Ww2 Economic Boom For The Us -- Why?

[Brian Kennedy]

Obviously I'm an Econ genius, but I've never been able to wrap my head around why World War 2 resulted in a giant economic boom for the US. Was it mostly because pretty much every other first world economy was devastated by it?

[Burncycle360]

Even before direct US involvement the whole nation got behind the military industrial complex to build additional equipment to meet the skyrocketing demand for lend lease. Focus everyone on a singular goal like that down to rationing and you can do a lot.

Edited January 13, 2016 by Burncycle360

[Cinaruco]

Pillage and plunder. Operation Paperclip to give an example.

[Brian Kennedy]

Uh, I don't actually think that German scientists had very much to do with the US economic boom after WW2.

[Cinaruco]

Just one example. The space program advancement through the plunder of Germany's scientist, was not a minor boon to the US. Ideas are money in the grand scheme... Because short of full mobilization, as the reason for the economic boom, everything is a small slice. The real plunder for the US was natural resources, which the US managed to control for 20 years across the globe.

Edited January 13, 2016 by Andres Vera

[Ivanhoe]

http://www.econlib.org/library/Enc/GreatDepression.html

 

It is commonly argued that World War II provided the stimulus that brought the American economy out of the Great Depression. The number of unemployed workers declined by 7,050,000 between 1940 and 1943, but the number in military service rose by 8,590,000. The reduction in unemployment can be explained by the draft, not by the economic recovery. The rise in real GNP presents similar problems. Most estimates show declines in real consumption spending, which means that consumers were worse off during the war. Business investment fell during the war. Government spending on the war effort exceeded the expansion in real GNP. These figures are suspect, however, because we know that government estimates of the value of munitions spending, to name one major area, were increasingly exaggerated as the war progressed. In fact, the extensive price controls, rationing, and government control of production render data on GNP, consumption, investment, and the price level less meaningful. How can we establish a consistent price index when government mandates eliminated the production of most consumer durable goods? What does the price of, say, gasoline mean when it is arbitrarily held at a low level and gasoline purchases are rationed to address the shortage created by the price controls? What does the price of new tires mean when no new tires are produced for consumers? For consumers, the recovery came with the war’s end, when they could again buy products that were unavailable during the war and unaffordable during the 1930s.

 

https://mises.org/library/world-war-ii-did-not-end-great-depression

 

What about World War II? Did it end the Great Depression? More generally, is war good for the economy? I answer both in the negative and borrow here from Ludwig von Mises: "War prosperity is like the prosperity that an earthquake or a plague brings."

 

As Higgs points out, because of the array of interventions in the wartime economy, war materiel was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture. Instead, Higgs argues, the war was a period of capital consumption rather than capital accumulation.

 

Now keep in mind that large scale wars can and do give birth to infrastructure and technology that delivers economic dividends in the out years, so there are benefits, just not necessarily during the conflict.

[Harold Jones]

Obviously I'm an Econ genius, but I've never been able to wrap my head around why World War 2 resulted in a giant economic boom for the US. Was it mostly because pretty much every other first world economy was devastated by it?

Pretty much yes.

[Brian Kennedy]

http://www.econlib.org/library/Enc/GreatDepression.html

 

 

It is commonly argued that World War II provided the stimulus that brought the American economy out of the Great Depression. The number of unemployed workers declined by 7,050,000 between 1940 and 1943, but the number in military service rose by 8,590,000. The reduction in unemployment can be explained by the draft, not by the economic recovery. The rise in real GNP presents similar problems. Most estimates show declines in real consumption spending, which means that consumers were worse off during the war. Business investment fell during the war. Government spending on the war effort exceeded the expansion in real GNP. These figures are suspect, however, because we know that government estimates of the value of munitions spending, to name one major area, were increasingly exaggerated as the war progressed. In fact, the extensive price controls, rationing, and government control of production render data on GNP, consumption, investment, and the price level less meaningful. How can we establish a consistent price index when government mandates eliminated the production of most consumer durable goods? What does the price of, say, gasoline mean when it is arbitrarily held at a low level and gasoline purchases are rationed to address the shortage created by the price controls? What does the price of new tires mean when no new tires are produced for consumers? For consumers, the recovery came with the wars end, when they could again buy products that were unavailable during the war and unaffordable during the 1930s.

https://mises.org/library/world-war-ii-did-not-end-great-depression

What about World War II? Did it end the Great Depression? More generally, is war good for the economy? I answer both in the negative and borrow here from Ludwig von Mises: "War prosperity is like the prosperity that an earthquake or a plague brings."

 

As Higgs points out, because of the array of interventions in the wartime economy, war materiel was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture. Instead, Higgs argues, the war was a period of capital consumption rather than capital accumulation.

