More and more often, I’m running into the idea that World War II somehow ended the Depression. Of course, no one is proposing war, but merely pointing out that massive government spending is the answer.
Obviously, I don’t believe this, otherwise I wouldn’t be on Mises.org so much. However, I’d like some insight into how the “other side” thinks. Could someone give me a neutral explaination of why mainstream economists think war is somehow productive? Does it have something to do with the magical “multiplier effect” I’ve heard about? Is it supposedly because it gets money out of the hands people who aren’t willing to spend it?
I should add that I don’t really have much of an understanding of the “multiplier effect” in regards to a recession. If someone wanted to explain that as well, that would be awesome.
The multiplier effect, I think is just a mathematical relation that is true no matter what state the economy is in. Essentially, when the government wants to spend at a given reserve requirement and propensity to consume etc. the amount of money spent becomes greater than the amount injected.
But I forgot the formula, I think it’s something like initial spending * 1/RerserveRequirement=multiplier effect
Because of the spending or because we replaced our productivity (women in the workforce) and everyone else got destroyed? It is war, so doesn’t it seem likely that the losers are economic losers as well, and the winners are economic winners? Also, I think the U.S. government made a net gain after inflation from sold war bonds.
Of course, who needs war to end depressions and produce prosperity? Instead of building bombers + bombs and obliterating people into smithereens we could just as well use those funds to pay everyone to do push-ups at $10/push-up. It’d be a win-win-win for everyone, as we’d be out of a depression whenever it happens but without having to blow up anyone/anything, with an added bonus of making everyone fit. PM me about where to send my Nobel Memorial Prize for Economics.
