods like cars and instead used up societies resources to create useless things like bombs, and that's supposed to make us richer?
Putting money in peoples pockets is without value as well. For one, in a free market everyone who has potential productivity will be able to earn money. Government does not need to print money to put people to work. Secondly, people did have such a low purchasing power during the depression precisely because the government used societies productive capacity for bombs. So we produce bombs instead of bread, and people can't afford bread, go figure. As we noted above, money printing can not create additional resources, so "putting money in peoples pockets" does not raise our total purchasing power. The same goes for "stimulating private spending and investment". Do businessmen need stimulus spending to build stuff and sell it for profit? No, they can figure that out on their own. What you are saying, in effect, is that a free market economy has these unused resources lying around, that nobody touches for some unexplained reason. There are unemployed workers that don't build cars because nobody has the money to buy them, and nobody has the money to buy cars because workers are unemployed. Hmm... so why can't the workers just produce the cars and thereby earn the purchasing power to buy them? Prices and wages adjust so that all income buys all goods.
So no, government intervention did not create the middle class, and liberalization does not destroy it. The boom that followed world war 2, the era where people could afford middle-class lifestyles, was not created by this government intervention, but delayed by it. Once that boom happened it was falsely attribute to government intervention because one happened after the other which implies causation. Besides, if government spending stimulates the economy, why don't they do it now? Let's stage a drone-war over the atlantic with Europe to get both continents out of the recession. Both can build military hardware to get their economies going, and fight some fake war with drones. Or we just build stuff and burn it in a pile. Obviously that's not how it works.
The middle class was not gutted by market liberalization, but by government money printing, which took away the purchasing power they worked for and gave it to bankers in the name of stimulating the economy. (The very income redistribution towards the upper classes you are talking about.) More production in overseas countries does not make us poorer, but produces additional goods and services that make us richer. And it creates demand for American workers, who have better options. Speculators can not earn money unless the government prints money, which allows speculators to make a living as the middleman while prices rise. And financial markets were never deregulated, regulation of financial markets increased at unprecedented rate during Reagan and Bush. Also taxes on high earners do not make the lower classes better off. As mentioned above, money is not wealth. More taxes on the rich reduces economic growth, meaning less production, which lowers the standard of living of the poor. Economic collapse in 2008 did not happen because markets were too free, but because the government created a bubble by increasing the money supply. My argument is to change everything, to get away from monopoly money and government-created cycles. You are saying: let's have more of the same, more money printing, more stealing from the poor by making their money worthless, more economic cycles on behalf of the rich.
Coase:It's not war as prosperity. It's war as restarting the process that creates prosperity. Pointing out the hardships borne during war is irrelevant.
So...destroying things and killing people "restarts the process that creates prosperity". Why don't we start a war in the U.S.?
Coase:Because death and destruction are undesirable.
Did you not just say they "restart the process that creates prosperity"?