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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.
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!).
I'm surprised no one has explained this yet, but this is wrong according to standard economic theory as I understand it.
- The United States suffered from terrible monetary policy during the Great Depression.
- Due to "animal spirits" and "sticky wages" this caused large scale unemployment and output well below our production possibilities frontier.
- World War II caused the government to kickstart production for the war effort.
- Living standards actually didn't rise, although GDP did (GDP per capita is NOT the same as living standards). Consumption was dramatically deferred during the war. People had fewer babies, bought fewer consumer products (and fewer were produced) and shifted toward home production for some necessities.
- There was a short recession as the end of the war lowered demand, but pent-up consumer demand quickly re-stabilized the economy.
The point is WWII helped the economy because we were well under our production possibilities frontier during the depression. Peace-time mega projects would only be helpful under recessed/depressed conditions, and fortunately, we now can use monetary policy to produce similar effects.
Anyway, the argument you were making seems pretty common among people who don't follow economics debates, and in fact is one of the major policy recommendations of the oddball Lyndon LaRouche cult.
Do you know of a typical measure (or component) of living standard that would have been measured for the US across both the great depression and WW2? The standard story I have heard informally is that WWII efforts did actually increase standards of living. I'm not surprised to learn that that's false, but given the level of consensus in the group-think I've encountered, I'd be interested in seeing some hard numbers. Plus, I'm interested in seeing whether there was a drop in living standards.
One simple model which seems to fit the "WWII ending the depression" piece of data (and which might have some overlap with the truth) is that it's relatively difficult to put idle resources into use, and significantly easier to repurpose resources that have been in use for other uses.
During the depression, a bunch of people were unemployed, factories were not running, storefronts were empty, etc. According to this model, under those economic conditions there were significant barriers to taking those idle resources and putting them to productive use.
Then WWII came and forced the country to mobilize and put those resources to use (even if that use was just to make stuff which would be shipped off to Europe and the Pacific to be destroyed). Once the war was over, those resources which had been devoted to war could be repurposed (with relatively little friction) to uses with a much more positive effect on people's standard of living. So things became good according to meaningful metrics like living standards, not merely according to metrics like unemployment rate or total output which ignore the fact that building a tank to send to war isn't valuable in the same way as building a car for local consumers.
The glaring open question here is why there might be this asymmetry between putting idle resources to use and repurposing in-use resources. Which is closely related to the question of why recessions/depressions exist at all (as more than momentary blips): once a recession hits and bunch of people become unemployed (and other resources go idle), why doesn't the market immediately jump in to snap up those idle resources? This article gets into some of the attempts to answer those questions.
(Bonus answer: World War One did not happen during a depression, so mobilizing for war mostly involved repurposing resources which had served other uses in peacetime rather than bringing idle resources into use.)
I like that this explanation gives a good reason for why this kind of spending could only work to fix a depression or similar situation versus always inflating standards of living. Thanks.
In response to
Open Thread, May 19 - 25, 2014
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?)
How often do you check your login locations?
It checks for you, by the way, and will block an attempt and notify you if it looks suspicious. This happened to me earlier this month. Interestingly, that happened 4 days after the vulnerable OpenSSL version was released and my Gmail password is basically the only the one which I do not reuse anywhere and I don't know how anyone could have gotten it... Still more likely to have been a keylogger or something.
Why not all of the above? We can see some rounding already; http://investor.fb.com/releasedetail.cfm?ReleaseID=835447 says
Facebook today announced that it has reached a definitive agreement to acquire Oculus VR, Inc., the leader in immersive virtual reality technology, for a total of approximately $2 billion. This includes $400 million in cash and 23.1 million shares of Facebook common stock (valued at $1.6 billion based on the average closing price of the 20 trading days preceding March 21, 2014 of $69.35 per share). The agreement also provides for an additional $300 million earn-out in cash and stock based on the achievement of certain milestones.
There's rounding right there (23.1m * 69.35 is not a round number). And there's plenty of uncertainty about how much they will actually pay: how can anyone know how much of that earn-out will ultimately be paid?
It absolutely could be all of the above! But see I write questions like this fairly frequently: I notice something surprising and don't have a good explanation for it. I then write down the question and pose a couple possible explanations which makes me think of more possible explanations. Frequently I realized that taken together the possibilities I thought of are enough to explain what I was surprised at and I don't even ask the question. Other times, like this one, I still feel like I'm missing something. So I ask the question.
In this case it looks like the biggest thing I missed was how much these sales' values depend upon the moment-to-moment stock prices of the parties involved and so that not rounding them hardly even makes sense, as you and bramflakes point out. Thanks!
In response to
Open thread, 24-30 March 2014
Facebook bought Oculus Rift for $2 billion. What makes this, and so many other large deals, such clean numbers? Are the press rounding the details? Are the companies only releasing approximate or estimate numbers? Can the value of a company like Oculus really not be estimated to the nearest 10%? Or do these whole numbers just serve as nice Schelling points on which to hinge a bargain? Or am I forgetting lots of ugly-numbered deals?
(WhatsApp purchase was 2 significant figures, and this list on Wikipedia does show mostly 2-3 significant figures though some figures are probably converted from other currencies.)
Btw, you need to start a new line every time you make a bullet point.
No, you need to leave a blank line before the first item of the list (the items of the list can be linked)
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Drexler's Nanosystems is very technical and very fun. The first ~half of the book is interesting physics, and the rest is mind-blowing systems design (molecular manufacturing and nanomechanical computers!).
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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.