Really. It's true. I read it in America's finest news source. Which has proven remarkably accurate in the past, yo.
-- Badtux the Snarky Penguin
21 hours ago
Thursday, February 03, 2011
4 comments:
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They missed on opportunity. They should have Huckabee or some fundie talking about God's will, in the context of self-determination.
ReplyDeleteJzB
BT - I have a question on economics/history. Since you are pretty good in both, I thought I would ask you.
ReplyDeleteThe US drove the national debt up in WWII higher than it is now (as a % of GDP. Where did the money come from? We didn't borrow from China - or Japan - or Russia or England or France... Printing money without gold in Fort Knox is a mortal sin (a libertarian told me so.) So how did we win WWII and have 2 decades of prosperity without hyperinflation?
The U.S. economy during WW2 was basically a command economy -- the War Production Board told businesses what to produce and what they were no longer allowed to produce. Individual consumption was regulated via ration tickets which regulated how much of each commodity you were allowed to purchase. Prices were set by the Office of Price Administration and you were not allowed to sell products at market prices. The Federal government basically pretended to pay companies for their products (via freshly printed money), then companies pretended to pay their workers (via passing this freshly printed money along to their workers). Inflation did not happen because prices were set by the government. This left a lot of cash sloshing around the economy with no goods to spend them on, and this did not drive up prices because in a command economy, prices are set by the government, not by the market. Some of this cash was saved in banks (thereby recapitalizing them after most of the banks had gone bankrupt during the Great Depression), but the majority of it was sucked up via "War Bonds" -- it was your patriotic duty to take all this excess cash that was starting to make your mattresses lumpy, and ship it right back to the government.
ReplyDeleteIn other words, the "national debt" during WW2 wasn't a *real* debt, it was just a way of recirculating freshly-printed money without raising taxes. So why did they do it this way, rather than via raising taxes? Well, there were two reasons, one political and one economical. I'll address the second reason first. There was a significant risk of resuming the Great Depression when the war ended. Keynesian theory said that one way to make that not happen was to raise demand by putting money into people's pockets. But now we get to the political reason: the political environment, then as now, was not conducive to putting government money into individual's pockets, that was seen as being "welfare" and thus evil, the Republicans and conservative Democrats were already outraged that the economy was going to a command economy for the duration of the war. So the "debt" during WW2 was primarily a way so that, after the war, the government could put money into people's pockets in a controlled manner (i.e., not in one big money drop that would cause hyperinflation) without it being "welfare".
So to make it more blunt, the WW2 debt wasn't *really* a debt -- rather, it was a subterfuge to a) suck up freshly printed money so it wouldn't cause hyperinflation at the end of the war when rationing and price controls went away, and b) allow controlled "helicopter drops" of money onto people with pent-up demand, i.e., a way to drop money on people as their "war bonds" matured after the end of the war, in hopes of Keynesian increases in propensity to spend and thus an end to the Great Depression. And it worked.
- Badtux the "Those dudes were some major smart, yo!" Penguin
Thank You. I am trying to soak it up. And trying to figure out if there is some way (without a war)to apply those principles to the current economy.
ReplyDeleteIf you figure it out before I do - (likely, I admit)- explain the theory to us and send a copy to Krugman.