Still another compelling reason to remember World War II

Robert Kuttner

December 11, 1991|By Robert Kuttner

THE FIFTIETH anniversary of World War II portends four years of anniversaries marking military events -- Pearl Harbor, Midway, D-Day, Iwo Jima, right on to V-E Day and V-J Day.

Amid all this military commemoration, we should also mark World War II as an extraordinary demonstration of the power of collective economic action. As conservatives never tire of reminding us, it was not the New Deal that cured the Depression; it was the war. And how right they are.

The war finally brought about the massive brand of Keynesian economics that the New Deal never quite managed. Even at its peak, federal spending during the New Deal was only about 11 percent of gross national product, and the federal deficit never exceeded $4.4 billion. Per capita incomes in 1939 were still well below their level of 1929.

Unemployment, after peaking at 25 percent in 1933, improved only to 14.6 percent in 1940 -- still far higher than at any time during the postwar era. Only when the government began mobilizing for war did the economy finally recover.

As a purely economic event, the mobilization for World War II was the most remarkable in the history of the world. In the first six months of 1942, the War Department entered weapons orders totaling more than $100 billion -- more output than the entire economy had ever produced in a year. It was a stunning declaration of faith in the productive potential of the U.S. economy.

Federal spending increased from about $9 billion in 1939 to an unimaginable $100 billion in 1945. At the peak of the war effort, fully one-third of all U.S. economic activity was devoted to war production.

Unemployment quickly vanished. Ten million new jobs were created in the armed forces -- and 11 million new ones in the civilian economy. Investment levels soared. Economic growth reached record levels which have never been exceeded. By 1945, industrial production was double its 1939 level. GNP increased from $100 billion in 1940 to $211 billion by 1944.

According to John Morton Blum's fine history of the home front, ** "V was for Victory," the economy grew so prodigiously that by 1944, "the total of goods and services available to civilians was actually larger than it had been in 1940" -- even though one-third of what the economy produced during the war was quite literally blown up.

How could the economy have managed this? For one thing, the && government organized savings that had lain fallow during the recession and converted them to productive investment. The government borrowed prodigious sums; citizens patriotically invested in war bonds.

The federal deficit in 1942 was 50 percent of government outlays, and nearly one-fourth of GNP. But since that borrowing went to finance investment and economic growth, it was productive borrowing.

When the war ended, much of the war production was quickly converted to consumer goods. People, deprived of goods during the war, cashed in their war bonds and went on a buying spree, and the economy soared.

The war was also a source of stunning technological breakthroughs and a massive human capital program. People who had been unemployed for years quickly learned skilled trades and earned middle-class incomes on war production lines. Blacks, long excluded from many jobs, were found to be entirely qualified to perform them. Even women were found to be competent -- though they were dispatched back to the kitchen when the war ended.

This is, of course, more than a history lesson. When capacity is idle, and investment is not made for lack of consumer demand, the quickest way to restart the economic engine is through direct public investment. And we don't need to wait for a war.

Everything in the public sector that went to ruin during the 1980s cries out for fixing and rebuilding. The results should be even more productive than the war experience, since we would not be building things only to blow them up.

World War II holds profound lessons about how to restart a stalled economy and how to organize the productive potential of its people and its machines. So, while we celebrate the great battles, we should also commemorate the great victories of the War Production Board and the Office of Price Administration, the accomplishments of Rosie the Riveter and her unsung sisters, the strides toward racial economic justice produced by A. Philip Randolph's wartime equal employment crusade and the stunning industrial collaboration of private industry and organized labor.

Today, the foreign enemies are different, but the economic ones are the same -- idle and homeless people, decaying public facilities, stalled investment, slow growth. If the United States, its people and its government could perform such economic feats in war, imagine what they might do now that we have peace.

Robert Kuttner writes on economic matters.

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