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To: TimF who wrote (616173)	6/14/2011 6:02:51 PM
From: TimF	Respond to of 1580266

What ended the Great Depression? by Tyler Cowen on November 11, 2008 at 7:14 am in History \| Permalink There has been recent circulation of the older view that it is World War II, as a kind of giant public works project, which ended the Great Depression. This claim is not consistent with our best knowledge of the subject. To survey the cutting edge of the literature briefly: Christina Romer writes: This paper examines the role of aggregate demand stimulus in ending the Great Depression. A simple calculation indicates that nearly all of the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. Huge gold inflows in the mid- and late-1930s swelled the U.S. money stock and appear to have stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. The finding that monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942. Here is another interesting paper on the topic; it focuses on productivity issues and mean reversion. Here is from a paper by Cullen and Fishback: We examine whether local economies that were the centers of federal spending on military mobilization experienced more rapid growth in consumer economic activity than other areas. We have combined information from a wide variety of sources into a data set that allows us to estimate a reduced-form relationship between retail sales per capita growth (1939-1948, 1939-1954, 1939-1958) and federal war spending per capita from 1940 through 1945. The results show that the World War II spending had virtually no effect on the growth rates in consumption that we examined. Further debunking of the WWII idea can be found in this paper by Robert Higgs, who stresses the difference between standard gdp measures and actual economic welfare. I also find the experience of the Latin American economies convincing. The economic recovery of Argentina, for instance, clearly was due to monetary policy, not fiscal policy, which remained tight throughout the period of recovery. Mexico recovered from the Great Depression relatively quickly and this history also does not fit the fiscal policy view. Later on, most of the Latin economies experienced commodity booms because of wartime demands and again this was not fiscal policy and of course they were not fighting the war themselves. The two countries where fiscal policy played a significant role in recovery are, not surprisingly, Germany and Japan and here I am referring to their prewar spending. marginalrevolution.com

To: TimF who wrote (616173)	6/14/2011 6:05:15 PM
From: TimF	Read Replies (1) \| Respond to of 1580266

Was World War II good for the American economy? by Tyler Cowen on May 3, 2011 at 3:29 am in Books, Economics, History \| Permalink Put aside Bob Higgs’s points about restricted consumption, Alexander Field has another angle: 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. You can buy Field’s excellent book here and here is my previous post on the work. Here is Kling on Field, very useful. marginalrevolution.com