Post WW2 Private Investment v. New Deal Private Investment
by Mike Kimel
Post WW2 Private Investment v. New Deal Private Investment
Cross posted at the Presimetrics blog.
I had a post the other day (which appeared at the Presimetrics blog and Angry Bear, and which was followed up by my fellow Angry Bear, Spencer, here) looking at a paper by David R. Henderson about the supposed post-World War 2 economic boom.
I noted that his view fit into a libertarian/conservative story line, but required not only assuming the GDP (or GNP) data from WW2 is wrong, but also that the data at least through the early ’50s is wrong too, despite the fact that the data fits other known facts pretty well. By contrast, Henderson’s story conflicts with known facts in a number of places.
However, there is one point – another libertarian/conservative myth which comes up in the paper that I’d like to focus on in this post. Henderson tells us:
Why did the economy do much better after the war than at the beginning? We can’t know for sure, but the most likely explanation is the change in administration from Roosevelt, who championed central government planning of the economy, to Truman, who was much less inclined to support government control.
Also see Econospeak’s Prof. Rosser on 1920-21 recession
See,
Before the United States entered into World War II, the New Dealers—the faction of Franklin Roosevelt’s administration that was most hostile to economic freedom—had significant power. During the war, they were largely displaced by more pragmatic people who were not hostile to free markets (thus the quote from Henry Stimson at the beginning of this section).
Moving on…
Roosevelt’s death cleared the way for President Harry Truman. Although he was a New Dealer, Truman had no love for “the long-haired boys” who were associated with the most anti-market parts of the New Deal—people such as Ben Cohen, William O. Douglas, trust-buster Thurman Arnold, price controller Leon Henderson, and Felix Frankfurter. In 1945 and 1946, Truman got rid of a number of New Dealers, including two of the most prominent ones: former vice president Henry Wallace and Harold Ickes.28
Higgs points out that the polling data bear out the perception of a regime change under Truman. As a result of the change, writes Higgs, “Investors were then much more willing to hazard their private property than they had been before the war, as both survey data and financial market data confirm.”29
And invest they did. As table 2 shows, gross private domestic investment in real 1964 dollars was $44.4 billion in 1941. For all the war years it was half or less of that 1941 level. In 1946, it shot up to $51.7 billion, grew slightly to $51.8 billion in 1947, and then grew to $60.6 billion in 1948.
So essentially, Henderson’s belief is that there was a boom after WW2 and that it was caused because greater economic freedom encouraged more private investment. We’ve already dealt with the supposed boom, but what about private investment? Was private investment really booming in the post-WW2 era relative to the pre-WW2 era? Simply put, no, as is evident from the following graph, constructed using data from NIPA table 1.1.6:
Figure 1
From the graph, its pretty obvious that the New Deal easily beat Henderson’s post-WW2 boom when it comes to encouraging private investment. The explanation for why is obvious to anyone who has not bought into libertarian or conservative beliefs about how the economy works.
“So essentially, Henderson’s belief is that there was a boom after WW2 and that it was caused because greater economic freedom encouraged more private investment.”
What a leap of faith. Assuming that the economic data presented were accurate, that is irrelevant. The assumption of cause and effect between a gross process, economic growth, and a very general set of ideological precepts, greater economic freedom, is absurd and the height of hubris. How about the simple fact that the war was over; people feel real good about that; people can begin focusing on building a ilife and a business, etc. Economists sure argue about some asinine ideas.
Nice to see this in print.
Great blogging!
Suzan
The explanation for why is obvious to anyone who has not bought into libertarian or conservative beliefs about how the economy works.
_____________________________
Why use % change versus absolute numbers? In the depression the economy collapsed, so wouldn’t any increases from that bottom (from that lower denominator) be large in % terms when compared to post WWII?
Not disputing the premise of your post, but I still always find this an odd way to make time period comparisons. During the war, the economy never collapsed to the same extent that it did during the depression.
