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Meme Watch – Our Failing Economy And The World War II “Cure”.

A Conservative friend on facebook posted a familiar refrain about how FDR’s New Deal policies did not get us out of the Great Depression, that only occurred as a result of World War II. Being a bit of a history buff, I have to challenge that widely repeated assertion.

First, lets define an economic depression: a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than an economic recession, which is a slowdown in economic activity over the course of a normal business cycle.

A depression is an unusual and extreme form of recession. Depressions are characterized by their length, by abnormally large increases in unemployment, falls in the availability of credit (often due to some form of banking or financial crisis), shrinking output as buyers dry up and suppliers cut back on production and investment, large number of bankruptcies including sovereign debt defaults, significantly reduced amounts of trade and commerce (especially international trade), as well as highly volatile relative currency value fluctuations (often due to currency devaluations). Price deflation, financial crises and bank failures are also common elements of a depression that do not normally occur during a recession.

Let’s take a look at a few metrics, covering the start of the economic crash in 1929, up to the point where the US become an official participant in World War II at the end of 1941 with the bombing of Pearl harbor.

Here is the sate of the economy, the GPD, during the period in question. Just going by the GDP figures alone, it is obvious that by the end of 1941 we are not in a depression or recession.

Here is unemployment. Note that here too, by the beginning of World War II, our unemployment is certainly vastly improved from the depths of the Great Depression.

By 1939, the DOW was back up to about the same levels as it was in 1926, just before the bull market began it’s final fatal jump-off point into the Great Depression.

By the end of 1941, the fear of war had taken a toll on the gains that occurred during the recovery.

http://www.investmentoffice.com/show_image.php?file_id=1061

Now lets look at industrial production.

That also recovered. This chart does show one aspect of the New Deal that some do ignore, that every single program did not have the desired effect to boost the economy. In this case, the National Industrial Recovery Act (NIRA) hampered industrial production recovery somewhat. It was one of the acts struck down by the Supreme Court in 1935, and industrial growth resumed.

In a nutshell… FDR’s New Deal worked.

Now to the second part of the Cnservative argument… It was World War II that got us out of the Great Depression. For the sake of argument, lets say that is true. What did the government do during the war years to get us out of the depression???

• Government controlled many facets of industrial production, paying, or sometimes forcing companies to make products such as ammunition and weapons for the war effort.
• Wages and prices for goods were regulated by the government.
• Marginal tax rates for the rich were at 81 to 90%.
• Many products were rationed and US citizens could only buy certain products on certain days.

So, in other words, the United State basically became a Communist Country for the duration of the war!!!

I have a question: why couldn’t we adopt a little of what was done in World War II and implement a massive push to improve our crumbling infrastructure? If Conservatives are right, this would lead us to more prosperous times.

It could be done.