In the form of a blog comment in response to World War II As a Fiscal Stimulus?
, reader Trevor
leaves some terrific data:
You Are Missing Facts.
Government Spending By Year/National GDP By Year
1925: 3.6 Billion / ? (no data)
1931: 4.1 Billion / 76.5 Billion
1932: 4.3 Billion / 58.7 Billion
1933: 5.1 Billion / 56.4 Billion
1934: 5.9 Billion / 66 Billion
1935: 7.5 Billion / 73.3 Billion
1936: 9.2 Billion / 83.8 Billion
1937: 8.8 Billion / 91.9 Billion
1938: 8.4 Billion / 86.1 Billion
1939: 9.2 Billion / 92.2 Billion
1940: 10.1 Billion / 101.4 Billion
1941: 14.2 Billion / 126.7 Billion
1942: 35.5 Billion / 161.9 Billion
1943: 83 Billion / 198.6 Billion
1944: 100 Billion / 219.8 Billion
1. Government Spending was increasing rapidly before the war. It went from $5.1 Billion in 1933 when FDR was elected to $9.2 in 1939 (your year of growth). That is an 80% increase.
2. Growth from 1938-1939 was 7.1%
Growth from 1939-1940 was 10%
Growth from 1937-1939 was less than 0.5%.
(You ignored the dip that took place just before 39′ & 40′)
Effectively there was no change in spending between 37′-40′ but also there was very little change in growth between 37-40 as well. And much of the growth itself was probably fueled on a lag from the massive jumps in spending between 1934-1936. You know that-you are a trained economist-you just chose to ignore it.
3. When government spending during the war started to kick in the economy grew incredibly rapidly. From 1941-1944 the GDP effectively doubled as government spending shot up rapidly. You can't deny that spending=growth in this instance and WW2 spending had an incredible stimulating effect on the economy.
4. After the war, and the government spending, there were no significant economic problems for 30 years. In other words, massive government spending didn't lead to problems later.
This is terrific
data, though I am not sure how Trevor draws the conclusion that World War II acted as a fiscal stimulus to get the U.S.A. out of the depression. A straight-forward reading of the data looks as follows:
- Government spending ramped up from 1934 to 1936.
- There was a short lived but severe recession (depression from 1936 to 1938.
- There were two rapid years of economic growth in 1939 and 1940.
- U.S. government spending started to ramp up in 1941 and exploded in 1942.
Can anyone explain to me how on earth this shows that World War II spending ended the depression? I just don't see it. In fact, a strict reading of the data could imply that the rise in government spending from 1934-1936 caused
the 1936-1938 recession! It didn't, of course, but the fact there's more evidence for that hypothesis than the World War II ended the depression
hypothesis is telling.