It took the economy 10 years to return to the same level of GDP from start of depression in 1929 to around the start of the war, but 10 years post war, the economy had about doubled.
I used this as my GDP data source:
http://www.bea.gov/national/xls/gdplev.xls
.Jack,
Also, like many libertarians, his freedom means the ability to impose externalities on others.
Suzan,
thnx
mcwop,
1. the comparison to the New Deal (32, not 29) is because he made the reference to FDR’s policies.
2. I suggest y
mcwop,
Check the second column for inflation adjusted figures.
mcwop –
Do you realize that in your last paragraph, you’re making a percentage change argument, but messing up your refeence points?
You can’t go from start of depression, you have to go from start of New Deal.
Yr GDP (billions of chained Yr 2000 $)
1933 635.5
1941 1211
Change in 7 yrs = 191%
1946 223.1
1953 379.4
Change in 7 Yrs = 171%
Your point?
Cheers!
JzB
It’s also worth noting that all that pre-war investment increase happened with absolutely no help from increased bank lending. (So much for supply-side…)
http://www.asymptosis.com/wp-content/uploads/2009/03/bank-loans1-480×314.png
Most business economist when modeling capital spending make it a function of three things:
1. Corporate profits
2. Capacity utilization
3. Cost of capital.
This is standard main stream economics.
I have run models for the era 1929 to 1939 and their resulting model works beautifully in both explaining the 1929 to 1933 collapse in capital spending and the 1934-1939 rebound, even including the 1938 downturn.
I’ve presented the results in Hendersons blog before he banned me, to counter the libertarian argument about capital spending in the 1930s. Guess what their response was. They ignored it.
Never confuse a libertarian with the facts.
“NOOOOOoooo The DATA!!!! it Burns!!!!” lol
Using your numbers my point would be that the growth was about the same during both periods in real terms. You also use 8 years in your first data set, and 7 in the second.
Using inflation adjusted figures (2005 chained $$ from the BLS):
1933 716
1940 1072
Change 150%
Change 190% when including 1941
1946 1792
1953 2347
Change 130%
But this is another example of why I get confused with the data. You use chained 2000 $$ and used chained 2005. Now we have totally different results. What am I missing? And why should we always ignore the nominal data? Does it tell us anything?
Also just to be clear, according to the GDP data 2005 chained the economy was essentially in decline/recession/stagnant follwing the war for around 7 years? Pretty bug decline actually.
1944 2,035.2
1945 2,012.4
1946 1,792.2
1947 1,776.1
1948 1,854.2
1949 1,844.7
1950 2,006.0
mcwop,
I don’t think the figures cited at first work with the chained 2005 data. As I said above, you were looking at the wrong column, the column of nominal figures.
mcwop,
Not a big decline, but stagnant. And stagnant is not what Henderson told us we’d see.
mcwop –
Sorry about the different number of years. That is a ublunder. My bad!
My table of chained 2000 $ is from the same source. I downloaded it a couple of years ago, and they have since updated to 2005 $. I have noticed disprepancies before in data from 20’s, resulting from using a different, more recent, base year. Alas, I have no explanation for it.
Nominal data is not infltion adjusted, and will tell a (possibly) different story. Using inflation adjusted data makes comparisons possible across different time frames.
Anyway, the point is, the post war period does not look better than the New Deal by any measure, and looks worse by some. Henderson’s entire point is New Deal denialism, and the facts simply do not support that contention.
Cheers!
JzB
I read the paper and I did not take that point away. To me, his thesis is that Keynesian economists predicted economic collapse (he includes what Paul Samuelson wrote in 1943) following a large decline in wartime spending. Henderson seems to argue that while the economy in GDP terms may have been stagnant, the economy did a pretty incredible job of absorbing 10 million soldiers, and transitioning to a non-wartime economy, and Samuelson’s prediction did not pan out.
So is everyone here saying the economy was a horrid mess compared to the war years, and the transition was lame? Or was the transition pretty decent, possibly even incredible?
