Writing in the American Prospect, Robert Kuttner sets forth a prescription for how to end high unemployment and get the economy moving again. His answer: we need a massive public investment in infrastructure at the level of at least half a trillion dollars per year for five years. He wants to finance this with increased taxes on the wealthy and the financial services industry of about $200 billion per year and an additional deficit of $300 billion per year. That's right, his prescription to get the economy moving is another trillion and a half dollars of deficit spending on those shovel ready projects we all heard so much about when the stimulus was passed. According to Kuttner, this massive public spending would mirror the end of the Great Depression. He claims, "It was the economic side-effects of the massive WWII program of tax, borrow, and invest that finally pulled America out of the Great Depression -- and powered the postwar boom."
Is Kuttner correct? Did the taxing, borrowing and investing of World War II end the unemployment of Great Depression? In part the answer is yes, but there is much more to the story. In 1939, at the start of World War II in Europe, there was still high unemployment in America. Even though it was not iin the war, American factories began producing all sorts of products that it sold to the British, a new major market that boosted economic performance. Then, the USA instituted a draft for soldiers. It was not a small scale draft like the one during Vietnam. The armed forces during World War II reached over 12 million people, almost all men. That was nearly ten percent of the entire population of the country, and it was around a quarter of the workforce at the time. Not surprisingly, when a quarter of the available workers were removed from the civilian labor force, unemployment came crashing down. Women were brought into factories in large number for the first time. Rosey the Riveter became a symbol of the women doing war work.
But again, this is not the entire story. It was not just that the labor force was reduced drastically that started the post war boom. No, the truth is that during the war, private consumption was cut to the bone. From 1942 to 1945, the USA stopped producing private cars. Home construction was almost completely curtailed. Appliances like washing machines were not being made. Clothing manufacturing was even reduced. All industry was redirected towards war materials like tanks, planes and ships. In 1946, after the war was over, America disarmed. Most of these tanks, planes and ships were junked. That's right, close to four years of industrial production was just piled up and left to rot. Civilian needs were again to be met. So the USA had twelve million veterans returning home and trying to start civilian life again. The entire country had gone for about four years with no civilian products to meet its needs. Millions of homes were needed. Tens of millions of cars were needed. You get the picture. As a result, once the industry retooled for civilian needs, production had to run non-stop just to meet the pent up demand. All of that work resulted in a great demand for labor, and the wages paid to this new labor force led to more demand for more products. In short, it formed a virtuous cycle that kept the economy growing.
Kuttner focuses on the part of the history where the government invests in war production to win the war. He, of course, ignores the rest. When he comes up with a plan to first take twenty percent of the work force and remove them from the country while starving the rest of the country of consumer products for four years, his ideas may have some merit. Of course, no one in his right mind would suggest such a thing. So, to be fair, Kuttner is suggesting a half-assed version of something that no one in his right mind would suggest. And that, my friends, is the nice way to put it.
Maybe Kuttner will explore the actual history of the period before he decides to recount it again.
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