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World War II was the great natural experiment in the effects of large increases in government spending, and as such has always served as an important positive example for those of us who favor an activist approach to a depressed economy. Christy Romer, an economics professor at the University of California, Berkeley, and the former chairwoman of President Obama’s Council of Economic Advisers, is very much on the same wavelength.
It’s especially relevant because in the 1930s, as today, many wise heads insisted that unemployment was structural, that many of the unemployed could not be gainfully employed no matter how much demand increased.
Then demand actually did increase, and, as Ms. Romer wrote in a commentary article in The New York Times earlier this month: “World War II has something to tell us here, too. Because nearly 10 million men of prime working age were drafted into the military, there was a huge skills gap between the jobs that needed to be done on the home front and the remaining work force. Yet businesses and workers found a way to get the job done. Factories simplified production methods and housewives learned to rivet. Here the lesson is that demand is crucial — and that jobs don’t go unfilled for long.”
Oddly, however, people on the right have taken to claiming that World War II actually weakens the case for stimulus. One line, attributable to Robert Barro, a Harvard economist, is that it shows fiscal expansion failing because private spending actually fell. Duh.
As Ms. Romer pointed out in her column, there was consumer rationing — spending was forced to fall. Also — something she doesn’t note — there were severe restrictions on private construction, which meant that investment not related to the war effort was forced to fall as well.
Recent work by the economists Robert Gordon and Robert Krenn for the National Bureau of Economic Research takes this even further by looking at the effects of the prewar defense buildup.
According to the bureau’s online summary of Mr. Gordon and Mr. Krenn’s paper “The End of the Great Depression 1939-41: Policy Contributions and Fiscal Multipliers,” “Gordon and Krenn document that the American economy went to war starting in June 1940, fully 18 months before Pearl Harbor. In February 1941 fully 1 percent of the American labor force was at work building army training camps for 1.4 million new draftees. Employment in shipbuilding to expand the U.S. Navy and to supply Lend-Lease aid to Britain accounted for another 1 percent of the labor force in 1941. As early as June 1941, capacity utilization had reached 100 percent in the production of iron and steel and durable goods of all types.”
But never mind. Matt Yglesias, the political commentator, heroically read “Fed Up!: Our Fight to Save America From Washington,” by Rick Perry, the governor of Texas and now a Republican presidential candidate.
Earlier this month on the blog ThinkProgress, Mr. Yglesias listed the 10 “weirdest ideas” from Mr. Perry’s book. Among them: “9. Private Enterprise Blossomed Under Conscription and Wartime Price Controls: Not only does (Mr. Perry) argue that the New Deal failed to end the Great Depression, but he asserts ‘recovery did not come until World War II, when F.D.R. was finally persuaded to unleash private enterprise.’ (page 48)”
Nothing shakes the faith of a true believer.
Evil Me
I hear from various sources — and see in comments — that there’s an apparently concerted campaign to take this post and use it to accuse me of wanting a war. And the worst of it is, some people will believe it.
Awesome.
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Paul Krugman joined The New York Times in 1999 as a columnist on the Op-Ed page and continues as a professor of economics and international affairs at Princeton University. He was awarded the Nobel in economic science in 2008.
Mr Krugman is the author or editor of 20 books and more than 200 papers in professional journals and edited volumes, including “The Return of Depression Economics” (2008) and “The Conscience of a Liberal” (2007). Copyright 2011 The New York Times.
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