I’d say despite a precipitous drop in government spending the economy seemed to make a nice transition post war. Now where one could nitpik is the reasons why the economy transitioned, and I might disagree with some of Henderson’s polemic points. But, you sure cannot credit government spending, because that declined a lot, and did not trigger a massive depression. Maybe it was as simple as the war ended, and people were determined to get on with their lives, so we can credit American determination more than anything.
Mike –
What’s really funny – and I mean hilarious – is that you could make your figure 1 graoh with data right in Henderson’s paper, and not even go to NIPA. His set is truncated at 1950 (more cherry picking) so you miss the flat lining that follows.
I graphed Henderson’s data along with the NIPA, and the lines fall ogether very nicely, though the actul numbers are different. I took ’33 as my ND base year, instead of ’32. that changes things a little, but not much.
http://jazzbumpa.blogspot.com/2010/11/private-investment-pre-and-post-ww-ii.html
mcwop,
I took away this as Henderson’s position:
1. There was a post-war economic boom. The reason the data doesn’t show that boom is that the GDP figures are massively inflated for the war years due to rationing and price controls. (Note – in my first post, I noted that there is no reason to believe that – recall where he quotes a 17% increase in real GNP from 41 to 47 as if its a big deal, and I noted that would have represented a slow down from the ’32 to ’38 growth rates, let alone the ’38 to ’41, and that that particular fact works nicely with the official data. However, even if you accept his point, there’s still the problem that once rationing and price controls were gone – he himself notes that was mostly done by 1946 – you still have a stagnant economy through 1949. There’s no way to find a boom there and reconcile it with numbers.)
2. The post war boom compares favorably to the pre-war stagnation. (Again, post 1 shows a comparison of the period he picked to the period he thinks was awful.)
3. The reason for the boom post War and the stagnation pre War is that before the War, the government interfered massively in the economy, whereas post War the government increased the degree to which the private sector was left to its own devices. (The investment story doesn’t work, as per the graph in this post.)
4. All of this is evidence that cutting government spending can lead to a big increase in growth rather than the decrease in growth folks to the left of him expect.
Anyhow, its a nice story, and it could sound plausible. But just about every detail contradicts the facts.
As to the nice transition you mention – the figures you show indicate the economy was essentially stagnant through 1950. (He likes to showcase the ’44 to ’48 period.) If you read my book, you know the economy didn’t exactly grow very quickly until 1961. I don’t think he meant 1961 to 1968 when he started talking about a post-War boom.
I took away a slightly different story:
1) Keynesian Economists, such as Samuelson, predicted a depression would result from the large drop in governmnet spending post war, but that did not happen. The economy absorbed a lot of soldiers, and managed to transition to a non-war economy.
2) It certainly was not a “boom”, but more miracle that it avoided a major depression. Henderson should have stopped there he made that argument.
3) I agree he did not make teh argument that cuts lead to some sort of special booming growth
Cribbed from my comment on spencer’s post.
I think these graphs go a long way toward explaining how the government fiscal stimulus played out:
http://www.asymptosis.com/tyler-cowen-10-trillion-in-stimulus-would-have-no-effect.html
Much of the stimulus was absorbed as domestic savings during the war, and was then spent post-war while government spending was declining.
Now imagine pulling all that government spending when those massive private savings aren’t sitting there dying to be spent.
McWop The story you took away is not consistent with the text of the article. Henderson wrote “Why did the economy do much better after the war than at the beginning?” Your takeaway is inconsistent with the text. No conceivable context can reconcile your reading of Henderson with what he actually wrote.
Your appeal to your “take away” is the claim that, when discussing a document, you can discuss whatever you want to claim it says without regard for the text.
Simple assertions can not take the place of rational argument. You have decided to open a debate on the meaning of the text under discussion. You neglect to quote anything or to deal with the bits quoted by Kimel.
I stress that I do not present any interpretation of the writings of Henderson. I am discussing the writings of McWop.
