Wartime Prosperity

Recently, the Washington Post’s David Broder resurrected the tired and long debunked case for wartime prosperity, claiming that “a showdown with the mullahs” in Iran would be a boon to the economy. As political economist and historian Robert Higgs has shown time and again with regards to WWII, the economy did not fully recover until after the war ended and employment numbers looked good merely because much of the labor force was drafted into the military at below-market wages. While some have rejected Broder’s column, many fail to understand this point.

In 2003, Higgs responded to a similar argument made in the Wall Street Journal, calling it a “hoary fallacy” and showing instead that “unemployment fell during the war entirely because of the buildup of the armed forces. In 1940, some 4.62 million persons were actually unemployed (the official count of 7.45 million included 2.83 million employed on various government work projects). During the war, the government, by conscription for the most part, drew some 16 million persons into the armed forces…Voila, civilian unemployment nearly disappeared…”

Higgs concedes that “officially measured GDP soared during the war. Examination of that increased output shows, however, that it consisted entirely of military goods and services. Real civilian consumption and private investment both fell after 1941, and they did not recover fully until 1946. The privately owned capital stock actually shrank during the war…It is high time that we come to appreciate the distinction between the government spending, especially the war spending, that bulks up official GDP figures and the kinds of production that create genuine economic prosperity. As Ludwig von Mises wrote in the aftermath of World War I, ‘war prosperity is like the prosperity that an earthquake or a plague brings.’”

When I asked Higgs for his reaction to Broder’s column, he said, “if you mix one part historical superficiality, one part economic confusion, and one part sheer immorality, you get the combination that qualifies a journalist to become known as the dean of the Washington press corps.”

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  • liberranter

    Ah yes, the "broken window" fallacy. As Bob Higgs himself said, an economic fallacy that, like the proverbial vampire, refuses to die despite the wooden stake of Austrian School economic logic driven deep and repeatedly into its heart.

  • Henry_Clemens

    After nine years of war in the Middle East, this is what the U.S. government has to show for it: the U.S. economy has been totally wrecked and the value of the dollar continues to fall like a lead balloon. The big questions: when will the American people rise up and demand an end to America's wasteful and unaffordable worldwide empire of military bases and endless wars? When will the American people demand a return to a policy of peace and fiscal sanity?

    • liberranter

      When will the American people demand a return to a policy of peace and fiscal sanity?

      "When lions and lambs lay down together," or "when the horse grows horns and the duck drowns" [an old Thai saying].

      I guess the best answer to this question is another rhetorical question: How can a terminally insane people be expected to demand sane conditions?

      • Henry_Clemens

        "How can a terminally insane people be expected to demand sane conditions?" Answer:when they finally lose everything they have and have nothing left to lose.

    • andy

      I think the whole train of American militarism and forign policy wackoism and interventionism will just keep speeding madly down the tracks until the whole bloddy train just crashes wildly off the tracks. America is bankrupt, economically, strategically and morally. Something has got to give. It isn't going to be pretty….

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