It is widely believed that World War II gave us the end of the Great Depression. As a result, people have said for decades there is nothing like a wartime economy to bring recovery from economic recession. War blows apart a lot of things, so you have to make a lot of things, which puts a lot of people to work building a lot of things, which puts a lot of other people to work digging a lot of things from the ground in order to build those things. Hurricanes blow apart a lot of things, too.
If that logic held completely true, however, the best thing we could do whenever we are trying to come out of economic collapse would be to blow up every city in the nation so we could build it all over again. While WWII did end the Great Depression, logic tells us there is a more complex tale to tell.
There is a difference between an increase in economic activity, which improves economic statistics and puts people to work, and wealth accumulation. Wars (and hurricanes) create a flurry of economic activity, which may juice the economy as WWII did, but you eventually have to pay for all of that so it doesn’t build wealth for a nation overall because of the debit side of the accounting sheet … unless, of course, one nation takes spoils of war from the nations it defeats, which then bear the burden of doing worse for decades to follow while the victorious nation is better off; but we didn’t do that in WWII. We built up the nations we ravaged. So, how did we wind up better after WWII?
What gets left out of the wartime economic recovery equation is debt. WWII proved stimulus spending works, but what is not considered it that the US had very little debt before that and enormous debt at the end. What a wartime economy or a hurricane reconstruction economy really do is move spending forward. They force infrastructure spending now, accelerating deficit spending and total debt.
This post was published at GoldSeek on Wednesday, 13 September 2017.