Patterico's Pontifications

6/12/2014

No, World War II Did Not End the Great Depression — Why Paul Krugman’s Love of GDP Is Wrong, Part Four

Filed under: General — Patterico @ 6:00 am

This is Part Four of my continuing series on GDP, or, Why Paul Krugman Is Wrong About Almost Everything.

The lessons learned from the Great Depression continue to influence the way we manage the economy today. Understanding why it ended, therefore, is of paramount importance even today — because it affects how we manage crises such as the bursting of the housing bubble. Historians used to argue that FDR ended the Great Depression with the New Deal; they are now starting to concede that this argument is not only wrong but ridiculous: the New Deal both intensified and prolonged the economic slump during the 1930s.

But it’s only within the last year that I learned that the historians’ fallback argument is also totally wrong. They claim World War II ended the Great Depression. It did not.

I will now turn over the microphone to Tom Woods, who does a tremendous job of explaining why this claim is patently absurd — and does so in about 7 minutes.

If you don’t have time to watch the video, let me summarize Woods’s main points, and add a few thoughts of my own.

It’s true that unemployment plummeted during World War II. If you wanted a job, you could have a job. But does that represent a normal healthy business expansion? Not hardly. Ten million people were drafted, and many others volunteered, for patriotic reasons (and to stay out of the infantry, which is a pretty rotten assignment if you like staying alive). A mere reduction in unemployment numbers does not tell the whole story, if you don’t explain how you got there. After all, as Woods notes, you could simply execute ten million jobless people, and that would reduce unemployment too. So, sure: when the government drafts people by force, and threatens them with prison if they do not comply, unemployment goes down. But as Robert Higgs dryly notes: “that’s not how we normally reduce unemployment in this country.”

The claim that the wartime itself was a prosperous time — with government rationing, price controls, and other forms of austerity, is laughable. (What’s more, the price controls distort the data regarding true purchasing power.) There were no new cars, and virtually no consumer appliances that required metal, which was gobbled up by the government to manufacture war equipment. Food, clothing, gasoline, and other basic items were sharply rationed, and living space was cramped and overcrowded. The war was a time of deprivation, which the populace viewed as a necessary sacrifice, to be sure — but sacrifice does not equate to prosperity.

Nor does it make sense that sending the most skilled sector of the labor force off to fight, leaving a workforce with much less work experience and skill (women and elderly men) would logically lead to giant growth rates of 13% a year. Something must be wrong with this measure.

And the problem is . . . using GDP as our measure. Woods also notes that World War II was a time of supposed prosperity because GDP shot up during the war. But if you fall for the idea that GDP is the only meaningful measure of prosperity, then you will be forced to conclude that 1946 was a depression year. Seriously. 1946.

This page provides GDP growth numbers per year since 1930, and lists the best and worst years. The best years for GDP were, admittedly, during the war. And the second worst year for GDP in the last 84 years was 1946, a year in which GDP shrunk by almost 11%. 1946 is second only to 1932 in having a dismal GDP — and 1932 was the absolute depth of the Great Depression.

And yet –

And yet, do you remember the Great Depression of 1946? The stories of people starving in the streets? The reason you don’t isn’t because you’re young. It’s because 1946 was a boom time for the United States. As Tom DiLorenzo explains:

Far from creating a depression, prying all of that money from the hands of politicians and bureaucrats and returning it to its owners – working Americans – created the largest increase in private sector economic growth in all of American history in 1946. According to statistics found in the 1995 Annual Report of the U.S. Council of Economic Advisors, based on Commerce Department data, real inflation-adjusted private sector GDP increased by 29.5 percent in that year. In no other year has the U.S. economy ever grown even half that fast. Private investment skyrocketed and stock prices soared, in complete and total contradiction of what every Keynesian economist in the world had been predicting.

So, 1946 was the best year ever for the U.S economy — and yet the GDP numbers would suggest that 1946 was a year of depression.

So what’s going on here? If you have been following my series on GDP all week, you already know the answer.

In Part One of the series, I noted that GDP takes into account government spending. GDP represents the prices of finished goods. But the only meaningful prices in our society are prices that are determined through voluntary exchanges in the free market. By contrast, government spending is often inflated and bears no relationship to satisfying consumer preferences. This was especially true during the war, when much of the economy consisted of government purchases from firms manufacturing war materiel.

In Part Two, I noted how GDP does not fully take account of capital spending. During the war, government spending went up for production of war-related goods, but private investment cratered for consumer goods. But the freefall in capital investment gets masked by GDP’s failure to fully account for capital spending.

