My friend and colleague, David Gagnon, over at Antagoniste.net (in french) posts a comment of Paul Krugman who asserted that «the Great Depression in the United States was brought to an end by a massive deficit-financed public works program, known as World War II». David answers by wondering if the Bush-era wars in Afghanistan and Iraq led to increased GDP growth. This reply – albeit snappy – does not convey the problems with the Krugman assertion.
Let met clear one thing first: I am not a Krugman-bashing conservative. I personally am fond of several of his scientific contributions especially with regards to economic geography. In fact, some of the tenants of my defence of unilateral free trade versus bilateral trade negotiations (or even multilateral) stem from his work.
However, his World War II assertion is a good occasion for me to vent a frustration I have with regards to the economic effect of wartime spending. Let me go at it in point form
- Last time I checked, wars only destroy;
- Wartime production creates demand for new product by government. As a result, consumption shrank as scarce resources are used for every new tank, plane, gun or cannon. Economic historian Robert Higgs documented this when he looked at statistics with regards to consumption during World War II in the United States. He did note a drop in consumption which was hard to evaluate precisely. However, we do not really need statistics to understand that ration tickets must have meant that ressources were scarcer for the general. I have also posted statistics with regards to calorie intake in Germany and we can see how food consumption in fact dropped. There are also stories of “butterless cakes” or “milkless cakes” which also point in that direction. Even neutral countries were not exempted. Sweden took steps to arm itself up in order to make itself as hard to swallow as it could in order to deter Germany. It never did join the war, yet it was noted that calorie intake overall dropped 10 percent and that several nutrients’ share of diets diminished (Time Magazine’s series on World War II – see “The Neutrals” book);
- I have a hard time considering munitions, tanks and planes as “valuable production” which ought to be included in our GDP calculations. What value was there to US munitions whose only consumers were either German, Italian or Japanese soldiers? American workers and consumers were not made any richer with such production, they may have been made safer from totalitarian rulers, but not richer. This is something that Higgs also discussed in his 1992 paper in Journal of Economic History;
- Investments made in war have to be discarded afterwards. Why keep 50 tank divisions in peacetime? There is little utility for such an army, hence ressources have to be spend to discard excess planes, tanks, munitions etc.
- I also have a hard time considering the accounting value of military production. There were no competition for goods like these, the government just took a contract and paid for it at the price it fixed. Hence, the price system was immensely disturbed by wartime production.
Wartime prosperity is most likely a myth and its hard to see how increased government spending in World War II (or any war for that matter) might have made populations any richer.