Ditto to Olden. A lot of thinking but there has to be a lotta doin' too.

I am not versed in economics. Keep that in mind. Nor am I a historian in any real sense, although I admit to being something of a history buff.

WWII amped up industrial production to stratospheric levels. It was the first war that was not only fought with armies and navies, but with industrial capacities. And by being isolated by oceans on both sides, the American industrial plant was not subject to massive aerial bombardment, and thus we armed not only ourselves, we also armed the Brits, and to a certain extent, the Russians, although they mobilized to build industry beyond the Urals, outside the range of Hitler's Luftwaffe. We also did not have to contend with a land war on our territory.

So we in essence armed the Allies, and provided material resources such as food as well.

Think for a moment about what all that means. Heavy industry, including transportation - military vehicles, aircraft, shipbuilding, and the like. Agriculture running flat-out. The Manhattan Project, born of the urgency required in the face of the German and Japanese (yes, Japanese) nuclear projects.

And with millions of men overseas in the services, the movement of huge numbers of women into the (industrial) working world effectively doubled the available labor pool.

Once the war ended, the US did have some adjustment problems - what to do with all that industrial capacity? As returning servicemen ("Class of '46") re-entered civilian life, started families, and went to college on the GI Bill, residential construction soared. They started having kids, in great numbers - the "Baby Boom" - which meant growth in schools and teachers and staff to run them. Getting all those people to and from everywhere they wanted to go boosted the auto industry and highway construction - a short-term blast of profit while unfortunately going around the much more efficient people-moving that rail provided. And air travel, as commercial aviation began in the aftermath of medium-to-heavy bomber construction.

We continued to dream large, and JFK set us on course to become the only nation yet to put anyone anywhere other than Earth.

During all this, the Cold War-based defense complex quietly began to act as a cancer. As cancers will, its unconstrained growth consumed more and more of the available nutrients (money, industrial capacity, scientific research), to the inevitable detriment of the host. The other patient, the Russian Soviet system, succumbed a while back. Our own even more rapacious cancer has gone metastatic, dropping new malignancies around the globe.

So far, chemo seems not to be effective. Surgery, anyone?

Regarding long-term solutions to sustaining the demand-side of our current crisis, one area of sustained growth might come from not only our immigrant communities but from the potential for true economic growth in our neighbors to the south..Mexico and Central America.
Here in Texas, some of our most dynamic economic growth is coming from recent immigrants (both legal and illegal) on both the supply side and demand side. This correlates to Paul's points # 1 and 2. And to broaden the view, NAFTA has been an economic disaster for the vast majority of Mexican people whose standard of living has stagnated or fallen. An increase in our neighbors' economic well-being can only benefit our economy in the long-run.

Let’s not forget that the period from 1945 to 1973 was a period in which incomes surged for all income groups. So as WWII restored full employment that in combination with a minimum wage that tracked with productivity growth, relatively high union density (and its accompanying threat effects) and more steeply progressive income taxes all combined to create relative prosperity of the post war era. Which raises the question, if full-employment is restored in this economy do we have an economy structured to translate economic growth into more equitable income growth or are we going to fall back into the pattern of the last several decades where much of the growth in income is captured by the top 1%? The urgent need for stimulus seems to have crowded out any discussion of what set of policies are most likely to generate more equitable and sustainable growth. Is it that policy makers have their hands full or that they really have no interest in changing the status quo?

Thanks for thinking, Paul. It sure beats whatever Bush has been doing for the last 8 years. As far as the title of this piece - WW II worked in the sense that it ended the Great Depression. Now, we need to analyze why so that we can apply that analysis to solving today's economic problems.

I've read that the era following the War was one of unprecedented American prosperity - only matched earlier in modern history, and briefly by the way, by The Netherlands and Great Britain, and arguably Spain.

During each era, prosperity occurred primarily because other countries were poor and therefore not economically competitive (following the War the rest of the world were pretty much basket cases.) Easy access to natural resources world-wide, vast shipping fleets, concentration of wealth primarily in one country all contributed to the unusual prosperity of all four.

I guess it could be said that it wasn't that America was in such good economic and physical shape following the War, it was that everyone else was in such terrible shape.

The "WAR" itself did not "work". What it did do was to act as a diversion. Keeping everyone over seas and at home occupied with the "WAR Effort".
As it was called.

Do not forget, as my own mother reminds me so often, the after the "WAR" there was a fairly major recession.

The economy didn't really start to pick up until the late 50s and early 60s.

C

Perhaps I am missing something here, but it seemed that the war economy continued and continues as the main prop in subsidized public works. It just priced itself out of the mass market.
Where I live in Mass, there are lots of research types still sucking at the public tit doing defense research for big contractors. Its just that they are being paid so much that there isn't enough left over to continue providing the safety net for the working class.
I assume that when we start cutting salaries for defense contractors, defense management and lobbyists etc then there might be a way of keeping the game going. Otherwise, the WWII subsidy ended for most of the society somewhere in the mid eighties as we all learned to continue our life styles through debt.
I suggest that we cut the defense industry off at the knees and start putting the subsidies into sustainable, if low paid work in infrastructure, mass transit, local food production and distributed energy production. Let the professors and the contract experts join the workers in economic angst.

