Did World War 2 End the Depression?

[drkitten]

Couldn't it be as simple as the fact that the middle class has less ability to whether the storm?

It could be, yes. It could also be that the middle class is more vulnerable because the upper class tend to act in their own self-interest instead of the interest of the economy/nation as a whole --- for example, laying off employees while maintaining their own salaries and bonuses (we've seen lots of examples of that in the credit crisis).

Both of these explanations assume that crashes cause increased wealth inequality, but don't explain why booms create decreased wealth inequality.

A third possibility is that increased wealth inequality causes crashes. The theory here is that since the lion's share of consumer spending is driven by the middle class and below, decreasing the amount of money in that group of people will lead to decreases in the amount of spending and a crash. (This has the advantage of explaining the connection with booms as well.)

Which is why I said that the cause/effect relationship was unclear.

 

[kevinquinnyo]

It could be, yes. It could also be that the middle class is more vulnerable because the upper class tend to act in their own self-interest instead of the interest of the economy/nation as a whole --- for example, laying off employees while maintaining their own salaries and bonuses (we've seen lots of examples of that in the credit crisis).

Both of these explanations assume that crashes cause increased wealth inequality, but don't explain why booms create decreased wealth inequality.

A third possibility is that increased wealth inequality causes crashes. The theory here is that since the lion's share of consumer spending is driven by the middle class and below, decreasing the amount of money in that group of people will lead to decreases in the amount of spending and a crash. (This has the advantage of explaining the connection with booms as well.)

Which is why I said that the cause/effect relationship was unclear.

Ahh, I see. Chicken/egg. Interesting.

 

[Father Dagon]

Well, it did save the face for Nazi Germany. The bill of their experiment with autarky didn't really get picked up, as that country losed the war most definitley. (Then it got split in two and the parts had their places in the blocs.) If it instead had done as Argentina - autarky and political oppression, but neither great war nor genocide - then the bill would've been picked up sooner or later.

 

[stilicho]

A third possibility is that increased wealth inequality causes crashes. The theory here is that since the lion's share of consumer spending is driven by the middle class and below, decreasing the amount of money in that group of people will lead to decreases in the amount of spending and a crash. (This has the advantage of explaining the connection with booms as well.)

Are income level and class interchangeable like that?

Anyhow, nobody really knows exactly what causes economic cycles and both governments and commercial interests have been trying to figure it out for centuries, or at least since the first industrial revolution (mechanisation, steam propulsion).

The strongest evidence is that a combination of corporate structure and national self-interest (subsidies, tariffs, excises, immigration/emigration restrictions, outright embargoes, currency pegging) directs these cycles.

Or, as one of the executives in The Meaning Of Life perspicaciously noted: "People aren't wearing enough hats."

 

[drkitten]

Are income level and class interchangeable like that?

In the United States? Largely, yes.

 

[ImaginalDisc]

Are income level and class interchangeable like that?

What is class?

No, seriously. In the modern American culture, if you command capital and make executive decisions, you're the de facto aristocracy.

 

[leftysergeant]

Anyhow, nobody really knows exactly what causes economic cycles and both governments and commercial interests have been trying to figure it out for centuries, or at least since the first industrial revolution (mechanisation, steam propulsion).

Well, the last two major Republican Depressions have resulted at least largely from the accumulation of too large a percentage of the nation's wealth into too few hands, leaving little money to float about local communities where it would actually create some jobs in small business.

Shady investment practices were a secondary cause, but a very close second.

Wars hurt, too.

 

[GreNME]

I just wanted to say to drkitten:

More or less. Even a fairly biased source admits that. Actually, a study of the real growth rates of the GDP suggests that from 1933-1941, the economy was already in a strong recovery (10% growth per year, which is simply phenomenal) but it hadn't hit the consumer level yet.

WWII is when the consumer finally got money into his or her pocket.

The problem. of course, is determining why.



Here's where the economists really start to differ. There are a lot of things that go into it.

* Unemployment dropped as the military sucked up all available manpower and then some.
* Federal spending shot way up.
* Investment in capital/production went up. People were saving

Perhaps most importantly,

* exports shot way up as the Allies bought huge amounts of "stuff" from us, whether that be food, oil, or munitions.



Hell, yes. But we need to spend it better (over the long term).

At the moment, it's still 1929, or maybe 1930. We've not yet seen the bottom (which historically happened in 1933) and there are some immediate issues (like the credit freeze) that need to be dealt with.

Once the credit freeze is dealt with, we are going to need to some capital investment of the sort that produces jobs and exports. While I support the Citibank bailout (because we need to unfreeze credit first), that's not going to produce jobs and exports by itself.

Which is different than saying the post-war boom ended the Depression. There's a big difference between a "boom" and a "depression"; I think it's likely that without the post-war boom, we would have just seen a return to normalcy.

The question is whether or not the increased industrial base (as a result of the war debt) would have been able to sustain the debt loads on the basis of domestic consumption alone. I think it would have, especially given the tremendous post-war debt loads that were incurred (for instance, by the Marshall Plan).

My back-of-the-envelope summary would be that the war got the USA out of the Depression, and the postwar boom paid for the reconstruction of the world via the Marshall Plan.

Something else.

Economic downturns tend to be correlated with high wealth inequality. Economic booms tend to be correlated with lower wealth inequality.

The cause/effect relationship is not clear.

These three, particularly the first two, are without a doubt the best posts in this thread. Great posts throughout, drkitten.

 

[george26]

Are you suggesting another world war will end this recession?i do believe there will be another major war,between Russia and China.I believe the present Wars that are going on are pushing China and Russia into a corner.

 

[drkitten]

Are you suggesting another world war will end this recession?

No, I'm not suggesting that. World War II, for example, didn't do much to end the recession in Germany, France, or Britain. So even if there were to be another World War, unless it's between exactly the right group of people and fought in exactly the right spot, it's unlikely to be helpful for the USA.

But, on the other hand, anything that boosts the US export market, encourages capital investment, and creates jobs is likely to help end the recession.

i do believe there will be another major war,between Russia and China.I believe the present Wars that are going on are pushing China and Russia into a corner.

Yeah, well, keep believing that. Enjoy yourself.