The False WWII Analogy

by Victor Davis Hanson

National Review Online

Since 2009, the example of the economic boom following World War II has been used by Keynesians to justify their record “peacetime” levels of borrowing intended to lift the US out of the doldrums. Indeed, the more the contemporary borrowing fails, the more the vast indebtedness of the war years is invoked to reassure us. On occasion a wry lament follows that if only a spaceship full of dangerous aliens were to appear, we might have the requisite excuse to follow our grandfathers into a new collective frenzy of economic stimulus and public debt.

Citing the benefits that accrued from World War II, of course, is ironic for lots of reasons — aside from the horror of 50 million dead. Modern liberalism has argued that defense spending, in all its manifestations, is ipso facto an uneconomical use of national resources. Money spent building an artillery gun and training a youth to fire it supposedly could be better spent subsidizing higher education or producing a hybrid car — as if the modern college turns out better disciplined, more motivated, and better educated young people than does the Marine Corps or Air Force; as if deterring aggression is more costly than meeting it on the battlefield at a disadvantage; as if the habitual exactness and lasting skills acquired in building a huge fleet carrier are comparable to those required for building a Chevy Volt.

For decades the liberal argument was that the New Deal cured the Depression. But in a new twist, the war has suddenly been reinvented to support the current arguments of the new Keynesians — despite the irony in the embrace of the old right-wing argument that it was the World War II defense spending, not FDR’s New Deal, that finally got America out of a near-decade-long depression.

In ingenious fashion, the new argument insists that the second downward spiral of 1937–38 — formerly ostensible proof that five years of the New Deal and of anti-business rhetoric had not worked — should be attributed only to FDR’s lacking the will or political muscle to stay the course and accelerate deficit spending, redistribute more income, and grow far bigger government. Then luckily the war came along. That crisis provided the necessary political landscape, which had been lacking during the supposed Keynesian backsliding of Roosevelt’s second term, to force through the long-awaited New New Deal. At last, the really big scare allowed the really big borrowing, and the result was the really big prosperity for the next half-century.

But as many have pointed out, there are all sorts of problems with this account. During World War II, the American public scrimped and saved. If household income increased, so did household savings — not surprisingly, given the rationing of many consumer goods and total unavailability of others. Washers, dryers, hot-water heaters, vacuum cleaners — all those and more were bought for the first time after the war, and often without borrowing.

In other words, there was plenty of private postwar investment capital and household money waiting to be tapped when the shooting stopped and millions came home — especially for basics such as new cars, trucks, tractors, and appliances.

But now? Household credit-card and mortgage debt, for all the new frugality, remain high. Consumers are strapped, even those who have jobs and have not lost thousands in collapsed home equity and depleted 401(k) retirement plans, or made nothing in years from near-zero-interest savings accounts. In other words, we do not have a long-deprived public, flush with years of hoarded cash, just waiting with pent-up demand to buy brand new labor-saving devices and shiny new vehicles produced in converted tank and bomber factories. There is no need to add that in a pre-Great Society America, without food stamps, two to three years of unemployment insurance, and housing subsidies, there might have been more incentive to hustle for jobs.

Moreover, the world abroad in 1946 was hardly similar to the world in 2011. Review the prior status of our present global competitors: India was a backward colony and in civil turmoil. War-torn China was about to embark on the most self-destructive social experiment in human history. Two-thirds of a centrally planned Soviet Union was in shambles. Western Europe was near starving after years of bombing and Nazi strangulation. The future export powerhouses of Japan and Germany were in ruins. Brazil was pre-modern. The miracles of Hong Kong, Singapore, Taiwan, and South Korea were still imaginary. A victorious Britain was full of self-doubt and exhausted, busy dismantling its colonial empire and nationalizing its steel, transportation, health, and energy industries.

In the immediate postwar years, only a capitalist, self-confident America was poised to supply foreigners with much-needed manufactured goods, expertise, and capital to raise the world from ruin. And from the profits, we were able to pay down our own staggering and unsupportable wartime-incurred debt. Note as well that in 1946 a self-sufficient oil-producing America was not guzzling down a half-trillion dollars’ worth of imported oil each year.

In short, in 2011 there is nothing that suggests the present massive borrowing will lead us to anything like the prosperity of the postwar years — a time when social spending and entitlements accounted for 30 percent, not 70 percent of the annual federal budget; when households both had cash and were eager to buy long-denied items; when America did not import high-cost oil (having recently supplied 80 percent of its wartime allies’ oil needs from domestic production); and when an unscathed industrial-powerhouse United States was alone on top of the world.

But if we must go back to the post-World War II era for an example to enlighten us about what the current Obama policies presage, then the similarities to the present are not to be found in 1940s America. A better guide is Clement Attlee’s 1946 United Kingdom, which, like Obama’s 2011 America, sought to retrench from the world scene, lead from behind, and establish a much-vaunted high-tax, big-government, cradle-to-grave redistributive welfare state — one whose legacy we have just witnessed in London’s streets.

©2011 Victor Davis Hanson

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