What I alsways find so interesting about the George Mason mafia is that the only historian they ever seem to quote is Higgs.
But higgs is welll known for finding “facts” that no other historian can find.
jzb,
The reason I went with 1932 is that Henderson uses 1944 as his baseline when he talks about the post-War era. I.e., 1944 is the last year before the end of the war. So I treat the New Deal the same way, starting with the last year before the New Deal began as the baseline.
After taking a brief look at Henderson’s paper I decided not to read it, after noting that he worked with the Hoover Institute, housed in Hoover Tower at Stanford, which we used to call Hoover’s last erection. Those were the good old days when the Econ Dept was chaired by arch Keynesian Lorie Tarshis. Can you believe that one of the profs was actually a Marxist? But all those good old boys disappeared after wealthy alums and Daddies got on President Sterling’s back.
That intro also proves I am old enough to supply some anecdotal evidence from youthful memories of the the period Henderson discusses. Perhaps I was too young before the war, but I don’t remember the New Dealers being against private enterprise. There just wasn’t enough of it. I well remember wartime rationing, and forced savings. We were finally able to pay off most of our medical bills run up due to inadequate prewar safety nets, and which had held back our pre war spending. The wartime economy was a command economy, and it worked damn well, luckily for our side. Few people I knew had any ill feeling about that planned economy. We were a little worried about the end of price controls, but we were pleased to see the end of rationing and the gradual end of scarcities. We certainly had no ideological resistance to that planning. Imagine the inflation we would have seen without it. Most of all we were just glad to see the end of the war.
Then it was only natural that the wartime planners should leave the scene. And it was only natural that Truman form his own team, and get rid of some of the FDR loyalists, especially rivals like Henry Wallace, who was unfairly crucified as a leftist peacenik, as Cold War momentum picked up.
Was there any planned conversion to peacetime? I can’t remember. At least there was the G.I. Bill, which coupled with pent up demand, set off a real housing boom. It must have been that stimulus which saved us from post war depression. But if private enterprise was running the show, they seemed to be doing a pretty slow job of it. Production cranked up so slowly that it was tough to get lumber until about 1950. We had to build our house with concrete blocks even though we lived in the middle of timber country. We also had to wait in line for our new Ford until 1950. Did the financial community so fear another depression that they refused to finance old Henry? I seem to remember that the company almost went broke in those years.
In spite of a fairly healthy economy, our neighbor across the street killed himself because he couldn’t find a new job.
How can a young fart like Henderson know anything about those years?
Then cold war and intermittently hot war cranked up and pretty much stayed with us through the 80’s. Was that what propped up capitalism all this time and enabled us to outlast the Commies?
I have hesitated to burden you with all this, but a little history, even anecdotal, shouldn’t hurt the profession.
Farrar,
Thanks for the anecdotal history. I used to often note on the blog and to the classes I used to teach that one should always remember, behind all these numbers are people, and it is vital to do economics right to make as many people as possible as well off as possible. I don’t note that often enough any more, and you have reminded me its a point that cannot be made too often.
Good to hear from someone who remembers. All I know about that era I’ve read in books or heard from others.
There was a lot of post-war planning, but the war was a major effort. It wasn’t the kind of thing that could be unwound overnight. The government did a lot to try and cushion the effects. There was even talk of slowing deployment, but most soldiers had signed up for “the duration”, and they had already endured plenty.
I think the GI BIll had the biggest social impact. An educated citizen is an asset to a nation. (In Rome, a trained doctor was automatically a citizen.) Huge numbers of veterans who would never have considered college before the war found themselves in school, largely paid for by Uncle Sam. I knew a lot of folks who got their degrees, and their entree into the middle class, that way.
A factor people ignore is war surplus. The government had all kinds of left overs: buildings, trucks, backpacks, boots and so on. This meant business opportunity without bank loans. For example, Tudal Wineries started with a $50 government surplus truck which turned into a produce delivery business which turned into a farm in what is now Silicon Valley before Tudal retired to his vineyard. His story was far from unique. There was so much stuff left over you could make a living selling old backpacks and ammo boxes even in the 1960s.
