In a post yesterday, I asked (to put it briefly), "Shouldn't the rapid growth in GDP that the United States experience during the Second World War, during which the federal government engaged in massive spending, taxing and borrowing, count as a success for Keynesian economics?" Dozens of Ricochetians responded, providing one of the most fascinating conversations we've had here in our happy online world. Thanks to you all.
Now a final note.
This morning my friend Meir Kohn, an economics professor at Dartmouth, sent along an article about this very question. The author, an economist named Art Carden, discusses Depression, War, and Cold War, a book by the libertarian author Robert Higgs. Carden makes a point so basic--and, the moment you see it, so obvious--that it stopped me cold. Here's the central passage, which represents a long fuse leading, in the final sentence, to a spectacular detonation:
What about World War II? Did it end the Great Depression? More generally, is war good for the economy? I answer both in the negative and borrow here from Ludwig von Mises: "War prosperity is like the prosperity that an earthquake or a plague brings."
As Higgs points out, because of the array of interventions in the wartime economy, war materiel was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture. Instead, Higgs argues, the war was a period of capital consumption rather than capital accumulation. Tanks, bombs, and helicopters have limited uses outside of military applications. The labor that was used to produce them was not available to produce consumer goods and services; in fact, people went without consumer goods. The warships at the bottom of the world's oceans represented lost opportunities for real consumption and prosperity. Conflict is sometimes necessary, but we should recognize what wartime expenditures represent: destruction of life and resources. If a depression constitutes a widespread contraction in living standards, then the Great Depression cannot have ended during the war.
The Second World War, with all the Keynesian stimuli it involved, did not end the Great Depression because it cannot have done so.
Zowie. That's a beaut, isn't it? If you're like me, you may want to read that two or three times, savoring it.