The U.S. finally recovered from the Great Depression not because of WW II, as is commonly asserted, but because of the end of WW II. Although WW II solved the unemployment problem as a result of the draft and wage controls, depression conditions persisted until 1946, when government drastically cut spending. The draft solved unemployment by sending 10 million unemployed men to Europe to be blown up, and the government imposed wage controls that created labor shortages. However, the standard of living during WW II actually decreased, and the government imposed price controls and rationing, thus creating shortages and widespread privation. For instance, in 1943, my grandmother had to wait two hours to purchase a loaf of bread. It is true that GDP greatly increased during this time, but it was mainly a result of government spending, not increased prosperity.
As WW II was drawing to a close, the Keynesians your friend worships began predicting a huge depression as soldiers would be due to return and government spending would decrease. Thankfully, virtual lifelong dictator Franklin Roosevelt died, and the Truman administration, which was slightly less hostile to free enterprise, cut government spending by two-thirds. Rather than spawning the depression predicted by the Keynesians, the retreat of government unleashed the power of free enterprise, creating a gigantic boom. Also, the United States, though burdened with a larger-than-previously welfare and regulatory state resulting from the New Deal and Fair Deal, was still much freer and more fully intact than the European countries ravaged by war and therefore was poised to dominate the global economy.
The U.S. rode this wave of prosperity through the 1950s, when the Federal Reserve inflated relatively little compared with previous decades. President Eisenhower wanted moderate money growth, and Fed chairman William McChesney Martin obliged. This period saw two or three mild recessions induced by the Fed’s moderate inflationary policy.
During the 1960s, the Fed – in order to fund the New Frontier, Vietnam, and the Great Society – began heavily inflating once again. This period was one of ostensible economic prosperity; however, the prosperity was the result of an illusory and unsustainable bubble inflated by Fed money printing. The increased money printing spooked European countries, particularly France, which demanded redemption in gold for their dollars. During this time, the Bretton Woods agreement was still in place, establishing an international pseudo-gold standard.
Because of its profligate money printing, the U.S. could not pay its obligations, and Nixon essentially declared the government’s bankruptcy when he closed the gold window, completely abolishing the paltry remnants of the gold standard established by Bretton Woods. The final abolition of the gold standard, coupled with Nixon’s goading of the Fed to inflate in order to reassure his reelection, inaugurated a phenomenon thought impossible by the Keynesians your friend worships – stagflation. Stagflation is the simultaneous occurrence of rising prices and rising unemployment, something Keynesian theory could not account for.
The 1970s’ Fed, under Chairman Arthur Burns, continually inflated, thus raising prices and unemployment throughout the decade. Initially, President Jimmy Carter supported and even demanded more Burns-induced inflation, but as inflation began to spiral out of control, the Wall Street establishment decided that something must be done, influencing Carter to appoint to as Fed chairman (after the disastrous interlude of G. William Miller) Paul Volker. Appointing the hawkish Volker, Carter was warned, would defeat Carter’s chances at reelection; however, Carter took the risk. Volker began aggressively raising interest rates, thus drastically slowing an out-of-control, double-digit inflation rate that threatened to transform into incipient hyperinflation.
With an already-weak economy, Volker’s battle against inflation spurred a serious but widely forgotten recession from '81-83, in which unemployment reached more than 10%.
The point here is that in the 1970s, the U.S. faced a serious crisis – stagflation that threatened to spiral eventually into hyperinflation. And this crisis was the result of decades of the Keynesian philosophy of money printing as a solution for all problems. Only a deep recession cured stagflation – or at least drastically lessened its effects and staved it off for a while.
We face the growth of a similar crisis today, spurred by the profligate, illogical, and immoral policies of the Keynesians.
For more, read Depression, War, and Cold War by Robert Higgs and pretty much anything by Murray Rothbard and Tom Woods.