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|February 12-18, 2009
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Fight unemployment like FDR
by Paul Danish
About this economic stimulus thing — empiricist that I am, I think we ought to cut to the chase and adopt the one New Deal era program that demonstrably worked to end the Great Depression:
Rearm and prepare for war.
The figures speak for themselves. According to the U.S. Bureau of Labor Statistics, in 1939, the year World War II started in Europe, U.S. unemployment was 17.2 percent. By 1944, it was down to 1.2 percent — the closest the United States has ever come to “full employment.” During the same period, Gross National Product (measured in constant 1939 dollars) grew from $92.2 billion in 1939 to $174.8 billion in 1944, a near doubling in five years.
When it comes to economic stimulus, nothing before or since remotely compares to World War II. That much is common knowledge.
What is less well known is how much economic stimulus was achieved by increased military spending prior to Pearl Harbor. American rearmament began almost as soon as war broke out in Europe and got underway with a vengeance after France fell in June 1940. By Dec. 7, 1941, the economic and social impacts were already striking.
On June 30, 1939, two months before Hitler invaded Poland, the total manpower of the U.S. armed forces stood at 334,473. As June 30, 1941, five months before Pearl Harbor, the number of men (and women, but mostly men) under arms had risen to 1,801,101, a more than five-fold increase (driven in no small part by America’s first peacetime draft).
In 1941, the civilian labor force was at about 56 million. So when Roosevelt grew the military to 1.8 million, he took about 2.5 percent of America’s workers out of the labor market, directly cutting unemployment by that amount.
But a far larger cut in unemployment resulted from the millions of jobs created in order to arm and sustain the expanding military. In 1939, unemployment was 17.2 percent. In 1940, it dropped to 14.6 percent, and by Dec. 7, 1941, with rearmament underway in earnest, it had dropped to 9.9 percent — the first time the annual unemployment rate had fallen below double digits since 1930.
How much did this cost? In calendar year 1939 the U.S. spent approximately 1 percent of the GNP on the military. In calendar year
1941 the figure was up to 11 percent. By way of comparison, military spending today is around 5 percent of GNP.
So is any of this relevant today? Mark Twain once said history doesn’t repeat itself, but it rhymes — and the rhyming here is pretty obvious.
In today’s economy a decision to spend 11 percent of GNP on defense would increase defense spending by about $600 billion to $1.2 trillion. It would probably result in a doubling of the size of the armed forces, to about 3 million, which would make them about the size they were during most of the Cold War.
Doubling the size of the armed forces would create 1.5 million uniformed jobs (which could probably be filled without a draft) and, who knows, anywhere from 3 to 6 million additional defense-related jobs devoted to arming, supporting and sustaining the larger force.
Of course, those jobs would be different than those created in 1939-41. There would be a lot fewer factory and construction jobs, because weapons production is much more automated than it was, and a lot more service jobs, because today’s military out-sources to the civilian sector a lot of tasks that were previously done by support troops. There would also be a lot more knowledge-based jobs. Another difference is that most of them would be much higher-paying jobs than they were in 1940.
Pacifists would probably say that doubling the armed forces is no more than make-work, to which John Maynard Keynes, the father of economic stimulus, would probably reply, “So what?” Keynes believed that when it came to stimulating an economy it didn’t much matter what a government spent money on, just so long as it did the spending. He once remarked that government could stimulate the economy by paying people to dig holes and fill them up.
That aside, the pacifists are wrong. Rearming is not just make-work. The United States is currently at war in Iraq and Afghanistan. It could soon be at war in Pakistan. It is fighting pirates in Somalia. Our nominal pals Russia and China are both rearming (and have been for several years) and are gleefully enabling the acquisition of ballistic missiles and nuclear weapons by countries hostile to the United States, like Iran and North Korea.
Iran, apart from its nuclear program, is funding Iraq insurgents, the Taliban, Hamas, Hizbollah and assorted lesser thugs. The trash-talking (and well-oiled) Marxist buffoon Hugo Chavez is seeking military support from and alliances with both Russia and Iran, which prompts one to wonder whether Obama will have a Cuban Missile Crisis repeat on his watch. And then there’s al Qaida.
The world is going to hell, in other words.
If you’re going to have a rendezvous with destiny, it’s not a bad idea to get ready for it well in advance. And if you can stimulate the economy in the bargain, well, that’s my idea of a New Deal.
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