You might think that the fact that one of my first year students two weeks ago said the exact same thing that the dean of Washington pundits wrote Sunday in his column would cause me to swell with pride. Problem is, they're both wrong.
In my class, we were discussing Milo Minderbinder, Joseph Heller's satirical stand-in for the unrestrained business ethos in his brilliant novel, Catch-22. We were talking about why Heller included this character, and my student said: "World War II ended the depression." David Broder on Sunday wrote the same thing. In a bizarre article, Broder suggests that President Obama’s political fortunes in 2012 could be enhanced by a war with Iran: “Look back at FDR and the Great Depression. What finally resolved that economic crisis? World War II.”
While it is stunning to hear Broder (someone who should know better) do so, I was not surprised that my student echoed this mistaken conventional wisdom. I've been fighting this fundamental misunderstanding for as long as I've been teaching. I think the first time I heard it was from the lips of Archie Bunker in Norman Lear's classic sitcom, "All in the Family." In every class in which I've dealt with the Great Depression, I've heard this refrain repeated.
It's a classic case of mistaking historical causation. It is indeed true that the U.S. fully emerged from the depression after the war began. Despite Broder's implication, there's nothing magical about wars that ends depressions. What ended the Great Depression was that the war removed all restraint on federal government spending.
A quick look at the numbers makes this clear. While the same ill-informed conventional wisdom has it that the New Deal led to massive government spending, that is not true. In 1933, total federal spending was about $4.6 billion. It reached a New Deal height of $8.3 billion in 1936, much of that due to spending on the WPA, a jobs program that employed millions of Americans and built infrastructure (the stimulus bill of its day). The economy improved, but spending was cut in 1937 to $7.6 billion and in 1938 to $6.9 billion, leading to what was called the “Roosevelt recession,” which wiped out many of the economic gains of the previous four years.
The huge increase in government spending came NOT from jobs programs like the WPA, or other New Deal social welfare programs, but from military spending. In 1939, the federal budget jumped to $9.1 billion, in 1941 it was up to 13.6 billion, with almost all of that increase due to defense preparedness spending. Once the U.S. entered the war, spending exploded. By 1944 it was $91.3 billion—more than ten times the New Deal height. The deficit that year was $47.5 billion, more than ten times the $4.3 billion deficit of 1936. That is what ended the depression.
How? The U.S. had tremendous underused industrial capacity during the depression. What was lacking was demand. Orders for military goods created demand. When events in Europe and Asia made the prospect of American involvement in war more likely, FDR announced what were ridiculed as unreachable military production goals. Not only did American industry meet his goals, it generally exceeded them. In 1942, for example, the U.S. produced more planes than the three Axis powers combined.
The reason for this production success was fairly simple. The federal government met its defense needs by granting cost-plus contracts: all of industry's costs (including labor) were met by the federal government, and a profit was guaranteed to contractors (talk about a bailout). Millions of blue-collar workers were suddenly not only employed, but making good wages (often including overtime pay). Business had profits to reinvest. That meant that workers found themselves flush with disposable income. They both spent and saved. The increased consumer spending led to wartime prosperity and unprecedented economic growth, and after the war consumers spent their savings on goods (like cars) not available during the war due to wartime rationing, continuing the economic boom into the postwar years.
In short, war did not produce prosperity, massive government spending did. The relevance of this truth about World War II prosperity is not Broder's mistaken belief that war ends depression, but that it helps explain why the American economy today is still struggling to revive.
As much most American voters seem convinced that we are today spending too much, that the stimulus bill was an abject failure, the reality is that, like the WPA spending in 1935-36, the stimulus was helpful but was not enough. And the likely cost of this historical and economic ignorance is that Americans are poised to elect tomorrow a Congress that will make the same mistake that FDR made in 1937 and cut spending, and may send the fragile American economy into a new recession.
When Archie and Edith Bunker sang “Mister, we could use a man like Herbert Hoover again” in the 1970s, it was funny. When today Americans from David Broder to a typical college student think the same, and worse yet vote accordingly, it is potentially tragic.