One other explanation I've seen discussed is that most of Europe's and Japan's industrial capacity had been destroyed by the war. Basically, we were the only industrialized country left with our productive capacity still intact. As a result, our productivity outstripped everyone else's, and our economy boomed. We supplied industrial goods to the rest of the developed world while they rebuilt. One would have to go back and look at our exports for the post war years to verify this explanation - we should have been running massive trade surpluses from the mid-late 40s through the '50s.

By the late 60s/early 70s Europe and Japan were fully rebuilt and modernized and they began stealing our thunder with regard to industrial productivity. This is the period of time when the middle class started falling behind again. I think the cold war and pent up demand may have played a role too but this is a partial explanation.

The US economy indisputably grew during WW2. I'm guessing this was not due to an influx of foreign capital. The physical capacity to produce enormous quantities of stuff was inherent in the country and its population before the war. It just wasn't fully employed.

So what was preventing "the government" from "growing the economy" during the 1930's? Suppose, for instance, that instead of placing vast orders for guns, tanks, and airplanes to be used up overseas in the 1940's, the government had placed equally vast orders for radios, cars, and houses to be distributed to the American population in the 1930's. Would that have "grown the economy" just as much, and offered the added benefit of more material comfort for Americans? It's hard to see why it would not have.

Sure the national debt would have soared, just like it did during the war. But so would employment have soared, like it did during the war.

The little I know suggests that Americans' "pent-up demand" in 1940 was not actually satisfied during the war. Americans had more money, but not a lot to spend it on. They were making money for producing stuff destined to be blown up, not stuff that would increase their own standard of living. They were using that money to buy War Bonds, not radios, cars, and houses.

Well, suppose Hitler had remained an unknown malcontent, and the US government had launched a vast program of paying American industry to build radios, cars, and houses -- and then turned around and sold those things to the newly-employed workers, instead of selling War Bonds to them. Who exactly would have been the loser in that scenario?

--TP

I think WWII "worked" because the gloves came off in terms of spending to create jobs. Industry (and the military) simply could not get enough workers, and the means to pay for them was not an issue.

I think there are emotional benefits to work that gave the impression of improvement, helping to break the cycle of despair. Also, I think there was a great stirring up of talent, sort of the reverse of 1929, when your doorman used to be the president of your bank. The war taught people new skills, gave people chances to prove (to themselves as much as anyone else) their self-worth, etc. I knew a man whose dad owned a fuel oil distributor, and was slated to own it when the dad died. During the war, he became a mechanic. Afterwards, he ended up owning the family business, but he approached it with a different attitude, different connections and different skills as a result of his service.

If we opened an office in every city in America where anyone could go in and walk out with a job that would put a roof over their heads and three-squares-a-day in their bellies, the lines would be enormous, and the effects comparable to those of WWII.

Just sayin'.

Rulers, Statesmen, Nations, are wont to be emphatically commended to the teaching which experience offers in history. But what experience and history teach is this, - that peoples and governments never have learned anything from history, or acted on principles deduced from it. Each period is involved in such peculiar circumstances, exhibits a condition of things so strictly idiosyncratic, that its conduct must be regulated by considerations connected with itself, and itself alone. Amid the pressure of great events, a general principle gives no help. It is useless to revert to similar circumstances in the Past. The pallid shades of memory struggle in vain with the life and freedom of the Present. Looked at in this light, nothing can be shallower than the oft-repeated appeal to Greek and Roman examples during the French Revolution.

Hegel said that.

But, speaking of world wars, here's what Stephen Leacock wrote about World War I in his Unsolved Riddle of Social Justice:

War is destruction -- the annihilation of human life, the destruction of things made with generations of labor, the misdirection of productive power from making what is useful to making what is useless. In the great war just over, some seven million lives were sacrificed; eight million tons of shipping were sunk beneath the sea; some fifty million adult males were drawn from productive labor to the lines of battle; behind them uncounted millions labored day and night at making the weapons of destruction. One might well have thought that such a gigantic misdirection of human energy would have brought the industrial world to a standstill within a year. So people did think. So thought a great number, perhaps the greater number, of the financiers and economists and industrial leaders trained in the world in which we used to live. The expectation was unfounded. Great as is the destruction of war, not even five years of it have broken the productive machine. And the reason is now plain enough. Peace, also -- or peace under the old conditions of industry -- is infinitely wasteful of human energy. Not more than one adult worker in ten -- so at least it might with confidence be estimated -- is employed on necessary things. The other nine perform superfluous services. War turns them from making the glittering superfluities of peace to making its grim engines of destruction. But while the tenth man still labors, the machine, though creaking with its dislocation, can still go on. The economics of war, therefore, has thrown its lurid light upon the economics of peace.

