Tuesday, May 3, 2011

World War II and economics

One of the reasons I've become more interested in libertarian economists than conservative ones is that, to be perfectly honest, I grew up getting the general impression that World War II helped drive us out of the Great Depression. Surely this was the only explanation left if you rejected the idea that the New Deal fixed everything. Not so, according to just about every libertarian I've read. Apparently it's a good deal more subtle than that, as Alexander Field points out (via Tyler Cowen):
Had trends persisted in the absence of war, employment, TFP, and labor productivity would all likely have been higher in 1942…housing construction was robust and growing in 1939, 1940, and 1941, and when the postwar housing boom emerged with full force in 1946, it took off from where it had been arrested in 1941. Since the failure of residential construction to revive fully was one of the major contributors to the persistence of low private investment spending during the Depression, its signs of revival in the years immediately preceding the war suggest that had peace continued, investment, output, and employment growth would have continued as the economy reapproached capacity.

…There continues to be a popular perception that war is beneficial to an economy, particularly if it does not lead to much physical damaged to the country prosecuting it. The U.S. experience during the Second World War is the typical poster child for this point of view. Detailed research into the effects of armed conflict, however, has usually produced more nuanced interpretations…In that spirit, the research reported in this chapter represents a revisionist approach to the analysis of the Second World War, although one that is not entirely unanticipated.
There's something refreshing about libertarianism which is both anti-Keynesian and anti-war. It all goes back to the broken window fallacy.

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