Recently, the Washington Postâ€™s David Broder resurrected the tired and long debunked case for wartime prosperity, claiming that â€œa showdown with the mullahsâ€ 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 Broderâ€™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 â€œhoary fallacyâ€ and showing instead that â€œunemployment 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 forcesâ€¦Voila, civilian unemployment nearly disappearedâ€¦â€
Higgs concedes that â€œofficially 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 warâ€¦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, â€˜war prosperity is like the prosperity that an earthquake or a plague brings.â€™â€
When I asked Higgs for his reaction to Broderâ€™s column, he said, â€œif you mix one part historical superficiality, one partÂ economic confusion, and one part sheer immorality, you get the combination thatÂ qualifies a journalistÂ to become known as the dean of the Washington press corps.â€