Did World War 2 really “get us out of the Depression?” According to Paul Krugman it sure did:
Think about World War 2, right, that was actually negative social product spending, and it brought us out.
Really? Spending vast swathes of capital, labour, life, sweat, tears, infrastructure, time and effort to fight a war “brought us out.” Well, that’s news to me. World War 2 was one huge festering conflagration, diverting productive resources to global destruction. Now that was the fault of Hitler, not Chamberlain, or Churchill, or Roosevelt, or indeed Krugman. But the point stands — the opportunity cost of World War 2 was all of the productivity, all of the infrastructure, all of the life, all of the goods and services, everything that could have been created in lieu of fighting the war. Sure, the years following World War 2 were boom years — but that’s precisely because societies mobilised to compensate for the years lost to destruction, infernos, genocide and bomb building. In reality, the 1950s were a lost decade — lost in making up for the destructive excesses of the 1940s.
The Parable of the Broken Window
“No!” Cries the Krugmanite. “Stop misquoting our beloved Krugman! All he is arguing is that WW2 mobilised us to end the destructive austerity of the 1930s! And he never, ever advocated for building bombs (or ginormous space lasers) ahead of creating real productivity!”
Really? The point is not that Krugman ever advocated war over productivity or infrastructure. The point is that he advocates it over doing nothing, which is still wrongheaded. War spending is more destructive than doing nothing because it diverts away from potential productive investment and labour that could be realised, if not for the diversion of productivity into bomb-building and weapons factories, etc. Additionally it very often destroys pre-existing production and infrastructure around the globe. So unless war spending can be explicitly and concretely linked to a specific and material threat of complete annihilation, it is a waste and a racket.
And is it really the case that there are many establishment politicians in Washington who are against the government mobilising spending? The reality of the American fiscal picture, as I showed in detail here, is that it is a permanent war economy. America’s greatest exports are war and weapons. When it comes to war and weapons, there is no austerity, and that is a sacred cow even to elements of the Tea Party. Look at the world’s top 10 nations in terms of military spending:
Is that a portrait of fiscal restraint? Or is that a portrait of ever-expanding military spending, flying in the face of the fact that the United States won the Cold war, and has no serious global rivals? And has this huge fiscal spending on war and weapons created a resilient and prosperous economy? No — there has been no real growth in the United States since 2007, unemployment is persistently high, food stamps participation is rising, reliance on Arab oil and Chinese manufacturing is ever-present, road infrastructure is worsening, and so forth. That’s because spending hasn’t been targeted to what people need, like alternative energy infrastructure, but instead to the destructive and perverse racket that is ongoing warfare. And if Krugman wants to claim that WW2 “brought us out”, then there are war hawks like Rick Perry who will be spoiling to take him at face value, and ignite more and worse wars around the world in the name of economic growth and “bringing us out.”
So, I give you Bastiat, the originator of the Parable of the Broken Window, on war and its terrible destructive cost to humanity:
It is the same with a people as it is with a man. If it wishes to give itself some gratification, it naturally considers whether it is worth what it costs. To a nation, security is the greatest of advantages. If, in order to obtain it, it is necessary to have an army of a hundred thousand men, I have nothing to say against it. It is an enjoyment bought by a sacrifice. Let me not be misunderstood upon the extent of my position. A member of the assembly proposes to disband a hundred thousand men, for the sake of relieving the tax-payers of a hundred millions.
If we confine ourselves to this answer – “The hundred thousand men, and these hundred millions of money, are indispensable to the national security: it is a sacrifice; but without this sacrifice, France would be torn by factions, or invaded by some foreign power,” – I have nothing to object to this argument, which may be true or false in fact, but which theoretically contains nothing which militates against economy. The error begins when the sacrifice itself is said to be an advantage because it profits somebody.
Now I am very much mistaken if, the moment the author of the proposal has taken his seat, some orator will not rise and say – “Disband a hundred thousand men! Do you know what you are saying? What will become of them? Where will they get a living? Don’t you know that work is scarce everywhere? That every field is overstocked? Would you turn them out of doors to increase competition, and weigh upon the rate of wages? Just now, when it is a hard matter to live at all, it would be a pretty thing if the State must find bread for a hundred thousand individuals? Consider, besides, that the army consumes wine, clothing, arms – that it promotes the activity of manufactures in garrison towns – that it is, in short, the god-send of innumerable purveyors. Why, any one must tremble at the bare idea of doing away with this immense industrial movement.”