Combine this capital spending on education and business formation with all that pent up demand from forced savings, and the lagging post-war economy was largely a matter of friction. It took three or four years to get a degree. It took a year or more to retool a factory, and you had to fire all the women and train men to replace them. Remember, everything was being used to bits during the war, so equipment was in pretty worn shape through the 40s.
P.S. We haven’t outlasted the Commies yet. The Soviet Union may have broken up, but Communist China has a higher GDP growth rate than we do. They may have started from a much lower base, but they aren’t exactly choking on Communist central planning.
I am not particularly impressed by nor interested in the smackdown game being played on Henderson by some AB participants. I think that misses the point.
The post-WWII economic transition was very successful in shifting from a wartime command economy. Economic developers and specialists trained in such matters who are familiar with economic development history are generally keenly aware of this fact. It was a remarkable, timely achievement.
Regardless of what has been stated in Mike Kimel’s three posts and stated by others, one would be hard pressed to deny the overall growth and types of growth that occurred in all aspects of the civilian sector of the U.S. economy. Some of the shifts occurred immediately and significantly, and other positive changes were driven by additional export and import growth that fell into place once other economies regained their footing. Overall, the post-WWII was a huge success for the U.S. and its allies. Pretending otherwise is just that…pretending.
You can play all sorts of game with numerical presentations such as indicating percentage growth instead of showing nominal, real, or chained values, but that doesn’t change the fact that many economic measurements related to the civilian sector jumped significantly after WWII and continued to reflect general sustained economic growth for the next 25 years.
History books are filled with accounts detailing what occurred in the civilian society, so there is no point in outlining the list here. Anyone familiar with the history of technology changes, infrastructure programs, consumer goods development and distribution, along with everything else that occurred wouldn’t pretend that there wasn’t a major improvement for consumers and businesses in the U.S. economy. That shift began shortly after WWII.
Click on many of the NIPA or FRED tables using the period 1929 or 1930-1960l; decide if you think that the civilian sector of the economy was weak after WWII.
All NIPA Tables
http://www.bea.gov/national/nipaweb/SelectTable.asp
Gross Domestic Product (GDP) and Components
FRED
http://research.stlouisfed.org/fred2/categories/18
Compare the numbers by year in the following table to Mike’s percentage chart in his main post. It’s clear that the post-WWII investment levels were considerably higher from 1946 on. Private domestic investment jumped significantly and generally stayed strong well beyond 1960. This general economic situation is reflected in numerous NIPA tables for all sorts of data related to the civilian sector of the U.S. economy.
FRED data:
Real Gross Private Domestic Investment
(Billions of Chained 2005 Dollars)
1929-01-01 101.7
1930-01-01 67.9
1931-01-01 42.6
1932-01-01 12.9
1933-01-01 18.9
1934-01-01 34.2
1935-01-01 63.4
1936-01-01 81.2
1937-01-01 101.5
1938-01-01 67.1
1939-01-01 86.2
1940-01-01 120.1
1941-01-01 146.7
1942-01-01 77.5
1943-01-01 45.8
1944-01-01 56.5
1945-01-01 74.7
1946-01-01 191.4
1947-01-01 183.9
1948-01-01 234.9
1949-01-01 179.3
1950-01-01 253.2
1951-01-01 254.0
1952-01-01 229.7
1953-01-01 240.5
1954-01-01 229.3
1955-01-01 285.0
1956-01-01 281.1
1957-01-01 268.9
1958-01-01 246.6
1959-01-01 296.6
1960-01-01 296.5
Here are some other examples using nominal values:
Private Fixed Investment
(billions of dollars)
1929-01-01 14.9
1930-01-01 11.0
1931-01-01 7.0
1932-01-01 3.6
1933-01-01 3.1
1934-01-01 4.3
1935-01-01 5.6
1936-01-01 7.5
1937-01-01 9.5
1938-01-01 7.7
1939-01-01 9.1
1940-01-01 11.2
1941-01-01 13.8
1942-01-01 8.5
1943-01-01 6.9
1944-01-01 8.7
1945-01-01 12.3
1946-01-01 25.1
1947-01-01 35.5
1948-01-01 42.4
1949-01-01 39.6
1950-01-01 48.3
1951-01-01 50.3
1952-01-01 50.5
1953-01-01 54.5
1954-01-01 55.8
1955-01-01 64.0
1956-01-01 68.1
1957-01-01 69.7
1958-01-01 64.9
1959-01-01 74.6
1960-01-01 75.7
Gross Private Domestic Investment
(billions of dollars)
1929-01-01 […]
Compare the numbers by year in the following table to Mike’s percentage chart in his main post. It’s clear that the post-WWII investment levels were considerably higher from 1946 on. Private domestic investment jumped significantly and generally stayed strong well beyond 1960. This general economic situation is reflected in numerous NIPA tables for all sorts of data related to the civilian sector of the U.S. economy.
