World War II Did Not Stop the Depression

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This is one of the most pervasive and dangerous economic myths out there.

If one were to ask nearly anyone who has at least a passing interest in economics why it is that the Great Depression finally ended, the answer almost uniformly is that World War II ended it.

This is false as the attached article explains. The war, despite the fact that GDP expanded because we were producing bombs, guns, and tanks, made life worse economically for most people. Though folks were technically employed there was little to spend one’s money on. Standards of living in the USA actually declined through the war even though GDP rose.

As we deal with another protracted period of economic malaise one definitely gets the sense that our politicians, and the politicians of other countries are looking around for answers. There in the corner is large scale war. It looks like an answer, but it is not. It is the scourge of humanity.

From Reason.com

In human terms, a depression isn’t a shrinking GDP or some other changed statistical construct. It’s a decline in real people’s living standards. Therefore, ending a depression requires not a change in sign from minus to plus in a statistical measure, but a rise in prosperity. You can tell a depression has ended by the fact that people live better than they did previously.

When we apply this standard to life during World War II in America, it’s clear that the war did not end the depression in any meaningful sense. Economic historian Robert Higgs has debunked the statistics that purport to show that the depression ended during the war. Take unemployment. Unemployment of course was historically high throughout the 1930s, and the rate plummeted once the U.S. government entered the war. But this was no sign of returning prosperity. The government drafted 10 million men into the armed forces and others enlisted to avoid conscription. Those men were not producing prosperity by making consumer goods. They were fighting a war. Moreover, statistics showing that industrial production picked up steam in the 1940s are no indication of prosperity because those plants weren’t making consumer goods; they were making war materiel. In fact, those plants diverted scarce resources from the production of consumer goods. The few consumer goods that wereproduced were rationed. People could buy only a fixed and small quantity of foods, gasoline, and other previously taken-for-granted products. Many things weren’t available at all.

Click here for the article.