In Part Three, I noted how GDP is boosted by activity even if it does not contribute to consumer well-being. Almost no economic activity during the war benefited consumers. Woods notes that fully 40% of the labor force was employed in some form or fashion in the armed forces, and were thus not producing consumer goods. Consumers don’t buy tanks, so while those goods might have been necessary for the war effort, they were a waste from the consumer’s point of view. So, if the government was spending a ton of money on tanks, and nothing on consumer goods, this hurt consumers — but it was great for GDP.

The Paul Krugmans of the world argue, not just that the war provided the economy with a shot in the arm, but that the war itself was a time of great prosperity. Hopefully this post has caused you to rethink that silly assertion. Makers of tanks do well in wartime. As Robert Higgs has noted, the undertaker does well. But most people are miserable in war. Perhaps nobody has put it better than Austrian economist Ludwig von Mises, who said: “War prosperity is like the prosperity that an earthquake or a plague brings.”

So what did get us out of the Great Depression? I don’t mean to sound flip, but I think that the end of the Great Depression had a lot to do with the fact that Franklin Delano Roosevelt had finally died. He had mounted a war on business for 13 years, and thrown businessmen into a state of complete uncertainty about their future. In a future post, reviewing a book about the Great Depression, I will detail some of FDR’s atrocities, but suffice it to say that businessmen never knew what was coming next. The end of American’s war against Japan and Germany mattered — but to businessmen, it mattered almost as much that FDR had ended his war on them.

58 Responses to “No, World War II Did Not End the Great Depression — Why Paul Krugman’s Love of GDP Is Wrong, Part Four”

  1. Ding.

    Patterico (9c670f)

  2. But WW2 started in 1939, so US companies had over 2 years of boom time when they could sell at high prices all the food, raw materials, electronics and weapons they cared to ship to Britain. This must have helped end the Depression.

    Robbo (2988c2)

  3. So, 1946 was the best year ever for the U.S economy — and yet the GDP numbers would suggest that 1946 was a year of depression.

    The National Bureau of Economic Research does have an economic decline from February 1945 through November, 1945. (not usually I think descrobed as a recession because it only lasted 8 months)

    It also shows a recession from November 1948 through October 1949.

    Sammy Finkelman (2d4607)

  4. I think that the end of the Great Depression had a lot to do with the fact that Franklin Delano Roosevelt had finally died

    Monetary policy.

    And FDR lost his extreme majority in Congress for virtually any legislation in the November, 1938 elections, and after that he wasn’t so interested in it anyway, and there was the appointment of Jesse Jones as Secretary of Commerce, replacing Harry Hopkins and maybe some other changes too.

    And the depression was indeed considered over by 1940..

    Sammy Finkelman (2d4607)

  5. And there was a very large recovery from 1933 through 1936. there is a reason FDR was re-elected by a landslide. Then he adopted some sort of austerity policy and there was what they decide to call recession fom May 1937 through June 1938 (peak to through)

    The year 1938 as a whole was equal to 1936 which was equal to 1929.

    Sammy Finkelman (2d4607)

  6. And Teh Sammeh™ Show begins again.

    Simon Jester (b2c78d)

  7. the second worst year for GDP in the last 84 years was 1946, a year in which GDP shrunk by almost 11%.

    That is a statistic which maybe nobody saw for more than 40 years.

    A book published by Congressional Quarterly n 1989 uses GNP, not GDP. It shwows only a slight drop from 1945 to 1946 (212.4 billion versus 213.4 billion in 1945. But that figure is not adjused for inflation)

    Government purchases dropped from $83.0 billion to $29.1 billion between calendar years 1945 and 1946. There was actyally 500 million in net imports in 1945 – that went to net exports of $7.8 billion in 1946.

    Peronal consumption went from $119.6 billion in 1945 to $143.9 in 1946 and $161.9 in 1947 (unadjusted for inflation – the Wholesale Price Index was about 40% higher in 1947 than in 1945.

    Nobody did anything about that inflation but it ended by itself in October, 1948 and brought about the re-election of President Truman, and a recession caused by declining prices.

    Sammy Finkelman (2d4607)

  8. The inflation I believe, was started by the removal of wartime price and wage controls. This was not done in the United Kingdom, ruled by the Labour Party whch maintained wartime rationing.

