War does not create prosperity

[rambone]

How is this news?

It isn't. But it is still a myth that needs to be dispelled.

 

[dross]

That only holds true if you believe that U.S. involvement in WW2 was initiated solely for the purpose of ramping up the economy.

Only valid under a certain set of assumptions.

Would the baker have actually spent the money on the new suit? Your example only works if he was in a spending mood. Even if you assume he was, there isn't much difference since the net effect is still an infusion of the baker's money into the market. Whether the baker pays the tailor for a new suit or the glass maker for the new window pane, it's still all the same. And there's no more reason to believe he'd buy a new suit any more frequently than he'd buy a new window. And there again, even if he did, would he always use that disposable income for a new suit or would he spend it elsewhere? It doesn't really matter if he's spending it, does it?

Here's the difference, and the seductiveness of the fallacy. It really doesn't matter what the banker spent the money on, anything he does with the money short of stuffing it in a mattress would have helped the economy.

Follow this logic. The banker had a perfectly functioning window. He could have bought a suit, he could have bought a new machine that would have improved the quality of his bread and lowered his prices benefitting himself and his customers. He could have bought a nintendo, helping all the people who build nintendos and providing himself with relaxation. He could just put the money in the bank, making it available to be used by someone else to buy a house, or start a business.

All of the above adds to the overall production of society. Society is better off, because the money is being spent productively.

So, why isn't society better off if he has to hire a glassmaker? It's true that the money goes back into the economy, and gets spent, so some of the same things will happen as if he bought a nintendo or put the money in a bank. The difference is that a tiny bit of society's production was lost because the money was used simply to maintain the status quo, and not to move forward. Production is helped under all the other scenarios, and harmed by the broken window.

Again, if the broken window was helpful, then why isn't the vandal who breaks a hundred windows a hero of the economy?

The broken window fallacy only works because we ignore the effects we can't see, and celebrate the effects we CAN see.

And perhaps more importantly, where was the economy in terms of productivity prior to the initiation of war? A healthy, thriving economy would surely be hurt since resources would be drained from the private sector at alarming rates to provide for the prosecution of the war. The degree of harm being directly correlated to the length of the war.

But a stalled, stagnant economy may very well benefit the population. War creates a demand for goods and services. Demand creates a need for manufacturing. Manufacturing creates a need for working individuals. In an economy where the reality is that nobody works so nobody has money so nobody buys anything so nobody demands anything so nobody creates anything so nobody works, war might just be the impetus to break the country out of the self-feeding death spiral. (Yes, other things could do it, but in our world today, with the litany of regulations and restrictions, war is, sadly, the easiest and most expedient solution.)

That said, there is no denying that this is a temporary effect. One should really consider it the kick-in-the-pants to get things moving and not the actual force behind the movement. The spark, but not the fuel, if you will. And a protracted war will undoubtedly counter any of the gains made in the long term.

I'll stand by the premise that a spark to the engine is still a benefit if the engine wasn't running at all.

It works the same, whether it's a good economy or a bad. And your metaphor doesn't work, because it's not the spark, it's the gasoline bought on credit.

If I drive my car, but I spend all my money on something else and never put gas back in it, eventually I'll run out of gas. What to do then? I could spend some of the money I'm spending on other things on gas, which would allow me to do some of those other things, and still drive my car. This would be a fine solution.

But what if I want to drive my car and still do all those other things with my money? I know, I'll borrow money and assign the debt to my children without their consent. Perfect solution. I'll continue to drive my car, do all the things I want to do, and never have to worry about paying it back.

That's how government stimulus works.

War is a little different, because the consequences of it dictate that you must do what's necessary, even if it means borrowing from your kids.

It may keep the car running, but it's not the best solution. The best solution to get an economy running is to put gas in it. That means spending less, leaving more money in the private sector where it is PRODUCTIVE.

 

[Joe Williams]

snip
Just remember that if we hadn't had that WWII debt, we would have been that much better off.

Except, of course, that we'd be Nazis. Assuming you aren't Jewish. Then you'd just be dead.

 

[dross]

Except, of course, that we'd be Nazis. Assuming you aren't Jewish. Then you'd just be dead.

My argument isn't with the war. It was a war of survival, and as I said in the post above, you have to do what's necessary.

It was still bad for the economy in the long run, it was just a necessary evil, which is the best war can ever be.

 

[CarmelHP]

I'm not sure it was bad for the U.S. economy. The "broken windows" were almost all in Europe and Asia, so it bad for their economies, and the world as a whole, but the U.S. economy benefited greatly. Our world competitors were destroyed, and demand was staggering and the U.S. was the only manufacturing base left standing.

 

[dross]

I'm not sure it was bad for the U.S. economy. The "broken windows" were almost all in Europe and Asia, so it bad for their economies, and the world as a whole, but the U.S. economy benefited greatly. Our world competitors were destroyed, and demand was staggering and the U.S. was the only manufacturing base left standing.