Now keep in mind that large scale wars can and do give birth to infrastructure and technology that delivers economic dividends in the out years, so there are benefits, just not necessarily during the conflict.

I don't think anybody would argue that the US standard of living was better during WW2 than it was pre war, although obviously we were doing a lot better than any of the other major combatants. But during WW2 we basically built as much stuff as the rest of the major combatants combined (ok a bit of an exaggeration but not much), most of which was destroyed during the war or useless afterward, lost 300,000-odd of our menfolk, fought a non-trivial war five years later, and by the late 1950s we were pretty much swimming in gravy.

[EchoFiveMike]

Every other competing population group killed off nontrivial portions of their best men, had their infrastructure get torn up and incurred large debts. S/F....Ken M

[Jonathan Chin]

IIRC, Bretton Woods system, better structured war bonds, and European reconstruction. Usually wars produce a short-term boom in wages with horribly inflationary effects that, when peace breaks out, result in wages dropping at a time when prices are high, leading to a bust. The FDR administration created those mechanisms to dump excess US productivity and capital internationally, where there were demand, while keeping wartime inflation relatively low by convincing people to save their extra income in war bonds.
I am not an economist by any means, but it had been argued that given US superiority in productivity and capital even at the first couple of decades in the 20th century, without tariffs and closed imperial economies that the WWII removed (excepting the communist block), US ascension was pretty close to inevitable.

Edited January 13, 2016 by Jonathan Chin

[Richard Lindquist]

Anther feature that fed the post war boom was that the consumer demand was low during the Great Depression for lack of consumer money and low during the war years for rationing, conversion of consumer goods factories to war production and moral enforcement of high savings rates. Post war there was a real explosion in consumer demand with gigantic booms in housing, automobiles, kitchen appliances, etc. This postwar boom didn't come to a halt until the dismal years of the 1970s.

[swerve]

Uh, I don't actually think that German scientists had very much to do with the US economic boom after WW2.

There wasn't a US economic boom after WW2. It was during WW2. GDP fell sharply at the end of the war, bottoming out in 1947, & it took a few years to get back to the wartime peak. There was a boom in personal consumption & civilian production because civilian production replaced military production. The post-war decline in GDP was entirely due to the drop in military spending, as the wartime growth was entirely due to its rise.

 

If you look at the figures, one can see how the USA's WW2 boom was entirely due to military spending. There was slack in the economy when WW2 started: in 1939 GDP was just about back to the 1929 level & investment was still below it. Defence spending started going up in 1939 & almost doubled in 1940, (though only from 1.3% of GDP to 2.3%), the majority being on hardware, construction, etc., which fed straight into increased production. The UK & France also both placed large orders for weapons, both having a policy of encouraging US investment in weapons production partly to make it a better source of supply, & also with a view to preparation for the USA joining the war on their side. Military spending then grew spectacularly, peaking at over 40% of GDP, & accounted for just about all of the increase in GDP from 1939 to its peak in 1944.

 

Simples!

 

As Stuart says, the investment needed for that massive growth was useful in the post-war economy, & there was pent-up civilian demand (forced savings accumulated during the war & desire to spend) to be met - just as he & Richard describes.

Edited January 13, 2016 by swerve

[Rich]

Obviously I'm an Econ genius, but I've never been able to wrap my head around why World War 2 resulted in a giant economic boom for the US. Was it mostly because pretty much every other first world economy was devastated by it?

 

A couple of factors played into it. For one, full mobilization was achieved by the end of 1943 and from there planning began on transitioning the wartime command economy to a peacetime one. For another, 17 years of pent-up demand couldn't be satisfied until the postwar period. The near recovery from the Depression, derailed by the 1937 recession, meant the public in 1941 were ready for economic normality...and then had to wait four more years for it. The GI Bill helped in a small way as well, by keeping about 8% of the discharged military off the unemployment rolls and in colleges, but otherwise it was employers, hiring extraordinary numbers of discharged personnel into jobs. They needed to get the goods produced for a public that had lots of money in their pockets after four years of unemployment at under 2%, but near zero consumer goods available to buy with it. It also helped that the discharged personnel weren't left like those at the end of the Great War, waiting for a "bonus", but instead got the GI Bill.

[Rich]

 

Uh, I don't actually think that German scientists had very much to do with the US economic boom after WW2.

There wasn't a US economic boom after WW2. It was during WW2. GDP fell sharply at the end of the war, bottoming out in 1947, & it took a few years to get back to the wartime peak. There was a boom in personal consumption & civilian production because civilian production replaced military production. The post-war decline in GDP was entirely due to the drop in military spending, as the wartime growth was entirely due to its rise.

