Because most philosophies that frown on reproduction don't survive.

Tuesday, December 04, 2012

How World War Two Helped the Economy

There's a fairly common belief out there that World War II ended the great depression. Suddenly millions of men had jobs as soldiers and millions of men and women on the home front had jobs building war materials. What this line of thinking has a harder time with is why the economy didn't crash again when "the boys came home" and there was no longer a need for millions of soldiers and the bombs, airplanes, tanks and rifles they had used. There was a brief and sharp downturn in the GDP in 1945 as the war (and war spending) ended, but unemployment never really went up much (it peaked at 5%) and the economy quickly took off. Why?

One explanation points out that the US was the only major developed nation which hadn't been bombed to pieces during the war, and thus as the intact victor it was in an excellent position to become an export powerhouse. That seems like it definitely was a factor.

Another factor which may have contributed is one which Arnold Kling alludes to here:
After the second World War, the U.S. economy easily created new patterns of specialization and trade. I think that one reason is that the war increased mobility, as soldiers met others from different parts of the country. Instead of remaining in their communities of birth, men moved in order to take advantage of new opportunities.
It strikes me that the effect would go beyond shaking people up geographically. The war provided a distinct break in many people's lives, during which many went places and did things that they never would have otherwise. With the war over, there was a clear sense of starting over. It seems like this would have made both workers and employers more open to trying new things. Soldiers coming back from the war and workers who had been employed in war industries new that they needed to look for jobs wholly different than they had had during the war, and as such there was really no reason they needed to look for jobs the same as they'd had (or been looking for) before the war started. Employers knew that after four years during which everyone had been focused on the war, they were going to have to hire and train workers who might not have directly relevant experience.

In an economic sense, the war may have served in some ways as a giant "reset", clearing away structures, expectations, and "stickiness" in a host of ways which allowed things to head off in new directions.

3 comments:

Lauren said...

Fits with what I've heard about my grandmother. She worked as nurse in Europe during the war, and moved up in the ranks. I don't recall what rank she left with, but it was the highest rank that could be achieved by a nurse. She left in the army after the war with an incredible amount of experience, and was hired as a hospital administrator at just 24. I can't imagine that happening today, someone so young being given a job with so much responsibility. Imagine the improvement in productivity if all our 20somethings were responsible, capable, and educated like the Greatest Generation.

federoffm said...

I think something else was going on as well. When ever I watch White Christmas (around this time of year), I'm struck by how much social capital was available because of the shared military experience of nearly every adult male. While it's a movie, obviously...listening to the dialog, I'm sure that it's not far from the truth in terms of "Hey, I served here..oh, you did too? Did you know so and so?" and then so on from there.

Even guys who didn't serve anywhere near each other still would have the immediate shared bond of service, a common language and metaphors, and ultimately an implicit trust level.

This had a have a huge "lubricative" effect on the economy, as associations were made, partnerships struck up, and contracts arranged so much more quickly....men with that shared experience would simply trust each other more readily. A guy might come to town whom you didn't know....but your war buddy did..so you were more likely to give him a job, do business with him, etc, etc.

I have to believe that this huge amount of implicit social capital was at least part of the huge postwar business boom. The guys had all "been in it" together...and now...grateful to be home...they were more than happy to work together to get the country rolling.

naomi said...

You know what else helped? If I am not mistaken, the G.I. Bill got its inception in WWII. Many returning veterans were able to go to college that never would have been able to afford to, and in addition, many received non-college-degree job training. Think of what the economy would be like if it was nearly universal for young men to have access to free job training and experience in that job to top it off. Why is it that many young people graduating college today can't get jobs? ... Oh, yeah. That little experience requirement.