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From World War II, Economic Lessons for Today - NYTimes.com - 0 views

www.nytimes.com/...conomic-lessons-for-today.html wwII depression economics policy history employment
shared by Javier E on 14 Aug 11 - No Cached
  • the oft-repeated notion that it took World War II to end the economic nightmare of the ’30s: If a global war was needed to return the economy to full employment then, what is going to save us today?
  • While the war helped the recovery from the Depression, the economy was improving long before military spending increased. More fundamentally, the wrenching wartime experience provides a message of hope for our troubled economy today: we have the tools to deal with our problems, if only policy makers will use them.
  • Starting in the mid-1930s, Hitler’s aggression caused capital flight from Europe. People wanted to invest somewhere safer — particularly in the United States. Under the gold standard of that time, the flight to safety caused large gold flows to America. The Treasury Department under President Franklin D. Roosevelt used that inflow to increase the money supply.
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  • The result was an aggressive monetary expansion that effectively ended deflation.
  • The economy responded strongly. From 1933 to 1937, real gross domestic product grew at an annual rate of almost 10 percent, and unemployment fell from 25 percent to 14. To put that in perspective, G.D.P. growth has averaged just 2.5 percent in the current recovery, and unemployment has barely budged.
  • The lesson here is that fiscal stimulus can help a depressed economy recover — an idea supported by new studies of the 2009 stimulus package. Additional short-run tax cuts or increases in government investment would help deal with our unemployment crisis.
  • What of the idea that monetary and fiscal policy can do little if unemployment is caused by structural factors, like a mismatch between workers’ skills and available jobs
  • businesses and workers found a way to get the job done. Factories simplified production methods and housewives learned to rivet.
  • Here the lesson is that demand is crucial — and that jobs don’t go unfilled for long. If jobs were widely available today, unemployed workers would quickly find a way to acquire needed skills or move to where the jobs were located.
  • at the end of World War II, that ratio hit 109 percent — one and a half times as high as it is now. Yet this had no obvious adverse consequences for growth or our ability to borrow.
  • what about the national debt? Given the recent debt downgrade, it might seem impossible for the United States to embark on fiscal stimulus that would increase its ratio of debt to G.D.P.
  • Everyone understood then why the nation was racking up so much debt: we were fighting for survival, and for the survival of our allies. No one doubted that we would repay our debts. We had done it after every other war, and raising taxes even before the attack on Pearl Harbor showed our leaders’ fiscal resolve.
  • someone needs to explain to the nation and to world markets just why we must increase the debt in the short run. Unemployment of roughly 9 percent for 28 months and counting is a national emergency. We must fight it with the same passion and commitment we have brought to military emergencies in our past.
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