The common belief is that the depression ended with Roosevelt’s New Deal in the early or mid 1930s. I don’t think that we here need to debate everything that’s wrong with that idea.
But then it has been stated that the depression instead ended with the outbreak of the second world war. Is that really correct? And if so, HOW could war help to finally boost the economy out of depression? Isn’t that the classic broken window fallacy?
I would have thought that the US depression should have ended only AFTER the second world war.
One reason being deregulations as in the laying off of the wartime planned economy in some sectors.
A second reason being that the US suddenly got competitive advantages in many sectors, since the industries and infrastructures of Europe and Japan were laid in ruins.
A third reason would be that international markets opened up after the war. Not only the European and East Asian, but also the colonial markets such as investments in and imports from mines in Africa.
I would guess that the famous US boom in the late 1940s and in the 1950s was caused by the three factors above. I would also guess that there was no real economic recovery before 1946. Am I right or wrong?
WWII pulled us out of the Great Depression only in numbers. If you increase government spending as much as they did in WWII, it’s no wonder that GDP (G+C+I+X-M) increased significantly. Moreover, it’s no wonder that unemployment went down when you drafted millions of young men to fight and put women in factories to produce for war. Living standards went down during WWII.
Here is some more info:
Higgs on the Great Depression (Podcast)
“Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Returned After the War,” by Robert Higgs
“Wartime Prosperity? A Reassessment of the Wartime Economy of the 1940s,” by Robert Higgs.
America’s Great Depression by Murray Rothbard (pdf)
Thank you, krazy kaju!
I will have a look at your refernces, some of which I have already taken part of. But since I expect to already share the conclusions they end up with, I might not be extremely excited about it. [8-|]
What about my question about the causes for the eventual end of the depression, after the war? Was it deregulations, comparative advantages and increased free trade that eventually broke the depression during the latter half of the 1940s? If so, maybe that deserves more attention…
It looks like KK’s second link covers that.