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The Ultimate Stimulus?

World War Two and economic growth

Sep 12, 2011, Vol. 16, No. 48 • By ARTHUR HERMAN
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The biggest change in the employment picture was the fact that some 16 million men were pulled out of the labor market and into the armed services—more than 22 percent of the prewar labor force. Most were draftees, and most were young men in the prime of life who, under normal circumstances, would have been making cars or refrigerators or stamping out parts for children’s toys or stringing telephone wires, instead of dropping bombs on German cities or lobbing mortar shells on Japanese positions on Iwo Jima. 

No one can deny their service to their country was invaluable. Its value to the economy is another matter. Instead of producing things of value, they were destroying them in prodigious amounts. Certainly it was in a laudable cause; but it came at a huge economic cost not just in the materials that were being blown up, shot up, or sunk at sea, but in the lost opportunities all that robust manpower could have applied to generating things people really wanted and valued.

Nor were they alone. In fact, the massive new work force mobilized by the war included not just members of the armed services but civilian armed services employees and military logistics and supplies employees. All were serving their country, and all were drawing a paycheck—but few were doing anything that an economist could classify as producing goods or increasing capital. On the contrary, their salaries, like those of the armed forces, sucked money out of the economy in the form of rising tax dollars and soaring borrowing. In effect, they were net consumers, not producers, of economic resources—as are most government employees today. 

Yet by 1943 they made up 42 percent of the American work force, before falling back to 10 percent when the war was over. 

But what about the people who were making those bombers and tanks and machine guns and artillery shells, the Rosie the Riveters who worked overtime in the defense plants and shipyards? Surely they must have been adding something of value to the economy. 

There’s certainly no denying that they were making things, and mobilizing skills that were in high demand, in exchange for pay. Very good pay, in fact, especially for those at the bottom of the social scale. The war drew African Americans, rural whites, and women into the industrial workforce for the first time and gave them skills, wages, and opportunities most had never dreamed possible. In this sense, the World War Two myth does hold true. The war’s unprecedented demand for labor set off a social revolution which the fifties and sixties broadened and deepened.

But again, the high-cost goods these workers were making were not made for use in the ordinary way cars or houses            or books or newspapers are, as goods or services in a market economy. The civilian workers engaged in the war effort were building B-24s and aircraft carriers and submarines meant for only one purpose, or supplying tools and parts for these sophisticated engines of death and destruction. Those planes and ships that survived the war generally wound up on the scrap heap, instead of contributing their full value to future economic growth. 

In fact, that productive effort came at considerable personal sacrifice. As anyone who lived during those years will tell us, American workers on the home front were forced to live under a welter of wartime restrictions and rationing, even as Washington dictated an end to production of civilian durable goods—with the Office of Price Administration actually telling restaurants how much they could charge for a meal. Americans learned to do without, in order to make sure there was enough steel for warships, enough aluminum for airplanes, and enough wool, cotton, and nylon for uniforms and parachutes. 

What’s remarkable isn’t that Americans by and large accepted these restrictions as a way of life. This was war, after all, and most who stayed at home recognized that their sons and brothers and husbands serving overseas were making a far greater sacrifice. What is remarkable is how the American economy still managed to produce both guns and butter in those years. 

Despite the wartime restrictions, Americans ate better, consumed more meat, shoes, clothing, and used more energy than they had before the war. And even though the United States wound up producing the most munitions of any country in World War Two, it was also the least mobilized of all the major combatants—largely because its economy was still the most productive in the world before the war started. 

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