    Sammy Finkelman (2d4607)

  9. And there was a very large recovery from 1933 through 1936. there is a reason FDR was re-elected by a landslide. Then he adopted some sort of austerity policy and there was what they decide to call recession fom May 1937 through June 1938 (peak to through)

    Yes, 1933 to 1936 was awesome! Just ask all the unemployed people!

    Patterico (9c670f)

  10. A Republican Congress was elected in 1946. Coincidence ? I don’t think so.

    In the 1946 election, the election resulted in a Republican picked up 55 seats and won a majority. Joseph William Martin, Jr., Republican of Massachusetts, became Speaker of the House, exchanging places with Sam Rayburn, Democrat of Texas, who became the new Minority Leader. The Democratic defeat was the largest since they were trounced in the 1928 pro-Republican wave that brought Herbert Hoover to power.

    The same thing happened in 1920 with a similar result.

    Mike K (cd7278)

  11. WW2 ended the Depression indirectly; by the end of the war we were the only industrial power still standing. Even Britain had been savaged through its loss of Empire. From 1946 through 1960, everyone who wanted industrial goods had to buy them from us.

    The slowdown right after the war was due to dislocation and transition, but from then to 1960 there was nothing but good times in America. Not so much anywhere else.

    Kevin M (b357ee)

  12. Kevin M (b357ee) — 6/12/2014 @ 8:45 am

    from then to 1960 there was nothing but good times in America.

    ??? There were 3 “Eisenhower recessions”

    October 1945 to November 1948 – 37 month expansion.

    November 1948 to October 1949 – 11 months recession

    October 1949 to July 1953 – 45 month expansion (wartime spending included)

    July 1953 to May 1954 – 10 month recession.

    May 1954 to August 1957 – 39 months expansion

    August 1957 to April 1958 – 8 month recession

    April 1958 to April 1960 – 24 month expansion

    John F. Kennedy campaigned on the theme “Let’s get this country moving again”

    April 1960 to February 1961 – 8 month recession

    February 1961 to December 1969 – 106 month expansion.

    Now, note expansions and contractions are net figures. First growth slows, then actually drops below zero. These dates are not identical with changes in the trends. Also many people considcer a recession to last until you get back to where you were before, but economists end recessions when things stop getting worse.

    Sammy Finkelman (2d4607)

  13. And if Americans really believed FDR singlehandedly ended the Depression, why did they approve the 22nd Amendment shortly after his death?

    Patricia (5fc097)

  14. Let’s not forget Diana West’s book Betrayal. That book effectively puts paid to the idea that FDR was beneficial to the United States. A good case can be made that his administration was full of traitors.

    JohnPaulJones (ad65b7)

  15. WW2 ended the Depression indirectly; by the end of the war we were the only industrial power still standing.

    Sweden.

    Milhouse (b95258)

  16. This week Patterico has given us the opportunity to reconsider what is considered common knowledge by our betters in the elite establishment. We know that an inflation index that does not consider fuel or food is foolish, and with Patterico’s theme this week we’ve been given lots of arguments about the true meaning of the GDP statistic. One would hope that our comments would focus on some “out of the box” ideas. But 40% of the “analysis” replies above (6 out of 15, alas all by the same author) attempt to refute the entire notion by climbing back into the box by giving us chapter and verse in NewSpeak.

    My Dad taught at CalTech during the war, and he could laughingly describe the “good times” that were had by all during the rationing and deprivations of WWII. He nursed four rubber tires thru four years of rationing by never driving over 30 mph. He blew at least one of them later, when tires could be purchased by civilians, when he attempted to go 45 mph. His brothers and my Mom’s brothers all served with distinction, submarine service, air corps, Solomon Islands, Battle of the Bulge, so he knew how fortunate he was. But he certainly didn’t consider these good “good times”. There was a war to be fought, and the discomforts felt by the civilians were a small price compared to what the soldiers had to pay. He also spent time in the UK after the war, and his description of the insanity foisted on that country by its Labor goverment made for some more “good time” laughs. Mixing butter with lard to make a universally repulsive slop was one way of ensuring equality … an equality of misery philosophy that HteWon is only too pleased to embrace.

    We are ruled by silly and vacuous people. In the Civil War, Abraham Lincoln pushed ahead with the transcontintental railroad because this was such an obviously productive activity that it would help reassure those who purchased war bonds that they would be paid back in time. Today, we simply inflate the currency, relying on constraints that impede the “velocity of money” to delay the inevitable inflation, while redefining “inflation” so that it doesn’t include items that are essential to life. No thoughts of improving productivity or exploiting economic resources. Far from it. The focus is on the mutilation of the sexual organs of mentally disturbed patients under the guise of compassion. Or forcing bakers to provide services that they would prefer not to. Or encouraging children to illegally enter the U. S. so they can be warehoused in horrible conditions in order, presumably, to increase the political pressure to give them amnesty.

