Re: Was Keynes Right...Once? (Yesterday's Bleg)
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.
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Comments:
Jul '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Liberty Dude:
Mendel,
Do you specialize in genetics per chance? · 2 hours ago
Edited 2 hours ago
He can visualize whirled peas right down to the chromosomes. He wears the dominant genes in this recessive economy too.
Jul '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Peter Robinson
Welcome to Ricochet, Shane. You give me too much credit--honestly you do. But until you realize, as you will soon enough, that I'm really no smarter than my teenaged children think I am--well, until then I'm going to be printing out your comments to show to selfsame teens. · 24 minutes ago
Edited 23 minutes ago
1) You are kind of a stud, humility aside.
2) I hope you have better luck with your teenagers than I, my 22 year old somehow thinks I've gained massive IQ points these last 7 years.
Apr '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Harry Browne pointed this out in 1974 in You Can Profit From a Monetary Crisis: The Great Depression lasted from 1929-1946.
Apr '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
FDR's death.
Jul '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
That is the way I see it. The great depression continued while FDR held power. If he did not die or the administration that followed him kept his policies in place and did not unwind then I suspect the depression would have resumed. Since Obama seems to be taking some of the plays from FDR's play book I suspect our sluggish economic growth will continue till the administration changes.
Feb '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
If you have price controls, which are to prevent inflation and prices going up, isn't it far more likely on aggregate that the GDP number is understated rather than overstated? So I don't buy the argument at all that the GDP per capita figure is meaningless, but that the number reported is probably low, and because there is an upward trajectory then output per capita has in fact been rising considerably.
Aug '10
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Peter Robinson: Ricochet's very own Conrad Birdy
(that's your cue, EJHill...).
Jun '10
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
I think that Liberty Dude has it right and I couldn't have said anything better. I agree with most others here, too -- a very good discussion.
Thanks for the Bastiat promotion. (I have so much to read....)
And Glenn really helps out with pointing directly at the real problem: FDR.
Final thing about government spending: Who can doubt that the freeways are better for promoting the economy than paying rent for someone who could work and pay it for himself?
Mar '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Liberty Dude:
Mendel,
Do you specialize in genetics per chance?
Some days I work in genetics, other days I'm simply an impoverished hermit.
More seriously, I am a molecular biologist although not a strict geneticist. I chose my pseudonym not to equate myself to the great forebear of modern biology, but rather from a combination of homage, shibboleth, and ease of recognition. Plus, I was in Austria (Gregor Mendel's home country, more or less) when I signed up for Ricochet.
Mar '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
DocJay
Liberty Dude:
Mendel,
Do you specialize in genetics per chance? · 2 hours ago
Edited 2 hours ago
He can visualize whirled peas right down to the chromosomes. He wears the dominant genes in this recessive economy too.
Unfortunately there is also the phenomenon of the dominant negative gene...
Aug '10
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
Mendel
DocJay
He can visualize whirled peas right down to the chromosomes. He wears the dominant genes in this recessive economy too.
Unfortunately there is also the phenomenon of the dominant negative gene...
Aug '10
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
According to Conrad Black, the Depression was over at least three years before World War 2, and at least five years before Pearl Harbour.
Conrad Black: Barack Obama is no F.D.R.
Apr '11
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
That doesn't seem, to me, to be precisely his claim, but to the extent that it is, Lord Black is wrong.
Of course there was full employment from 1942 on, but people were either a) living in a foxhole, or b) unable to buy consumer goods. Neither condition constituted a recovery from the Depression.
Jun '10
Re: Re: Was Keynes Right...Once? (Yesterday's Bleg)
And let's not forget that America was rearming in the late 30s and after the war started in 1939, we really started ramping up all kinds of war materiel.
A lot of defense work here was slated for France and England.