The fallacy that World War II ended the Great Depression in the United States is obnoxiously persistent. From high school history classrooms to renowned economist Paul Krugman, this myth continues to do a disservice upon historical evidence and the lessons we learn from it. It contributes to a growing romanticization of humanity’s most violent conflict, peddled by people who are too young to know its horrors firsthand.
Worst of all, this myth heavily influences how people view the role of government during economic recessions. The myth focuses so heavily on government deficit spending that the consequence is obscured. Cronies grow fatter while broader human welfare is neglected. It is time to permanently dispel the myth that WWII ended the Great Depression.
The myth is born out of two crude observations: full employment and gross domestic product. Full employment refers to the situation where the unemployment rate is acceptably low. The U.S. achieved a record 1.2 percent unemployment rate in 1944 compared to the 14.6 percent in 1940 and the eyebrow-raising 23.6 percent in 1932. GDP refers to the total value of goods and services produced within a country’s borders in a given time period. U.S. GDP jumped 18.9 percent in 1942 to a high of $2.352 real GDP by 1944. Proponents of this myth use the aforementioned statistics to support their claim. After all, it is factually correct that mass conscription increased employment and factories starting churning out war material that got counted as GDP.
The problem is with the quality of living. Human welfare is a much better indicator of the end of the Great Depression than crude employment and GDP are. In other words, ending a depression requires an improvement in prosperity and welfare, not just some statistical data points. Dumping millions of young men onto battlefields does not necessarily improve their well-being, and producing tanks does not create wealth.
Americans who stayed in the country lived through dreary conditions as well. Sugar, butter, meat, rubber and gasoline were all rationed by the U.S. government during WWII. Comfortable housing was extremely scarce: many workers slept in cramped apartments attached to the same factories they labored in. The manufacture of consumer goods like refrigerators and automobiles was forbidden. The few goods that could be found would be uniform and inferior. Price controls crushed market innovation and distorted consumption. Rations, prohibitions and price controls were all disturbingly inequitable. A thriving black market supplied goods to well-connected Americans who could exploit the system. The rest were neglected, and the weakest were often preyed upon by mobsters trying to extort ration coupons for resale.
Whether you think all of those policies were necessary for the war effort is another matter. The fact is that Americans experienced no meaningful improvement in the quantity, quality and variety of life during the war. Therefore, it is not reasonable to credit WWII for ending the Great Depression.
So what did? Frankly, it was the postwar period. It was the restoration of international trade with multilateral agreements designed to shrink protectionist barriers like tariffs and quotas. It was the revival of American consumerism, where households purchased 21.4 million cars between 1945 and 1949. It was the freeing of private sector investment, which grew from $1.4 billion in 1946 to $5.3 billion in 1954. All of this occurred as postwar U.S. federal spending dropped 75 percent in real terms.
This distinction matters because it radically changes the economic lessons we learn from WWII. Proponents of the myth would have you believe that recessions are escapable so long as government spends its way out of trouble. Are factories sitting idle? Have the government purchased more tanks. Is the unemployment rate high? Have the government hired 3 million people to dig ditches with spoons. It doesn’t matter if it’s all for warfare or any other unproductive activity. As long as something is being produced and workers are working, we will all be prosperous, right?
Wrong. This is the worst manifestation of the broken window fallacy: a parable of a hypothetical boy breaking a window, forcing the shopkeeper to hire a repairman, thus transferring money and stimulating the economy. The fallacy is that destruction does not create new wealth. The economy would’ve been better served if the shopkeeper could spend his money on other pursuits than fixing intentional destruction. Factories producing tanks for the government does not create wealth. In fact, those weapons often go on to destroy wealth. Three million government workers digging ditches with spoons does not create wealth, just as conscripting men into the army does not create wealth. Government must always tax or inflate to pay for its expenses, so ultimately it’s just taking money out of your left pocket and putting it in your right.
If we allow this myth to persist, then we are prone to make the same mistakes in the future. Modern American democracy is already over-emphasizing employment as the ultimate measure of the economy. Politicians speak of jobs like they are all humans live for. What matters more is the quality of those jobs and the opportunities for workers to purchase what makes them happy. Similarly, spending on war will never improve the economy in real terms. What the GDP comprises of is very important: a small GDP of consumer goods means more for human welfare than a large GDP of weapons.
WWII should not be praised as an improvement of human welfare. It was the worst thing that ever happened on Earth. When wartime spending ended, government cronies predicted economic disaster. Yet human welfare flourished to unforeseen heights. That’s the lesson we should learn here.