    When are we going to stand up on our two legs and say “ENOUGH!”

    bobathome (65fa49)

  17. So what did get us out of the Great Depression? I don’t mean to sound flip, but I think that the end of the Great Depression had a lot to do with the fact that Franklin Delano Roosevelt had finally died. He had mounted a war on business for 13 years, and thrown businessmen into a state of complete uncertainty about their future.

    Kevin M., Mike K., and Pat are correct as far as they go. But a thought occurred to me as I read the above. It seems to me there’s an additional way that WWII indirectly ended the Great Depression.

    Because of their slavish devotion to GDP numbers no matter how absurd, because WWII created the illusion of prosperity, the illusion that the depression was over, the Keynesians could no longer make the case that their crippling regulations through which the Roosevelt administration waged its war on business (and thereby prolonged the depression) were needed. Certainly the wartime controls couldn’t be justified either.

    So once finally unshackled from devastating government control the private sector could take off like a rocket.

    Steve57 (5f0260)

  18. “As Robert Higgs has noted, the undertaker does well. But most people are miserable in war. Perhaps nobody has put it better than Austrian economist Ludwig von Mises, who said: “War prosperity is like the prosperity that an earthquake or a plague brings.””

    I don’t know, under Bush we had mostly decent growth and unemployment rates and I don’t recall widespread shortages or inflation, but he did grow the government a little excessively. It seems like a question of scale.

    daleyrocks (bf33e9)

  19. “The Paul Krugmans of the world argue, not just that the war provided the economy with a shot in the arm, but that the war itself was a time of great prosperity.”

    Has Krugman actually advanced this argument somewhere? I have not looked.

    daleyrocks (bf33e9)

  20. Just to point out that the country saw rapid growth in domestic product from the spring of 1933 to the end of 1936, and, following an 18 month contraction, from the middle of 1938 to the beginning for the war. Domestic product per capita had returned to prelapsarian levels by 1939 and the growth was sufficiently rapid during the period running from 1938 to 1941 that the net improvement in domestic product per capita over the period running from 1929 to 1941 was congruent with long term trends. The Depression had ended by 1941. However, the labor market was in injured condition with a fairly high frictional unemployment rate. That was repaired during the war. The notion that Franklin Roosevelt’s death accounted for the ‘end of the Depression’ is nothing short of bizarre. The Roosevelt Administration made its share of mistakes but also made some tonic policy choices, and that’s why they established the political base they did.

    Not sure why a lapsed history professor who dabbles in Austrian economics is your preferred authority on these matters. While we are at it, latter-day Austrian economics is notable for its eccentricity, its indifference to empirical verification, and its strange policy prescriptions (Gold standard, currency board). Best dispense with it.

    Art Deco (ee8de5)

  21. Money isn’t everything. There was more than an economic crisis, there was a social crisis (and a human crisis in the Dust Bowl). Or what would you call it when you could buy your neighbor’s murder for a $150.00 from Meyer Lansky and the actual hit would be carried out by New York City police lieutenant? (True. I forget the cop’s name but I believe it was Dewey who fried him.) Peopla ahd lsot faith in America and its institutions. There was corruption at every level of government; cynicism, disillusionment, and moral chaos at every level of society. Roosevelt kept the lid on the powder-keg. When McArthur gunned down protesters in DC, it was not a new Bastille, there was no replay of the French Revolution. Al Smith kept the Empire State building and Gloria Vanderbilt survived to lecture Anderson Cooper on the joys of cunnilingus — the people sleeping in hobo jungles did not rise up to chop their heads off.

    WWII brought America out of its funk and rallied it under the flag. Americans turned their pent up ill will to the Japanese, home and abroad, and their energies to defeating them and the Nazis. There was chaos overseas but there was order and energy and reborn faith in government and social institutions at home. And there was the peace dividend of the unparalleled prosperity that followed the war by reason of the wartime infrastructure that had been created, which helped re-solidify Americans’ faith in traditional American values and gave the Ward and June Cleaver rea from the late forties to the mid-sixties.

