There’s been a lot of talk of late about the role a total war — with all its carnage, patriotic fervor and military production — would play in the resolution of America’s current economic troubles. Bearded Nobel laureate Paul Krugman said in a Sunday New York Times column that World War II provided the political will for the government to borrow money on an unprecedented scale. The ensuing spending spree brought the Greatest Generation into an era of unprecedented wealth, power and prosperity, and the Depression ended.
The broken-window fallacy is anything but! Except, not really.
Using a graph, University of Chicago professor Casey Mulligan shows that the U.S. unemployment rate was already on the decline in the years leading up to our nation’s brave entry into World War II. And then, Mulligan brings down the hammer on a commonly held misconception about the war’s impact on the Depression:
The expanded wartime capacity did not primarily come from putting the Depression unemployed back to work but by drawing into the marketplace women, teenagers and others who were not part of the Depression labor force.
Nor did wartime military spending expand the private sector. Many parts of the private sector shrank during the war precisely because the government was spending so much.
Pow! Take that, Krugs! As usual, it was up to teenagers, not the military, to come to the rescue in a time of crisis. Mulligan contends that bringing the troops home would spur firms to expand to accommodate the soldiers’ return to the U.S. economy. In other words, the return of troops would stimulate private-sector growth!
All we are saying is give peace a chance — as a get-rich-quick scheme.