Economic Myths Exposed

From, July 19, 2011


Larry Summers: Hitler Was Good for the U.S. Economy


 Greg Mankiw points to this Larry Summers comment on the Charlie Rose Show:
Never forget, never forget, and I think it’s very important for Democrats especially to remember this, that if Hitler had not come along, Franklin Roosevelt would have left office in 1941 with an unemployment rate in excess of 15 percent and an economic recovery strategy that had basically failed.
Economist Robert Higgs has ripped apart the notion that war is good for an economy. And, in particular, he has focused on World War 2. On release of Higgs’ book, Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, the publisher wrote:
Higgs provides clear evidence FDR’s New Deal actually prolonged the Great Depression and that World War II did nothing to create prosperity…Higgs also demonstrates how little-known changes in weapons procurement policy in 1940–41 transformed the role of defense contractors in the political economy, why the U.S. civilian economy foundered during the Second World War, and how historians and economists have disregarded or misunderstood the economy’s rapid postwar return to genuine prosperity.“War is the quintessential government activity,” writes Higgs. Employment figures were stellar during World War II only because a number of men equivalent to 22 percent of the prewar labor force were drawn into the military, mostly by the draft, at below-market wages. Making the critical distinction between wartime prosperity and genuine prosperity, he confirms that the economy did not actually recover fully until after World War II.
Summers is correct that FDR’s pre-war New Deal economic strategy failed, but he is incorrect that world war boosted the economy. As Higgs shows in his book, the private sector did not recover until after the war. The war period was just another government manipulated period where some statistics may have looked good because young men were coerced into fighting and dying for the state.

Remarkably, the death of young men is never recorded as a notch against GDP, but the building of bombs that are dropped in far off lands is always counted as a plus for an economy.