 

If you look at the figures, one can see how the USA's WW2 boom was entirely due to military spending. There was slack in the economy when WW2 started: in 1939 GDP was just about back to the 1929 level & investment was still below it. Defence spending started going up in 1939 & almost doubled in 1940, (though only from 1.3% of GDP to 2.3%), the majority being on hardware, construction, etc., which fed straight into increased production. The UK & France also both placed large orders for weapons, both having a policy of encouraging US investment in weapons production partly to make it a better source of supply, & also with a view to preparation for the USA joining the war on their side. Military spending then grew spectacularly, peaking at over 40% of GDP, & accounted for just about all of the increase in GDP from 1939 to its peak in 1944.

 

Simples!

 

As Stuart says, the investment needed for that massive growth was useful in the post-war economy, & there was pent-up civilian demand (forced savings accumulated during the war & desire to spend) to be met - just as he & Richard describes.

 

 

The yawning gap between pent-up demand and the money to pay for goods in the hands of the consumer versus supply of consumer goods was the primary factor. The GDP decline postwar is deceptive.

 

"The private economy boomed as the government sector stopped buying munitions and hiring soldiers. Factories that had once made bombs now made toasters, and toaster sales were rising. On paper, measured GDP did drop after the war: It was 13 percent lower in 1947 than in 1944. But this was a GDP accounting quirk, not an indication of a stalled private economy or of economic hardship. A prewar appliance factory converted to munitions production, when sold to the government for $10 million in 1944, added $10 million to measured GDP. The same factory converted back to civilian production might make a million toasters in 1947 that sold for $8 million—adding only $8 million to GDP. Americans surely saw the necessity for making bombs in 1944, but just as surely are better off when those resources are used to make toasters. More to the point, growth in private spending continued unabated despite a bean-counting decline in GDP." http://mercatus.org/publication/economic-recovery-lessons-post-world-war-ii-period

[Richard Lindquist]

The aviation industry got a huge head start from all of the airfield improvements done during the war. Th AAC/AAF did a lot of runway construction and facility construction at municipal airports during the war.

[shep854]

General aviation was one market that busted after the war. The assumption was that all those pilots would just naturally want to buy a small plane for personal transportation; however, many pilots associated flying with the horrors of war, and never touched a plane's controls after their discharge.

Result--massive overproduction of aircraft, and subsequent depression of the civilian aircraft industry.

[sunday]

General aviation was one market that busted after the war. The assumption was that all those pilots would just naturally want to buy a small plane for personal transportation; however, many pilots associated flying with the horrors of war, and never touched a plane's controls after their discharge.

Result--massive overproduction of aircraft, and subsequent depression of the civilian aircraft industry.

 

I've read the FAA also had a hand on that. Name of Pete Quesada comes to mind.

[swerve]

 

 

Uh, I don't actually think that German scientists had very much to do with the US economic boom after WW2.

There wasn't a US economic boom after WW2. It was during WW2. GDP fell sharply at the end of the war, bottoming out in 1947, & it took a few years to get back to the wartime peak. There was a boom in personal consumption & civilian production because civilian production replaced military production. The post-war decline in GDP was entirely due to the drop in military spending, as the wartime growth was entirely due to its rise.

 

If you look at the figures, one can see how the USA's WW2 boom was entirely due to military spending. There was slack in the economy when WW2 started: in 1939 GDP was just about back to the 1929 level & investment was still below it. Defence spending started going up in 1939 & almost doubled in 1940, (though only from 1.3% of GDP to 2.3%), the majority being on hardware, construction, etc., which fed straight into increased production. The UK & France also both placed large orders for weapons, both having a policy of encouraging US investment in weapons production partly to make it a better source of supply, & also with a view to preparation for the USA joining the war on their side. Military spending then grew spectacularly, peaking at over 40% of GDP, & accounted for just about all of the increase in GDP from 1939 to its peak in 1944.

 

Simples!

 

As Stuart says, the investment needed for that massive growth was useful in the post-war economy, & there was pent-up civilian demand (forced savings accumulated during the war & desire to spend) to be met - just as he & Richard describes.

 

 

The yawning gap between pent-up demand and the money to pay for goods in the hands of the consumer versus supply of consumer goods was the primary factor. The GDP decline postwar is deceptive.

 

"The private economy boomed as the government sector stopped buying munitions and hiring soldiers. Factories that had once made bombs now made toasters, and toaster sales were rising. On paper, measured GDP did drop after the war: It was 13 percent lower in 1947 than in 1944. But this was a GDP accounting quirk, not an indication of a stalled private economy or of economic hardship. A prewar appliance factory converted to munitions production, when sold to the government for $10 million in 1944, added $10 million to measured GDP. The same factory converted back to civilian production might make a million toasters in 1947 that sold for $8 million—adding only $8 million to GDP. Americans surely saw the necessity for making bombs in 1944, but just as surely are better off when those resources are used to make toasters. More to the point, growth in private spending continued unabated despite a bean-counting decline in GDP." http://mercatus.org/publication/economic-recovery-lessons-post-world-war-ii-period

 

Naah. The decline was real. It's not an accounting trick. The standard of living went up, because Instead of state consumption accounting for a huge proportion of the economy (all those munitions which were being used up, transport consumed shipping soldiers, weapons & supplies around, & so on), there was a lot more private consumption. But military consumption is no less real than private consumption, & it's arguable that in the right circumstances (i.e. a threat to the country which requires the armed forces to see it off) it contributes more to general welfare.