    If you believe Roosevelt’s job was to bring about the Age of Kronos and streets paved with gold, then he was not a good President. If you believe his job was to preserve and perpetuate the Republic and let it better itself if it could, well, he did that.

    nk (dbc370)

  22. Peopla ahd lsot faith People had lost faith Keyboard dyslexia, it’s a thing with me.

    nk (dbc370)

  23. rea = era, too.

    nk (dbc370)

  24. When McArthur gunned down protesters in DC, it was not a new Bastille, there was no replay of the French Revolution.

    MacArthur ousted the Bonus Army from its positions in 1931. The president was Herbert Hoover. The number killed was in the low single digits. Very regrettable, but not surprising when attempting to clear a recalcitrant five-digit crowd of campers.

    Art Deco (ee8de5)

  25. With a name like that, how can I argue with you, Art Deco? ;)

    nk (dbc370)

  26. Yes, 1933 to 1936 was awesome! Just ask all the unemployed people!

    Growth in production and real income was quite rapid during those years. Again, real domestic product in 1937 exceeded that for 1933 by 43%. Real personal consumption in 1937 exceeded that in 1933 by 30%. There’s a reason Mr. Roosevelt was re-elected.

    Art Deco (ee8de5)

  27. Well, I wonder what you would replace GDP with. The price of gold?

    Also, Truman was a social democrat, and he did not dismantle the new deal. I know you are getting ready for the standard 10-minute hate on FDR, but I can’t buy that the president was reason for the depression ending. This theory of ending depressions also has the downside of getting you in trouble with the secret service.

    OmegaPaladin (f4a293)

  28. A rebuttal to some of Art Deco’s inane points:

    Just to point out that the country saw rapid growth in domestic product from the spring of 1933 to the end of 1936, and, following an 18 month contraction, from the middle of 1938 to the beginning for the war. Domestic product per capita had returned to prelapsarian levels by 1939 and the growth was sufficiently rapid during the period running from 1938 to 1941 that the net improvement in domestic product per capita over the period running from 1929 to 1941 was congruent with long term trends. The Depression had ended by 1941. However, the labor market was in injured condition with a fairly high frictional unemployment rate. That was repaired during the war. The notion that Franklin Roosevelt’s death accounted for the ‘end of the Depression’ is nothing short of bizarre. The Roosevelt Administration made its share of mistakes but also made some tonic policy choices, and that’s why they established the political base they did.

    Not sure why a lapsed history professor who dabbles in Austrian economics is your preferred authority on these matters. While we are at it, latter-day Austrian economics is notable for its eccentricity, its indifference to empirical verification, and its strange policy prescriptions (Gold standard, currency board). Best dispense with it.

    Just to point out that you need to choose whether to engage on the battleground of facts and ideas, or whether you want to make this a contest of authority. If it’s the latter, as your final paragraph suggests, then I will happily put up the authority of Harvard grad and NYT best-selling author Tom Woods against the authority of anonymous blog commenter “Art Deco.”

    If you’d like to talk ideas instead, then talk ideas.

    As for your claim that Roosevelt’s “political base” showed that he “made some tonic policy choices,” do you argue that Obama’s re-election validates his policy choices? That’s a direct question; either you say “yes” and lose all credibility with this audience, or say “no” and concede that your point is meritless. Or dodge the question and accomplish both at once.

    FDR won re-election because he bought it, pure and simple, with political patronage. FDR had more federal money to buy votes with than all previous presidents combined, and he used that advantage without subtlety. You might as well praise the tonic policy choices of Santa Claus, who is equally popular for the same reason: he gives away goodies. And he knows if you’ve been bad (voted against him) or good (voted for him), so be good, for goodness’s sake! There is a strong correlation between districts Roosevelt needed and districts that received federal funds — and another strong correlation between districts that received federal funds and districts that voted for FDR.

    As for your argument that the Great Depression was cured by 1941 because GDP was up, and WWII took care of the unemployment problem . . . next time try reading the post you’re commenting on. Those arguments are soundly refuted in the post and you make no attempt to address them.

    This wonderful decade of the 1930s, in which FDR did so much to improve the economy, led Henry Morgenthau to remark in May 1939 (just as unemployment had passed the 20 percent mark the month before):

    We have tried spending money. We are spending more than we have ever spent before and it does not work.

    Unemployment was higher on average in 1939 than it was even in 1931. FDR’s policies are largely to blame. When he died, things got better.

    Patterico (9c670f)

  29. There’s a reason Mr. Roosevelt was re-elected.

    Yes, there was. Patronage on a scale never seen before in American politics.

