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Vaniver comments on Open Thread, May 19 - 25, 2014 - Less Wrong Discussion
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This just struck me: people always credit WWII as being the thing that got the US out of the great depression. We've all seen the graph (like the one at the top of this paper) where standard of living drops precipitously during the great depression then more than recovers during WWII.
How in the world did that work? Why is it that suddenly pouring huge resources out of the country into a massive utility-sink that didn't exist until the start of the war rapidly brought up the standard of living? This makes no sense to me.
The only plausible explanation I can think up is that they somehow borrowed from the future using the necessities of war as justification. I feel like that would involve a dip in the growth rate after WWII - and there is one, but it just dips back down to the trend-line not below like I would expect if they genuinely borrowed enough from the future to offset such a large downturn as the great depression. The only other thing seems to be externalities.
However this goes, this seems to be a huge argument in favor of big-government spending (if we get this much utility from the government building things that literally explode themselves without providing non-military utility, then in a time of peace, we should be able to get even more by having the government build things like high-tech infrastructure, places of beauty, peaceful scientific research, large-scale engineering projects, etc.). So should we be spending 20-40% of our GDP on peace-time government mega-projects? It's either that or this piece of common knowledge is wrong (and we all know how reliable common knowledge is!).
Or I'm wrong, of course. So what is it?
(Bonus question: why didn't WWI see a similar boost in living standards?)
It didn't. This is the argument in image form, and you can find similar ones for employment (basically, when you conscript people, unemployment goes down. Shocking!). There are lots of libertarian articles on the subject--this might be an alright introduction--but the basic argument is that standards of living dropped (that's what happens when food is rationed and metal is used for tanks instead of cars or household appliances) but the government spending on bombs and soldiers made the GDP numbers go up, and then the post-war boost in standards of living was mostly due to deferred spending.
Note: as the article implies, the above viewpoint is not representative of mainstream economic consensus.
What tgb stated above was factually incorrect--WWII did not increase living standards. While most economists credit WWII with kickstarting GDP growth and cutting unemployment, I don't know anyone who would actually argue that living standards rose during WWII.
Krugman doesn't quiiiite come out and say it, but he sure seems to want the reader to infer that living standards rose: http://krugman.blogs.nytimes.com/2011/08/15/oh-what-a-lovely-war/ And in that article, he quotes and quote of Rick Perry's book saying that the recovery happened because of WW2 (due to forcing FDR to "unleash private enterprise", oddly).
So maybe no one actually makes that argument, but boy it's common for people (economists and politicians!) to imply it. (Look at the contortions Perry goes through to not have to refute it!) It's always nice to notice the confusion a cached thought should have made all along.
I think you're reading way too much into Krugman's argument. I don't read Krugman as trying to imply that living standards rose during WWII. He doesn't even mention living standards. When economists talk about ending a recession or ending a depression, they mean something technical. Krugman was just talking about increased production and lowered unemployment, etc.
Frankly it seems bizarre to me that anyone would believe that crashing consumer spending + mass shortages = better living standards. It is fair to say that people had a better attitude about their economic deprivation, since it had a patriotic purpose in serving the war effort.
I think it's clear that you know more about what economists mean than I do, but when the typical person hears that a depression is ending, they imagine people being happier than they were before. I'm not really claiming that anyone thinks that crashing consumer spending + mass shortages = better living standards, just that the average Joe in the US hears about the depression ending and not about those negative things.
Anyway, not sure what point I'm trying to make since I think you already know what I'm saying.