Thursday, August 18, 2011

WW2: The economic aftermath

One of the things that annoys me about right-wingers is their historical revisionism. For example, they claim that Keynes predicted a recession at the end of WW2, and instead we had a booming economy. Well, yes, we did -- *AFTER* the recession of 1945-1947. The recession Keynes predicted.

The aftermath of WW2 was quite interesting, actually. FDR's administration, via rationing, convinced the majority of people to put their money into war bonds rather than into consumption during the course of the war. This was an effort to explicitly deal with the inflationary nature of government spending because these war bonds were payable *AFTER* the war and their maturation dates were staggered out so they couldn't just be all redeemed on the day peace was declared. FDR's administration also passed the GI Bill to deal with the returning servicemen by taking them out of the workforce and putting them into school or vocational training instead, in order to reduce unemployment after the end of the war. The net result: the economy *did* enter a serious recession in 1946 as GDP plummeted by over 10% due to demobilization and the drastic cut in government consumption of goods and services (so much so that it was assumed that Truman was toast and had no chance of being re-elected in 1948, much as Churchill had been kicked out in Britain for much the same reason -- it's the economy, stupid!), but by filtering off so much of the workforce into college and vocational training, unemployment was much less than during the Great Depression, meaning that those who were in the workforce didn't see the drastic collapse in their wages that happened during the Great Depression.

Furthermore the drastic hyperinflation predicted by the right-wing did not happen because the war bonds came payable at measured rates, meaning there was a lot of pent-up demand due to the WW2 rationing, but people couldn't just take the thousands of dollars they'd saved during WW2 and go buy and drive up prices way high, they had to wait for their war bonds to mature. The net result of all this is that as the former servicemen exited college and vocational training, they found jobs waiting for them fulfilling the demand that the now-maturing war bonds were unleashing and the economy slowly rebounded, though it took until 1951 before it reached 1945 levels again. By November 1948 the economy was clearly on the rebound, unemployment was at 4%, and the American people rewarded Truman with another term in office, and by the time the first generation of GI Bill college grads left college in 1951 the economy was clearly booming despite the mild recession of 1949 that occurred as the war bond stimulus started dying out and people started exiting college and looking for jobs. Then kick in the Korean War spending and Cold War spending in the rest of the 1950's and you see why the economy entered the period of greatest economic growth ever in this nation's history -- demand for goods and services was high, thus businesses hired to meet that demand, thus unemployment was low, and the victory of the Keynesian economics approach appeared complete.

Of course then came the 1970's and stagflation, which the classicists used to claim that Keynesian economics had been "discredited", but that's another story.

-- Badtux the Economics Penguin


  1. The wars on truth and history are repellent. Nothing says 'barbarian' more to me than the deliberate destruction of truth, history and art.

    You have to wonder at people that know that they have to lie constantly to support their side of an argument.

  2. Indeed. Anybody who can write two years of *serious* recession out of history (10% GDP decline ain't a picnic), then four years of recovery before GDP recovered to its 1944 level -- i.e., SIX YEARS of the economy struggling because of the collapse of government spending at the end of WW2 -- isn't to be taken seriously. Yet people do take these liars (or morons, whatever) seriously. WTF?!

    - Badtux the Baffled Penguin

  3. I guess the final straw will be the day republicans think of themselves as grey gazelles.

  4. The ability of humans to lie to themselves never fails to amaze me. I see a lot of it on the psych ward, where patients -- not only the schizophrenic ones, where delusion is understandable -- operate on the basis of self-imposed fables. They keep doing so even though it's screwed up their lives to the point where they want to commit suicide.

    Lying to oneself is common among the yoof of Amurkya too. My daughter, who's a well-read, well-traveled, high-functioning college student, was up here visiting from Florida the past week. I won't go into the illusions she has about herself and the state of how the world's going, because I'm not writing this to bag her. Her unrealistic beliefs tend to be of the "everything's going to be all right" variety, which is comforting to her. (Especially in comparison to my doomsterism.) It's not just her. When she talks about the happy-slappy, unconcerned universe her boyfriend and acquaintances operate in, how they're not too fussed about how things are going in the world, I want to shake her and say "Wake the fuck up! How are you not alarmed?!?"

    But I don't. I offer gentle reminders of how things are, but no point pounding her over the head with it. Let the lotus-eaters slumber in pleasure. Events will become so dire that they will be unable to ignore them soon enough. Plenty of time for me to say "I told you so" later.


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