Post-World War II Economy
World War II brought about significant changes to the North American economy, particularly in the United States. This article focuses on how the US economy changed significantly during World War II. The need for more workers in the war industry prompted the relocation of millions of Americans. People moved mainly to the Atlantic, Pacific and Gulf of Mexico coastlines in response to the creation of military installations. With the increase in population and the end of World War II, the United States became the best economy in the world, despite a high casualty rate of 300,000 dead soldiers.
With the economic base left behind after the war, the United States grew more prosperous in the post-war years than most Americans had ever dreamed of living before or during the war. For example, public policy gave veterans access to higher education, housing and financial subsidies to buy farms. While it is impossible to calculate exactly what benefits the government provided, it is undeniable that these benefits helped veterans improve their standard of living. After servicemen and women attained a higher standard of living, they began to build families and began to have children in large numbers.
According to Bohanon’s article we know that many people loved the decade after World War II. This is because the cultural and economic foundations of America were stable during that decade. Dating back to the 15 years prior to WWII, the US experienced the Great Depression, which was in stark contrast to the improved standard of living per capita and world standing that the post-war years later brought. However, the attitudes and realities of American politicians are not as simple as one might think. A study of the post-war facts reveals that government intervention may not have been an essential element of prosperity.
In his State of the Union speech in 2009, President Obama compared his stimulus package to prior popular government projects by referencing post-World War II programs. He did this by employing analogies. He said that in the aftermath of the Great Depression and war, the government issued (GI) Bill was responsible for sending an entire generation to college and establishing the world’s greatest middle class. Therefore, the role of the government was not to substitute private business; rather, it was to accelerate private enterprise. Similarly, Paul Krugman, winner of the Nobel Prize in economics, is another individual who has lauded the part that the government played in both World War II and the recovery that followed it (Bohanon, 2012). Krugman asserts that World War II was, above all else, a surge of deficit-financed public expenditure that created an economic boom and established the basis for long-run prosperity.
Both President Obama and Professor Krugman are painting history with a very wide brush to support their contention that an active role of the federal government in economic policy is necessary for success. These generalizations exude an aura of reasonableness and include traces of truth in their formulations. On the other hand, a more in-depth investigation into the actual happenings of the immediate postwar era reveals a picture that is far more complicated and runs counter to the prevalent notion that intervention by the State is an essential component of economic growth (Bohanon, 2012). The termination of deficit spending did not result in a severe economic downturn in the United States, even though the postwar period was marked by a significant reduction in government expenditure, which was made possible due to the triumph of the Allies.
At the time, the prevalent school of thought was that after the war was over, the U.S. would experience a severe economic downturn. Paul Samuelson proposed that after the fighting stops and the troops are demobilized, about ten million men will be available to take jobs in the civilian sector. He sternly warned that if wartime restrictions were not prolonged, the world’s economy would be subjected to the most severe period of industrial upheaval and unemployment in its history (Bohanon, 2012). Also, Gunnar Myrdal predicted that the economic turbulence that would follow the war would be so severe that it would lead to an outbreak of violent crime.
The above reflects a world view that believes that aggregate demand is the economy’s primary engine. If, for instance, the government stopped paying troops and industrial employees who made armaments, their salaries would vanish, leading to a drop in expenditure. This will further reduce consumer spending and expenditure on private investment, which will plunge the economy into a downward cycle of epic proportions. On the other hand, nothing of such events occurred after World War II.
In 1944, the total amount spent by all levels of government represented 55% of gross domestic output (GDP). By 1947, actual government expenditure had decreased by 75 percent, translating to a decrease from 55 percent of GDP to little more than 16 percent of GDP (Bohanon, 2012). During the same period, federal tax receipts dropped by around 11 percent on average. However, this “destimulation” did not result in a collapse of private investment or expenditure on consumer goods. The real increase in consumption was 22% between 1944 and 1947, and the amount spent on durable goods more than doubled over that period (Bohanon, 2012). The value of gross private investment increased by 223% in real terms, with a staggering growth of 600% in the actual value of residential-housing expenditures (Bohanon, 2012).
As a result of the government not spending money on weapons and personnel, the private sector saw a boom in economic activity. The factories that had produced bombs in the past were now producing toasters, and sales of toasters were rising. After the war, the GDP, as calculated by economists, did see a decline; in 1947, it was 13 percent lower than in 1944 (Bohanon, 2012). However, this was only a quirk in the accounting for GDP and not an indicator that the private sector has slowed down or that times are tough economically.
In 1944, an appliance factory used throughout the war to produce weapons was sold to the government for $10 million, which resulted in an increase of $10 million in the GDP. It’s possible that the same facility, which had been turned back to the civilian industry, produced one million toasters in 1947 and sold them for $8 million; this contribution to GDP was just $8 million (Bohanon, 2012). In 1944, Americans were aware of the need to manufacture bombs; nevertheless, they are in just as good of a position now when those resources are employed to manufacture toasters. More specifically, the expansion of private expenditure has continued uninterrupted despite a drop in GDP that can be explained by bean counting.
Equally as significant is that the double-digit unemployment rates that plagued the economy before the war did not reappear after the conflict. Over 20 million individuals were discharged from the armed services and jobs between 1945 and the middle of 1947, while the number of persons working in civilian jobs unrelated to the military increased by 16 million (Bohanon, 2012). President Harry S. Truman characterized this as the quickest and most monumental transition from war to peace that any country has ever accomplished. He said thus about the event. The unemployment rate climbed from 1.9 percent to only 3.9 percent. According to Robert Higgs, an economist, “It was no miracle to herd 12 million men into the armed forces and entice millions of men and women to work in munitions industries throughout the war.” Higgs argues that “It was no miracle to herd 12 million men into the armed forces.” The true miracle was that one-third of the workforce was redirected to servicing private customers and investors in only two years.
Although there is little doubt that the G.I. Bill had a beneficial impact on the educational level of American workers throughout the 1950s, the bill had only a tiny part in maintaining a low unemployment rate in the immediate postwar period. Even at its height in the autumn of 1946, the measure only succeeded in enrolling around 8 percent of returning service members in higher education and keeping them out of the labor field (Bohanon, 2012). Before the war, the government implemented various initiatives to re-enter jobless persons into the workforce, and most of these programs were unsuccessful. However, during the years in question, there was no new government program that helped smooth this shift. The cessation of government leaders of the economy helped enable the postwar growth in private employment.
It is essential not to generalize too much since every era in history was marked by its unique circumstances. No one would advise getting involved in a war that would harm the economy and subjecting it to stringent controls during times of war to improve the State of the economy. Despite this, the historical event shows that it is feasible for highly regulated economies to lower government expenditure without causing a corresponding decline in private spending.
The pricing mechanism must be unrestricted to effectively move resources to the applications that make the greatest use, and this is the single most critical element. This, in turn, suggests that laws that hamper this market process need to be abolished as government expenditure continues to decrease. The postwar prosperity that the United States of America experienced after World War II was less of a consequence of a well-defined political program and more of a by-product of what the government ceased doing. This is an ironic conclusion to reach, given the circumstances.
Bohanon, C. (2012). Economic Recovery: Lessons from the Post-World War II Period. Mercatus Center. https://www.mercatus.org/publications/economic-history/economic-recovery-lessons-post-world-war-ii-period.