FRED data:
Real Gross Private Domestic Investment
(Billions of Chained 2005 Dollars)
1929-01-01 101.7
1930-01-01 67.9
1931-01-01 42.6
1932-01-01 12.9
1933-01-01 18.9
1934-01-01 34.2
1935-01-01 63.4
1936-01-01 81.2
1937-01-01 101.5
1938-01-01 67.1
1939-01-01 86.2
1940-01-01 120.1
1941-01-01 146.7
1942-01-01 77.5
1943-01-01 45.8
1944-01-01 56.5
1945-01-01 74.7
1946-01-01 191.4
1947-01-01 183.9
1948-01-01 234.9
1949-01-01 179.3
1950-01-01 253.2
1951-01-01 254.0
1952-01-01 229.7
1953-01-01 240.5
1954-01-01 229.3
1955-01-01 285.0
1956-01-01 281.1
1957-01-01 268.9
1958-01-01 246.6
1959-01-01 296.6
1960-01-01 296.5
Here are some other examples using nominal values:
Private Fixed Investment
(billions of dollars)
1929-01-01 14.9
1930-01-01 11.0
1931-01-01 7.0
1932-01-01 3.6
1933-01-01 3.1
1934-01-01 4.3
1935-01-01 5.6
1936-01-01 7.5
1937-01-01 9.5
1938-01-01 7.7
1939-01-01 9.1
1940-01-01 11.2
1941-01-01 13.8
1942-01-01 8.5
1943-01-01 6.9
1944-01-01 8.7
1945-01-01 12.3
1946-01-01 25.1
1947-01-01 35.5
1948-01-01 42.4
1949-01-01 39.6
1950-01-01 48.3
1951-01-01 50.3
1952-01-01 50.5
1953-01-01 54.5
1954-01-01 55.8
1955-01-01 64.0
1956-01-01 68.1
1957-01-01 69.7
1958-01-01 64.9
1959-01-01 74.6
1960-01-01 75.7
Gross Private Domestic Investment
(billions of dollars)
1929-01-01 […]
Compare the numbers by year in the following table to Mike’s percentage chart in his main post. It’s clear that the post-WWII investment levels were considerably higher from 1946 on. Private domestic investment jumped significantly and generally stayed strong well beyond 1960. This economic situation is reflected in numerous NIPA tables for all sorts of data.
