The Wrong Lesson

As the U.S. economy continues to languish and the federal debt mounts, debate swirls around how the government should respond. Democrats continue to urge more deficit spending. When in a pinch, the example of FDR spending the U.S. out of the Great Depression is brought to the fore. Yet despite FDR's impressive New Deal spending in the years leading up to WWII, the results were mixed. More important was the massive deficit spending that occurred as the war picked up steam and the economic boom that followed. There is a school of thought that understands deficit spending as a form of investment. Even though the economic crisis of the 1930's and increased federal spending that followed can be compared and evaluated with the current situation, the effect of WWII on the economy cannot.

The real explosion in deficit spending by FDR came in response to WWII. Certainly, a great deal of money was spent during the depression. The U.S. debt increased by $33 billion fighting it in the 1930's. But that is dwarfed by what was spent fighting WWII. Over the course of the war, the debt grew by $222 billion. During the Great Depression, millions of people were put to work, but they were put to work building dams and paving roads. During WWII, people were put to work making and building things, real things like ships, tanks, and trucks while gaining skills that would be useful after the war. Millions of men were put to work in the military and merchant marine. Millions of women were put to work making and doing things that had been done by men who were no longer available to do them. Even people of the fringe of U.S. society like African Americans gained employment in record numbers.

After the war, the U.S. economy continued to thrive as it labored to rebuild Europe and Japan and tend to needs neglected during the war. The industrial capacity gained in the war served the U.S. well. Millions of dollars were made and millions of people were put to work making and selling cars, construction material, and machinery to a world in desperate need of such things. Service men who had been taken off the farm and out of small towns and mills had a taste of the world and headed off to college to pursue careers and opportunities unimaginable to them prior to the war.

Yes, government spending was important during the Great Depression. But while it kept many Americans above water it did little else. It was WWII that pulled the U.S. out of the Great Depression and created an economic boom that lasted decades, not the New Deal. The government spent mightily during the depression: more than it had ever spent before. But it was the spending caused by fighting a world war that made the real difference and transformed the U.S. into a modern economic power. It was the economic boom that followed the war and the explosion of college educated workers caused by the GI bill that created the middle class that has become the paradigm of U.S. prosperity, not the New Deal

The wistfulness of many for the New Deal is just that. To point to the New Deal and ignore WWII is a common flaw on the part of those nostalgic for the days when government expansion was at its height. The transformation of the U.S. into a progressive and cosmopolitan culture was a result of the changes brought about by a generation of college educated Americans no longer limited to the horizon afforded by life on a farm or in a factory. That transformation was not brought about by politicians, bureaucrats and planners. It was brought about by people seeking to improve themselves and their lives.

It is true the government was instrumental in bringing about that college educated generation through the GI bill. But the GI bill was only effective in conjunction with a generation that wanted to attend college and take advantage of the opportunities that education would offer. But there is a lesson here as well. Government is much less effective when it comes to making people do what they are disinclined to do. Government cannot create engineers no matter what it spends. It can only help people who want to be engineers become engineers.

Many hail the New Deal as a model for stimulating the economy and urge a reprise. Few credit world war. But one cannot use the New Deal as a model and ignore WWII. The New Deal mitigated the suffering caused by the Great Depression. It did not end it. If we hope to see an economic recovery even approaching the one that followed WWII we need to find away to spur an explosion of economic activity like that which followed the war. Raising taxes and expanding government are not the ways to do it.

Government spending dropped dramatically after WWII. We are not fighting a world war. Even if the economy recovers due, or despite, the record spending of the Obama administration, government will not shrink after the crisis is over. It will remain and the costs and bureaucracy associated with it will remain as well. There will be no after.