Final thoughts from an economist on Armistice Day
There are plenty people out there (I've just seen a documentary on Channel 4 presented by one) who don't believe in Keynesian economics, but who think that the Great Depression was ended by the Second World War. In other words, paying men to dig holes and fill them in again is a ridiculous policy, compared to the sensible and effective course of action of paying men to dig holes and die in them.
This isn't my view - but you could argue that:
ReplyDelete1) the scale of Keynesian expansion that liberal-democratic governments generally embark on in peacetime is far too limited to make any difference;
2) at the level of mobilising your economy for total war, Keynesian expansion can make a difference (US government spending accounts for 20% of GDP in 1940 and over 50% in 1945), particularly as you're also imposing a closed economy and strict financial controls.
followed by either:
3a) however, this involves restrictions on individual freedom that would be intolerable under any circumstances other than the fight for national survival.
or
3b) the debt burden created by this kind of expansion has longer-term negative consequences that mean it is only worth doing for reasons of national survival, not for economic reasons.
(3b is implausible given the performance of the US economy in the 1950s and 1960s, but right-wing economic commentators tend to hold odd views about government debt in general...)
I dunno, I've seen a lot of people around starting to actually deny that WW2 ended the Depression. My favorite is that in the US it was European military orders ended it, not domestic military orders.
ReplyDeleteI've heard several people argue that it was wartime deficit spending *combined with wartime price controls* wot done it, by preventing the increase in nominal demand going into inflation. Of course, these people should now argue for a fiscal expansion combined with price controls, but that logic seems to elude them.
ReplyDeleteThat is an interesting point. My suspicion is that what really caused the post war boom was not the government money spent in digging holes but the government money spent in pushing the technological envelope (bigger aircraft, jet aircraft, thousnads of air[ports, mass production of gehicles, & ships, netter electronics, radar, even the beginning of computers). Unfortunately it seems to be only during wartime that government has an incentive to spend money on real promotio9n of progress rather than the more bureaucratic policy of dihhing holes, or nowadays the more bureaucratic & comfortable policy of spending money on environmental impact studies of building holes.
ReplyDeletenowadays the more bureaucratic & comfortable policy of spending money on environmental impact studies of building holes.
ReplyDeleteIt's political correctness... GONE MAD!
I think I understand where they're coming from.
ReplyDeleteWorld War II ended the Great Depression, much as totalling one's car will put an end to any ongoing problems with brake lights. You can't have a depression when you don't have an economy left, right?