That part aided us and covered for the borrowing and deficit spending we did during the war. The fact remains that if we hadn't been involved in the war but had supplied everyone else and then still been the only economy standing, we'd have been that much better off.

Again, not saying we shouldn't have participated, just pointing out that going to war in and of itself is harmful to an economy, not helpful.

 

[Disposable Heart]

Did not WW2 bring MANY innovations that, when using the non-standing down manufacturing base, create the consumer economy that has also stood today? Refridgeration (cheap and inexpensive due to the technology researched and manufactured for the war), electronics (made cheaply and micronized), automobiles (overstretch of the production capability of the war had a brief retooling to make cars enmasse), etc... all were products thought of mostly as luxuries before the war, but then made commonplace by the research and development and the companies that saw an influx of new customers, but also cheaper products that could be made with "overruns" of the "stimulus" given by the US for the war effort, and made affordable due to the mass production mindset and tooling left over from the war?

Maybe not "prosperity" per sae, but a strong plus of THAT particular war's end. The US rose to power in the world theatre as a manufacturer and scientific leader.

Also, with the war in full swing, crazy war spending and war bonds beginning to wane, wasn't the US currency essentially worthless at that time? Aside from a period of, well for lack of better term, prosperity, how else was the US gov able to begin repayment of bond holders and creditors? These are some questions I have had in my mind for a bit actually!

 

[CarmelHP]

Also, with the war in full swing, crazy war spending and war bonds beginning to wane, wasn't the US currency essentially worthless at that time?

Worthless? Compared to what? Pound Sterling? It was 4 Mark to the dollar, and that was with U.S. support of their economy. Only the dollar and pound sterling were still standing as worth anything, except, perhaps, the Swiss franc. Bretton Woods pegged the dollar at $35/troy oz. of gold. Hardly worthless.

 

[Disposable Heart]

Worthless? Compared to what? Pound Sterling? It was 4 Mark to the dollar, and that was with U.S. support of their economy. Only the dollar and pound sterling were still standing as worth anything, except, perhaps, the Swiss franc. Bretton Woods pegged the dollar at $35/troy oz. of gold. Hardly worthless.

Was asking more of a question regarding the dollar at the time. I would have thought they would print the money, like the current "stimulus". But, was the system different, still based in gold? What is today's system based on? Economic "strength"?

 

[Joe Williams]

I'm not sure it was bad for the U.S. economy. The "broken windows" were almost all in Europe and Asia, so it bad for their economies, and the world as a whole, but the U.S. economy benefited greatly. Our world competitors were destroyed, and demand was staggering and the U.S. was the only manufacturing base left standing.

Except for the fact that we paid to rebuild all those factories we'd blown up, and we rebuilt them with the latest and greatest.

Fifty years later, our factories were a century old, the infrastructure supporting them was aged and wearing out, and those factories we'd built for our competitors were still going strong.

 

[ATOMonkey]

Did not WW2 bring MANY innovations that, when using the non-standing down manufacturing base, create the consumer economy that has also stood today? Refridgeration (cheap and inexpensive due to the technology researched and manufactured for the war), electronics (made cheaply and micronized), automobiles (overstretch of the production capability of the war had a brief retooling to make cars enmasse), etc... all were products thought of mostly as luxuries before the war, but then made commonplace by the research and development and the companies that saw an influx of new customers, but also cheaper products that could be made with "overruns" of the "stimulus" given by the US for the war effort, and made affordable due to the mass production mindset and tooling left over from the war?

Maybe not "prosperity" per sae, but a strong plus of THAT particular war's end. The US rose to power in the world theatre as a manufacturer and scientific leader.

Also, with the war in full swing, crazy war spending and war bonds beginning to wane, wasn't the US currency essentially worthless at that time? Aside from a period of, well for lack of better term, prosperity, how else was the US gov able to begin repayment of bond holders and creditors? These are some questions I have had in my mind for a bit actually!

You're looking at a very narrow portion of time in a very small part of the world.

You need to broaden your view of historical and geographical context before you proclaim the War to be a benefit.

 

[Ramen]

I'm not sure it was bad for the U.S. economy. The "broken windows" were almost all in Europe and Asia, so it bad for their economies, and the world as a whole, but the U.S. economy benefited greatly. Our world competitors were destroyed, and demand was staggering and the U.S. was the only manufacturing base left standing.

You have to remember that a bomb is essentially a broken window. It is a good that is blown up and used to blow up other goods. We were making a good that we paid for and then destroyed. That is not good for the economy because no wealth is created. The product is destroyed and used to destroy other products, all on borrowed currency.

An influx of new currency with a net loss of real property/goods gives you inflation and the devaluing of the dollar.

 

[Disposable Heart]

You're looking at a very narrow portion of time in a very small part of the world.

You need to broaden your view of historical and geographical context before you proclaim the War to be a benefit.

Now wait, I did not proclaim the war as a benefit. I did state my statement was a question. Waiting for someone to refute or support the statements made. Just here to learn sir...

 

[Blackhawk2001]

That's pretty much what the Democrats passed in 2009, wasn't it? Put people back to work, using money borrowed from our grandchildren. I just posted this because people need to learn from history and stop praising economic failures imposed on us by devout socialists.