This discourse, it is evident, concludes by voting the maintenance of a hundred thousand soldiers, for reasons drawn from the necessity of the service, and from economical considerations. It is these considerations only that I have to refute.
A hundred thousand men, costing the tax-payers a hundred millions of money, live and bring to the purveyors as much as a hundred millions can supply. This is that which is seen.
But, a hundred millions taken from the pockets of the tax-payers, cease to maintain these taxpayers and the purveyors, as far as a hundred millions reach. This is that which is not seen. Now make your calculations. Cast up, and tell me what profit there is for the masses?
azizonomics 
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Krugman’s point is that there the economy has plenty of spare capacity because of the depression.
People who will be employed digging up money or preparing for an alien invasion would be unemployed otherwise, so you’re NOT taking them from “productive activities”!!!
I’m impressed this fallacy appear in two articles in a row
You are taking productive capacity that could be used creating stuff America actually needs — I write up a list of suggestions here, which is by no means exhaustive — and using it on digging ditches. You get a multiplier effect, but that is very often more-than-cancelled by the fact you’ve used time, labour and effort for something you don’t need.
With a permanent war economy it is even worse, because not only is the multiplier effect cancelled by using resources for things you don’t need, it is doubly cancelled by using your output to destroy other infrastructure, property and life in the scope of war. I am not really accusing PK of being a war-hawk, but if I knew that my life’s work could be hijacked by Kristol, Rove, and Rick Perry to advocate for war with Iran, I would use a lot of clarification on the suggestion that “WW2 brought us out”.
You hear much the same from geniuses in California or Florida who point to construction booms after earthquakes and hurricanes as proof of economic good times. By that logic, I’ve got plenty of ideas how to turn the recession around overnight.
– All cars must be destroyed once their model year is 2 years past, and drivers forced to buy new ones. Automotive manufacturing boom!
– Lumber mills are limited to extracting one board per tree, so that more loggers and fallers are needed. Forestry boom!
– Ban food preservation, so that people need to constantly purchase perishable goods. Agriculture boom!
– All clothes must be date stamped when worn, with stiff fines for wearing clothes that are unstamped or a week past their stamped date. Textiles boom!
– Evacuate a city, have the armed forces reduce it to rubble, then rebuild it. Weapons manufacturing and construction boom, all in one!
Hahahahaha!
Where did you study? Princeton or MIT? I see a lot of openings in government for someone like you.
You are missing the point. Everyone (including “Krugmanites”) understands that the vast devastation in WWII, and all other wars, is a huge loss through opportunity costs. Resources spent on bashing each other’s brains could have been used to make cars, factories, blah blah blah…
What Krugman (and Keynes) point out is: they wouldn’t have. It’s linked to liquidity trap and lack of aggregate demand, or else, to the animal spirits of the market agents. Regardless of the low interest rates, nobody invests.
Therefore, the idea is that the government can SPEND (hopefully NOT on war, or putting money into bottles, throwing them into coalmines, and closing them with explosive), therefore create a multiplier effect, and therefore “start up” the economy.
One of the things that could be done (you mention some yourself) is that we could spend a huge amount of money in transforming our urban communities into walkable, mixed use, mass- + bicycle transit oriented, “green” etc. enviroments.
Now, that would be a useful investment, one that the market would never make, and one that would both act as a huge sink to capital, and as a capital investment par excellence (from health, enviromental, all the way to efficiency benefits).
I forgot to say: money – economies have a lot of emergant phenomena that limited theoretical models focusing on Say’s law’s simplistic barter “supply creates demand” models don’t “see”.
Branimir. Thanks for stopping by. My position is not that far from Keynes/Krugman. All of us I think are for better green infrastructure — except those who aren’t, like Sarah Palin and Rick Perry, who really do want to spend much, much more on war. My point is that war is absolutely, without-exception and irrecoverably worse for the economy, in all circumstances other than self-preservation, than doing nothing because it destroys and wastes capital, infrastructure, resources and lives that would — by the nature of the human experience of wants and needs — be used later. The liquidity trap is not as technically confounding as it seems…
When we are in a negative demand shock/ liquidity trap the mechanistic and simplistic thing to do is to say “use stimulus, raise aggregate demand”. On the surface, that is a good response. But we have to ask — why are we in a liquidity trap — why is confidence so shockingly low that even with rates between 0 and 0.25% nobody will take their money out of Treasuries and put them into stocks or better yet new businesses/ green infrastructure?
I answered this question in a later post:
https://azizonomics.com/2011/08/30/hunger/
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