 

The author of that paragraph confuses production with private consumption. They ain't the same thing. Government consumption is still consumption, & production for the government is still production. Does the output of a private factory become worthless if the government buys it? It's what he implies.

[Rich]

Naah. The decline was real. It's not an accounting trick. The standard of living went up, because Instead of state consumption accounting for a huge proportion of the economy (all those munitions which were being used up, transport consumed shipping soldiers, weapons & supplies around, & so on), there was a lot more private consumption. But military consumption is no less real than private consumption, & it's arguable that in the right circumstances (i.e. a threat to the country which requires the armed forces to see it off) it contributes more to general welfare.

 

 

The author of that paragraph confuses production with private consumption. They ain't the same thing. Government consumption is still consumption, & production for the government is still production. Does the output of a private factory become worthless if the government buys it? It's what he implies.

 

 

Not an "accounting trick" at all. Who said it was? It was a GDP accounting anomaly.

 

Maybe the "author of that paragraph" was clueless, but why don't you take it up with him? Cecil Bohanon is a professor of economics at Ball State University in Muncie, Indiana. He has published numerous refereed academic articles and popular commentaries on economics and policy issues. I'm sure you two economics professors will have a good jaw over it.

 

Cheers!

[swerve]

An anomaly in that the movements of private consumption & GDP were in opposite directions by huge amounts - twice. Given his credentials, I'm sure Professor Bohanon understands that, but has chosen to write for his audience, & not worry about precision. It doesn't change the facts: production for & consumption by the armed forces were real. They displaced production for & consumption by the civilian population during the war, thus causing what would have looked like terrible US economic performance from 1940 to 1944 if only civilian consumption had been counted: an apparent depression, while tens of thousands of tanks, hundreds of thousands of aircraft, millions of infantry weapons, billions of shells & bullets, thousands of ships etc. poured out of the supposedly moribund US economy.

 

We all know that's a false impression & in reality the US economy was in its biggest ever boom up to 1944, but if we imagine a boom at the end of the war, we're imagining the mirror image of that imaginary wartime stagnation at best, & depression at worst. The economy as a whole really did go into a depression from 1945 to 1947 (growth resumed in 1948), but nobody (except a lot of women put out of work to make way for returning ex-servicemen) noticed because civilian production was going up fast (while military production slumped), & they had their wartime savings which suddenly they had things to buy with, so even for them it wasn't too bad.

 

Even some civilian production slumped at the end of the war. Cargo ships, for example. With nobody working hard to sink them & military transport needs shrunk immensely, the huge fleet of Liberty ships built by the USA in the greatest ever feat of shipbuilding was more than anyone really needed, & the shipyards built to build them had little to do. Several yards closed immediately, some hung on for a while, much reduced. One, for example, lay idle until 1947, when it became a shipbreakers & scrap yard. I'm sure Professor Bohanon would agree that was a real loss of production.

Edited January 14, 2016 by swerve

[lucklucky]

Technology advancements if accessible to most incentive economic growth and as the time goes critical mass is achieved.

[Nobu]

The euphoria of total victory translated to a level of consumer confidence and spending that drove the economy higher.

 

Adding this to the existing measures taken to streamline and maximize wartime production helped created critical economic mass.

 

Greenspan called the euphoria of total tech victory 50 years later irrational exuberance.

[Nobu]

Contrast American labor's WW2 no-strike pledge with the actions of Australia's. The setting for a society's economic boom is created by the quality of the society itself.

 

What the wharfies did to Australian troops - and their nation's war effort - between 1939 and 1945 is nothing short of an abomination.

Perth lawyer Hal Colebatch has done the nation a service with his groundbreaking book, Australia's Secret War, telling the untold story of union bastardry during World War 2. Using diary entries, letters and interviews with key witnesses, he has pieced together with forensic precision the tale of how Australia's unions sabotaged the war effort, how wharfies vandalised, harassed, and robbed Australian troop ships.

 

Miranda Devine, The Sunday Telegraph, Nov 13, 2013

[Ken Estes]

The US no strike pledge was mostly honored in the breach. The Britannica Yearbook for 1944 indicated some 420 strikes, if I recall correctly.

[Harold Jones]

This article seems like it gives a good look at strikes in the US during the war. http://libcom.org/history/world-war-ii-post-war-strike-wave