They call this the Keynesian economic theory: go into debt for some short-lived benefits; blame the failure on not enough Government spending.

Understand, I'm not arguing against the premise as stated by Dross, but I disagree with your simile. Any benefits (aside from national survival) derived from WWII national mobilization were due to actual jobs created by industry and the supporting work that maintained them. The 2009 stimulus was directed to government projects and union workers and benefitted few of them. Not the same thing at all.

Also, Americans funded the war through war bonds and taxes and those debts were paid off fairly quickly, IIRC, even after the funds spent to implement the Marshall Plan.

I agree that we can't constantly be at war; at some point we will run out of available resources to make it possible. On the other hand, if we end up in a war for survival (and on some important levels our current conflicts have been such) we don't have the luxury of saying "we quit"; not if we want to keep what little freedom remains to us.

 

[ATOMonkey]

Now wait, I did not proclaim the war as a benefit. I did state my statement was a question. Waiting for someone to refute or support the statements made. Just here to learn sir...

No problem. The country was quite prosperous prior to the political policy that lead to the depression. The depression made it seem like certain products were unattainable without government subsidy. However, in other parts of the world, like Sweden for instance, refrigeration was quite common in the late '30s.

Also, the boom following the war had much to do with rationing during the war. The rationing was so high that people simply couldn't spend their money and rather than put it into a bank they didn't trust, they just kept the cash in a jar or under a mattress. So once the war was over and it was legal to buy goods again, the economy boomed.

Unfortunately, we ran out of that money pretty quick and began to borrow again, leading to several credit bubbles starting in the '60s and happening about once a decade. All of these credit bubbles have the same root cause, but they're all disguised as different products. In the '80s it was "savings and loan" then the "dot com" in the '90s and now the "mortgage crisis". The next thing on the horizon is carbon credit exchange bubble. It's coming unless we can stop the legislation. Not sure if we can though.

The other thing that contributed to the boom during the '50s was the repeal of most of FDRs failed keynesian, and central planning policy. Of course, Truman wasn't much better, just FDR light, and Eisenhower was also cut from the same cloth, along with all presidents since, which is why we keep having the same problems over and over and over.

 

[Fletch]

An economy only grows if it manages to sell goods or services outside its borders. Imagine a family of 2 parents and 10 kids. The parents represent the government, the kids are the citizens. If the family is in dire straights financially, can it pull out of debt by giving the kids chores to do and increasing their allowance? No. The only thing the family can do to gain wealth is to sell goods or services outside the home.

This proceeds from a false definition of wealth. While external trade does tend to produce wealth more quickly for all involved, it is not essential for the production of wealth.

Wealth is anything which makes a person's life easier or better according to his own subjective evaluation. A naked, starving man who owns nothing produces wealth the moment he kills an animal, eats its flesh, and wears its fur. He produces wealth when he builds for himself a shelter. He produces wealth when he makes tools to make his hunting or gathering easier.

It is true that he will gain wealth more rapidly by trading, say, his hunting skill for someone else's building skill -- two rabbits for a teepee or whatever, since the division of labor allows him to capitalize on the efforts of others. But it is not essential for trade to exist before his wealth can grow.

 

[Fletch]

Also, the boom following the war had much to do with rationing during the war. The rationing was so high that people simply couldn't spend their money and rather than put it into a bank they didn't trust, they just kept the cash in a jar or under a mattress. So once the war was over and it was legal to buy goods again, the economy boomed.

I think this is a minor reason. I agree with [ame="http://www.amazon.com/Politically-Incorrect-Guide-Depression-Guides/dp/1596980966"]Murphy [/ame]that the most profound reason for the post-war boom is the disappearance of two thirds of the weight of government, almost overnight.

Imagine if all taxes (and government spending) were slashed by two thirds tomorrow, the amount of capital that would free up. What could you do with two thirds of the amount currently withheld from your paycheck? What could your employer do with two thirds of the amount they currently pay in corporate income tax? What if that happened all across the economy? It would become a massive boom in production and employment, and would probably do wonders for our present mess.

 

[Disposable Heart]

So, was it a combination of things, such as savings due to rationing, massive savings in that case with regards to taxes being lifted? What burden of government was lifted?

 

[ATOMonkey]

I totally agree. The repeal of the FDR government was the biggest reason for the boom. No doubt about it.

However, I don't think you can discount the large amount of liquid assets that were available in the post-war era. Especially when most of those assets went towards the purchase of durable goods.

 

[Fletch]

I totally agree. The repeal of the FDR government was the biggest reason for the boom. No doubt about it.

However, I don't think you can discount the large amount of liquid assets that were available in the post-war era. Especially when most of those assets went towards the purchase of durable goods.

I'm not discounting in terms of "this didn't matter", because obviously it did. Folks with savings have the ability to do things that folks lacking savings do not.

I'm discounting relative to the effect of government shrinkage because I think it was probably several orders of magnitude more important.