    Patterico (9c670f)

  30. This week Patterico has given us the opportunity to reconsider what is considered common knowledge by our betters in the elite establishment. We know that an inflation index that does not consider fuel or food is foolish, and with Patterico’s theme this week we’ve been given lots of arguments about the true meaning of the GDP statistic. One would hope that our comments would focus on some “out of the box” ideas. But 40% of the “analysis” replies above (6 out of 15, alas all by the same author) attempt to refute the entire notion by climbing back into the box by giving us chapter and verse in NewSpeak.

    I appreciate your comment very much, bobathome. At times it feels like I am shouting into the wind. Comments like yours reassure me that I am not.

    Patterico (9c670f)

  31. Well there is a difference between government policy from 1933-1941, and policy for the next four years, the latter was a more cooperative matter, starting after 1938, when FDR lost his majority for legislation, after the Court packing scheme, industry was more directly integrated into industrial policy,

    narciso (3fec35)

  32. If you believe Roosevelt’s job was to bring about the Age of Kronos and streets paved with gold, then he was not a good President. If you believe his job was to preserve and perpetuate the Republic and let it better itself if it could, well, he did that.

    FDR wasn’t worth a damn when it came to economics and his astonishing bigotry behind closed doors makes a mockery of his being a supposedly compassionate, sophisticated liberal. However, I will grant him his due when it came to his early awareness of the threat of Hitler and the need to save Great Britain. But, as the saying goes, even a broken clock tells the correct time twice a day.

    The more I learn about the details of what made FDR tick and his leftist (or pre-Obama) response to the US Constitution and Supreme Court, whatever little squish-squish (or touchy-feely) I might have once directed his way has vanished into thin air.

    Mark (c58c23)

  33. “The Paul Krugmans of the world argue, not just that the war provided the economy with a shot in the arm, but that the war itself was a time of great prosperity.”

    Has Krugman actually advanced this argument somewhere? I have not looked.

    Not in precisely those words, but close enough that I think my characterization is fair. Here is one example:

    Keynes had something to say about this:

    Pyramid-building, earthquakes, even wars may serve to increase wealth, if the education of our statesmen on the principles of the classical economics stands in the way of anything better.

    Or this post, titled Oh! What a Lovely War!

    World War II is 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.

    Remember: he equates increased GDP with prosperity — and GDP increased during the war.

    Patterico (9c670f)

  34. Patterico, this just is not your subject. Take up some other topic.

    Art Deco (ee8de5)

  35. Having failed to demonstrate competence, Art Deco, that last critique of yours is hardly persuasive.

    Steve57 (5f0260)

  36. Or this:

    We ended the Great Depression with a great program of government spending for an unfortunate reason. It was known as World War II…but when the war broke out in Europe, and we began our buildup that Great Depression that had been going on for ten years. People thought it would go on forever. Learned people stroked their chins and said there are no quick answers. In two years, employment rose 20%.

    Woo-hoo!

    Patterico (9c670f)

  37. Patterico, this just is not your subject. Take up some other topic.

    How can I fail to recognize the wisdom demonstrated by an anonymous FDR-worshipping fact-avoiding blog commenter?!

    Patterico (9c670f)

  38. http://www.nationalreview.com/articles/251822/guess-who-thomas-sowell

    Guess who said the following: “We have tried spending money. We are spending more than we have ever spent before and it does not work.” Was it Sarah Palin? Rush Limbaugh? Karl Rove?

    Not even close. It was Henry Morgenthau, secretary of the Treasury under Franklin D. Roosevelt and one of FDR’s closest advisers. He added, “after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”

    Some of the most devastating things that were said about FDR were said not by his political enemies but by people who worked closely with him for years — Secretary of the Treasury Henry Morgenthau being just one. Morgenthau saw not only the utter failure of Roosevelt’s policies, but also the failure of Roosevelt himself, who didn’t even know enough economics to realize how little he knew.

    Remind people of a anyone? (Cough, cough, President Prom Queen.)

    Steve57 (5f0260)

  39. Steve57,

    That precise quote was in my very long comment above that I guess nobody read.

    :)

    Patterico (9c670f)

  40. #28? I read it, but apparently not too carefully as I somehow missed the Morgenthau quote. If it’s any consolation I would have been surprised to learn you weren’t aware of it.