Seems to me the trick is in what comes out of the spending. If all we do is replicate present patterns, unsustainable automobile society, schools that don't create excellence, a glut of inessential THINGS, and so forth, we will simply be holding off collapse no matter how much we "invest". If however we create an entirely new class of workers to manage and staff a transportation system that radically reduces the number of vehicles while attracting people to a better mode of getting around, if we design communities and retrofit existing ones with nodes for learning, preventative health, a thriving Jane Jacobs-type, street culture and arts, if we take a leaf from Christopher Alexander and supplant cookie cutter design and architecture with the nested notions of A Pattern Language -- in other words if we do NOT treat this solely as an economic problem but a values problem, we might have a fighting chance.

Unless I am mistaken wasn't there an economic boom after WWI? I may be engaging in a logical fallacy to equate the boom after WWII to the post WWI boom, but there was no massive "slave labor" force engaged for the years prior to that boom time of the 1920's, but there were anti-regulatory policies..thus the short term "boom" then bust of the 30's.
The "slave labor" market lamented here was not optional, but neither was it coerced..., Americans came into the cities in droves to take over comparatively well paying jobs held by departing service men - as well as jobs created by war production, and a great many servicemen returned to jobs that had not existed before they left. The labor market that grew into the real post war economy and the real middle class was nothing like its predecessor during the war. Unions were demanding better pay and conditions while a better educated and more empowered workforce gradually raised everyones boat, so to speak.
Also, consider all the money saved by all those soldiers who, upon returning home, began to spend...and spend...how much might that sort of stimulus matter?

tomsem,

I was about to raise the same point: WWII devastated all our main competitors. That probably explains why the US become so preeminent among the developed economies. The enormous amount of rebuilding created a lot of growth everywhere and the US benefited somewhat disproportionately.

We need Obama to lead us towards a green infrastructure building boom that does the same sort of thing on a peaceful basis. But we probably can't expect such a boom to put us so far out ahead this time.

I worry too, that too many entrenched industry interests are still in the saddle and that they will use their power to protect their petroleum-driven habits: chemically-driven agribusiness, the military-industrial complex, gas-driven automotive companies, etc.

Dan K is on the right track. Historically, successful economies grow around a shared purpose. It doesn't seem to matter all that much what the purpose is economically. Pyramids, cathedrals, temples, Great Walls, conquest, dominance, canals, highways, dams, war, ideas and ideals have all worked before.

Of course there are other components, chief among them is someone with a vision and the means to either convince or compel others to go along with it. Obama has the ability to convince. I am not sure he yet has the vision that will inspire.

Consider the best infrastructure project proposed so far: replacing the electric grid with a new smart grid. The original grid and power plants were put in place fairly fast because people wanted the electricity which was 'too cheap to meter' at the time not because it 'created jobs and grew the economy even though it did that too.

Growing the economy and creating jobs are such a nebulous goals. What jobs? I don't want a job, I want an income or some means to get what I need and want. And what the hell is the economy anyway? You hear a lot of talk about it but you can't see it, feel it, etc.

Stop arguing over whether monetary or fiscal policy should apply. Pick some good projects, get some financing and start selling them.

PS - I don't think many people will be sold on the idea of digging holes and refilling them.

I think we have more possible kinds of 'public works' these days than dams'n'bridges or wars. For example, Open Source software is a public good, and one that's a lot easier to start doing than a dam. Granted, not everyone has the right skills - unemployed bank techs probably; unemployed construction workers, not so much. But we have both, and it would be pointless to pay the bank techs to dig holes.

I believe jpharo has it largely right: we needed optimism to win the war and the rest is summed up in the great 1946 movie The Best Years of Our Lives. When Fred Derry (Dana Andrews) is on his way out of town, heading anywhere, he exorcises his war demons by sitting in a soon to be scrapped bomber, the same kind he flew on as a bombardier. A construction foreman yells at Fred to get out and tells him the bombers aren't being scrapped; they're being reused to make new housing. Fred asks for a job because it means his life can be reused too, that he can be more than war debris, and when the foreman asks if has construction experience, Fred tells him no but he can learn just like he learned that job up there.

Optimism is what breaks the liquidity trap.

It also helped that the Marshall Plan - and the near absence of competing industry in Europe for years - fed our exports.

I do not think Paul Krugman is raising the question of why WWII worked for the purpose of evaluating war as a vehicle for economic recovery. I think he's asking the question to find out whether, given that the Iraq war will likely be a post-war event sometime in Obama's term, similar post-war trends may be found. He said he was "thinking.." because it was a discussion opener.

Secular stagnation will occur if there are a range of unemployment rates that are consistent with a given stable rate of inflation. If that's the case, then extra stimulation could bring us to the lower end of that range.

I find that plausible, but unlikely. I tend to think of hill-shaped reaction functions, rather than plateaus.

Another possibility is that tastes for savings ebb and flow, while investment is tied to existing aggregate demand and capacity utilization. Traditional stabilization policy will work under these circumstances, but it is possible that there may also be a need for medium term stabilization.

But couldn't medium-term stimulus be conducted by the Fed, assuming that fiscal policy pulls us out of the liquidity trap?

As a related question, shouldn't we be aiming for a 2-4% rate of core inflation rather than a 1-2% "comfort zone"?

Actually, I chose the directions advisedly. Ellen has an undeserved jacket around here as a right-wing--as opposed to equal opportunity-- curmudgeon.

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