FRED data:
Real Gross Private Domestic Investment
(Billions of Chained 2005 Dollars)
1929-01-01 101.7
1930-01-01 67.9
1931-01-01 42.6
1932-01-01 12.9
1933-01-01 18.9
1934-01-01 34.2
1935-01-01 63.4
1936-01-01 81.2
1937-01-01 101.5
1938-01-01 67.1
1939-01-01 86.2
1940-01-01 120.1
1941-01-01 146.7
1942-01-01 77.5
1943-01-01 45.8
1944-01-01 56.5
1945-01-01 74.7
1946-01-01 191.4
1947-01-01 183.9
1948-01-01 234.9
1949-01-01 179.3
1950-01-01 253.2
1951-01-01 254.0
1952-01-01 229.7
1953-01-01 240.5
1954-01-01 229.3
1955-01-01 285.0
1956-01-01 281.1
1957-01-01 268.9
1958-01-01 246.6
1959-01-01 296.6
1960-01-01 296.5
Here are some other examples using nominal values:
Private Fixed Investment
(billions of dollars)
1929-01-01 14.9
1930-01-01 11.0
1931-01-01 7.0
1932-01-01 3.6
1933-01-01 3.1
1934-01-01 4.3
1935-01-01 5.6
1936-01-01 7.5
1937-01-01 9.5
1938-01-01 7.7
1939-01-01 9.1
1940-01-01 11.2
1941-01-01 13.8
1942-01-01 8.5
1943-01-01 6.9
1944-01-01 8.7
1945-01-01 12.3
1946-01-01 25.1
1947-01-01 35.5
1948-01-01 42.4
1949-01-01 39.6
1950-01-01 48.3
1951-01-01 50.3
1952-01-01 50.5
1953-01-01 54.5
1954-01-01 55.8
1955-01-01 64.0
1956-01-01 68.1
1957-01-01 69.7
1958-01-01 64.9
1959-01-01 74.6
1960-01-01 75.7
Gross Private Domestic Investment
(billions of dollars)
1929-01-01 […]
Mcwop,
I agree with you. They have painted a lousy picture of what actually occurred in the civilian sector of the post-WWII U.S. economy. And that is nonsense.
MG – yes, and GDP and GNP and so forth are all higher from December 2007 to June of 2010 than in ’48 and in ’32 and, for that matter, in ’63 or ’85. There’s a reason one compares rate of growth to rate of growth.
See my reply to your previous comment.
And btw, jumped significantly… from ’45 to ’46 is a crazy comparison. Even Henderson included a range of years. In ’45 a whole bunch of people went from being in the military and having no place to put their money to getting out with relatively fat bank accounts. The question is not was there a one time jump. The question is, is that jump sustained? If there is a jump and then stagnation, there is no successful transition.
A follow up… as I note below:
And btw, jumped significantly… from ’45 to ’46 is a crazy comparison. Even Henderson included a range of years. In ’45 a whole bunch of people went from being in the military and having no place to put their money to getting out with relatively fat bank accounts. The question is not was there a one time jump. The question is, is that jump sustained? If there is a jump and then stagnation, there is no successful transition.
One other follow-up. All your figures are for the private economy. And yes, there was a big, one time jump in private investment and private GDP and whatever. But… Henderson’s point is that this increase in the private sector could more than make up for the decrease in the public sector. And when you look at the overall figures for real GDP or real GNP, per capita or not, there is a drop.
Which means Henderson is wrong, plain and simple. The private sector gains simply did not make up for the public sector losses. So his thesis is incorrect. Period.
A final follow-up… remember, none of this is merely academic. He’s making an argument that is incorrect (economic growth took off post WW2, flailed pre-WW2, WW2 data was wrong), based on incorrect assumptions (private investment covered for decreased public investment) and he’s using it to advocate a policy. There’s a reason we’re exercised. We don’t want yet another repeat of a policy that doesn’t work. He apparently does.
Jack
Henderson has no “belief.” His is an exercise to see how big a lie you can get away with telling. It is all part of the “new History.” I think Winston Smith could tell you how it works.
mcwop
data almost always doesn’t tell you anything. it can help point to some reality. but it is the reality that should be telling you something. people were better off after a few years of the new deal than they were before. and they knew it. that’s why they voted for Roosevelt again.
mcwop
and that’s where data can lead you astray. big decline in government spending on things that blow up. but not a big decline in government intervention in the real economy.