    Steve57 (5f0260)

  41. Or rather it slipped my mind as I bounced from national security issues to economics, and back again.

    Steve57 (5f0260)

  42. Steve57,

    Whose authority do you prefer: that of FDR adviser and Treasury Secretary Henry Morgenthau, or that of anonymous blog commenter Art Deco?

    Patterico (9c670f)

  43. Well, if we’re going purely on appeal to authority, I think the answer is obvious. Morgenthau.

    How many depressions has Art Deco attempted to pull countries out of?

    Steve57 (5f0260)

  44. WWII helped end the Depression in two ways:
    1. US companies were selling supplies to the Europeans before we joined the war
    2. by making the government stop messing with the economy.

    but I agree that the government spending gobs of tax money on the war did not help the economy.

    kaf (81bcc7)

  45. #30, Patterico: At the very least WE are shouting into the wind. And this WE includes almost all the contributors to this blog who dabble in facts and not NewSpeak or arrogance. If drafting 10 million young men, and incentivizing 6 million more into “volunteering”, is a good way to solve the “unemployment” problem, then what in the world is wrong with slavery? I was in the last generation to experience the draft, and I have personal experience of military service, and I can tell you that the conditions of service were not unlike slavery. The big difference was that military decisions were subject to some outside review, and so if your “master” was a super a$$bama then there was chance the firing squad would be replaced with a term in the Leavenworth Barracks. The unquestioned authority associated with military service is not an attractive aspect of the institution. But it is, I suspect, part of the romance that Krugman associates with the era.

    bobathome (65fa49)

  46. What also amazes me is how various supposedly very learned experts in the field of economics could remain so puzzled for decades and decades by the failure of FDR’s New Deal and its inability to truly end the Great Depression.

    Well, duh, all you geniuses in the ivory towers of academia.

    FDR ratcheted up income taxes to the 80-plus-percentile range, which actually was a policy triggered by the foolishness of Republican Herbert Hoover—and which puts a lie to the belief that FDR’s predecessor was a heartless, greedy, let-them-eat-cake, pro-big-business elitist. In effect, business builders throughout America were naturally discouraged from generating wealth and success (and, in turn, hiring workers) since much of their blood, sweat and tears would go straight to the IRS.

    Mark (c58c23)

  47. Just to say I thinlk you are correct about GDP. Obviously bombs and tanks do not serve consumption, and to have to be using time, skill and materials making them and seeing them destroyed is bad rather than good. Obviously they bring some measure of security, but if we could get the same level of security at a lower cost it would be an improvement.

    We should measure economic progress by tracking the aggregated consumer surplus: if my next computer does twice as much at half the price, obviously consumer surplus goes up. However this is very hard to capture in national statistical indexes. GDP – focused economists are looking for their keys under the lamppost, because that’s where the light is, rather than in the dark, where the keys actually are.

    Robbo (2988c2)

  48. Robbo,

    Good comment.

    Patterico (9c670f)

  49. Consumers don’t buy tanks

    Only because we’re not allowed to… :-(

    Smock Puppet, "Si tacuisses, philosophus mansisses." (225d0d)

  50. How can I fail to recognize the wisdom demonstrated by an anonymous FDR-worshipping fact-avoiding blog commenter?!

    You’ve misunderstood the import of ordinary descriptive statistics on production and consumption which are, in any case, readily available from the Bureau of Economic Analysis for your perusal and comprehensible to any student in an introductory economics class. This is not your subject.

    There are antheaps of academic and corporation economists who are not in sympathy with elaborate social-democratic projects. Very few are Austrians. You do not have to rely on Austrians, and should not. Much less should you rely on Thomas Woods popularizations of Austrian theorizing. Here is uber-libertarian Bryan Caplan on Austrian theories.

    http://econfaculty.gmu.edu/bcaplan/whyaust.htm

    Art Deco (ee8de5)

  51. You’ve misunderstood the import of ordinary descriptive statistics on production and consumption

    How? Make an argument.

    Patterico (276f5a)

  52. You’ve misunderstood the import of ordinary descriptive statistics on production and consumption which are, in any case, readily available from the Bureau of Economic Analysis for your perusal and comprehensible to any student in an introductory economics class. This is not your subject.

    It’s more my subject than it is yours, judging by the relative merit of my arguments as weighed against your (so far) contentless insults, toothless appeals to authority, and veneration of the worst President in U.S. history.

    There are antheaps of academic and corporation economists who are not in sympathy with elaborate social-democratic projects. Very few are Austrians. You do not have to rely on Austrians, and should not. Much less should you rely on Thomas Woods popularizations of Austrian theorizing.

    Ah, another appeal to authority . . . from a nameless blog commenter. You still fail to appreciate the irony, I see. Luckily, others don’t.

    Why don’t you try making an argument? I suspect it’s because you don’t know what you’re talking about, and you realize that you could not possibly hold your own against me if you tried, for the very first time, to make a substantive point. So, you fall back on the old mainstay of adopting a haughty attitude and declaiming that I don’t know what I’m talking about . . . all while failing utterly to respond to a single substantive point from the post.

    In short, you don’t engage because you can’t.

    Here is uber-libertarian Bryan Caplan on Austrian theories.

    Yay for you. Here are several rebuttals.

    Now, man up or shut up. Make your own arguments. If you dare.

    Protip: insults are not arguments. You’re welcome.

    Patterico (9c670f)

  53. Is this thing on?

    Patterico (9c670f)

  54. There’s no point in lobbing insults at me and playing dumb, Mr. Prosecutor. Just look at the internal components of domestic product – agriculture, industry, commercial services, &c – and their evolution over the years running from 1933 to 1937 and from 1938 to 1941. The ratio of federal expenditure to domestic product ranged from 1.5% to 6.5% prior to the mobilization in the year prior to the war. The economic recovery was not a statistical mirage derived from public expenditure (and public expenditure does have value). In any case, the period from 1933 to 1937 saw a rapid increase in private consumption as well as domestic product, as noted above.

    There’s also no point in complaining about arguments from authority. What do you think your doing when you quote anyone? It is just that Thomas Woods is not much of an authority. Sir Alan Walters is.

    Art Deco (ee8de5)

  55. There’s no point in lobbing insults at me and playing dumb, Mr. Prosecutor. Just look at the internal components of domestic product – agriculture, industry, commercial services, &c – and their evolution over the years running from 1933 to 1937 and from 1938 to 1941. The ratio of federal expenditure to domestic product ranged from 1.5% to 6.5% prior to the mobilization in the year prior to the war. The economic recovery was not a statistical mirage derived from public expenditure (and public expenditure does have value). In any case, the period from 1933 to 1937 saw a rapid increase in private consumption as well as domestic product, as noted above.

    There’s also no point in complaining about arguments from authority. What do you think your doing when you quote anyone? It is just that Thomas Woods is not much of an authority. Sir Alan Walters is.

    The text that remains is the argument; the insults and other nonsense are stricken.

    You first invite me to look at “the internal components of domestic product” and name three components, the first of which is agriculture. So let’s talk about agriculture. FDR pushed through the Agricultural Adjustment Act in 1933. Farmers killed millions of piglets per year, and plowed under millions of acres of cotton. Farmers were paid to take land offline. Pure genius — and, shockingly, this led to an explosion in imports of basic commodities. Cotton imports went from 7 million pounds in 1934 to 36 million pounds in 1935. Wheat? 3 million pounds in 1934 to 13 million in 1935. Similar explosions are to be found in imports of corn, butter, ham, and beef. What’s more, textile companies, meatpackers, and millers laid off workers, meaning more unemployment, which may explain why unemployment hit 20 percent the month before Henry Morgenthau lamented that all this government spending didn’t work.

    People don’t read long comments, so that’s enough for one comment. But I’m not done. Go ahead and grappled with the tremendous success I just described in agriculture, and I’ll respond to the other points as time and inclination permit.

    Patterico (9c670f)

  56. You next invite me to look at FDR’s effect on industry. FDR pushed through the National Industrial Recovery Act (the NIRA or NRA) in 1933. Pursuant to this lovely legislation, government-sponsored cartels were formed which crippled the ability of small businessmen to compete. Businessmen were literally jailed for offering lower prices than their competitors. In the late 1930s, the stock market collapsed (again), car sales plummeted, businesses failed at alarmingly high rates, and real estate foreclosures were high. As I noted before, unemployment was dismal at the end of the decade. The national debt exploded during the 1930s, and the balance of trade was dismal. By the end of the decade, life expectancy had actually dropped after marked improvements earlier in the century.

    As for numbers on industrial production:

    Industrial production on average in the six most developed countries was almost 16% above their 1929 levels by the end of 1938, but industrial production had declined by 20% in the U.S.

    Great success!

    Patterico (9c670f)

  57. Hello? Art Deco?

    Patterico (9c670f)

  58. Oh, Art Deco!

    Patterico (1daa89)


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