MG
yep. that foreign trade thing improved things considerably. had nothing to do with the Marshall Plan. just all them capitalists doing their thing, just like they did before the New Deal.
ain’t it incredible how an infrastructure created by government spending to win the war can suddenly improve standards of living when it shifts production from war goods to civilian goods. with a little help from GI benefits, a pro union government, wartime savings, Marshall Plan, baby boom….
and it helps that we won the war. not every war turns out to be “good for the economy.”
moreover, the New Deal, and the democrats have never been “hostile to business.” they work hard to find opportunities for capitalists to make money. the difference has been, until recently, that they understand that taxes to pay for what the government does for business, and some effective safety net for the workers, are needed if business is to prosper. the “party of business” used to understand this too, but they win elections on “lower taxes and less gummint interference,” and lately have begun to believe their own propaganda, or elect the morons that do.
or as jazzabumpa says way upthread, Keynesians and democrats do not favor “high government spending” for it’s own sake in all times under all conditions. only the Republicans do that. they just don’t want to pay for it.
Right. I wasn’t criticizing. For some reason yesterday, ’33 seemed like a better choice to me. Today, I’m not so sure. I agree, if ’33, then ’45 as the other 0-year. Anyway, it matters little. In fact, doing it my way favors Henderson, and his story still falls flat. Sort of like GDP after 1950 . . .
Cheers!
JzB
am soc
this is what happens when amateurs mess with figures. a real pro can pick data that is “just right.”
am soc
this is what happens when amateurs mess with figures. a real pro can pick data that is “just right.”
I see no reason that the narrative and data presented by Mike and others is faulty as they are precise about time and amounts. MG, claiming post WW2 growth in some vague notion of timing and blurring of policies is both changing the subject and mis-directing attention for this piece as it is specific in intent. Going winging off into another arena is off topic.
Propose a proper question to answer…
jazzbo
the Great VAcation idea didn’t die. Even as reputable an economist as Paul Samuelson was claiming that the inflatioin of the seventies was caused by not enough people out of work. seems they were all sitting around the unemployment office turning down jobs that didn’t pay enough.
then it occured to me that if you are rich enough to ride out hard times, a depression probably does look like a vacation to you.
The problem is that this entire thread, this discussion of Henderson’s assumptions actually lends credence to his argument. It’s similar to the Intelligent Design controversy. By arguing the issue there is an assumption that the question is even open to argument. Start with a tautology and then argue that it is based on a set of facts that are related to the premise. In Henderson’s case he points out changes in the economy from one span of years to another and then jumps to the conclusion that a very generalized set of ideological principals that may have been used to describe the government’s inclination at the time was responsible for the changes cited. There are far too many factors at play i any general economy for a set of ideological principals to be the single determining influence.
MG – yes, and GDP and GNP and so forth are all higher from December 2007 to June of 2010 than in ’48 and in ’32 and, for that matter, in ’63 or ’85. There’s a reason one compares rate of growth to rate of growth.
One other follow-up. All your figures are for the private economy. And yes, there was a big, one time jump in private investment and private GDP and whatever. But… Henderson’s point is that this increase in the private sector could more than make up for the decrease in the public sector. And when you look at the overall figures for real GDP or real GNP, per capita or not, there is a drop.
Which means Henderson is wrong, plain and simple. The private sector gains simply did not make up for the public sector losses. So his thesis is incorrect. Period.
“..and it helps that we won the war. not every war turns out to be “good for the economy.” “
It didn’t seem to hurt Germany and Japan to have lost the war. Is Germany presently the most effective economy in the world? Was Japan in that same position in the recent past? And both had socialist characteristics in the manner in which their economies functioned. Strong unions and strong reliance on worker input in the production process, etc. China is strong and growing stronger, but at the sacrifice of their own worker class. Classic totalitarian approach to economic function. Let the masses toil for the sake of the controlling elite. Sounds familiar, no?