Not quite...
Casey has an excellent discussion on this topic. Here's an excerpt:
Remember that a wartime economy comes with strings attached; it’s not free money. Wartime regulations made operating any business almost impossible. Nearly everything required government permission. Taxes skyrocketed, leaving less capital for investment. Further, forget about competing for resources with the war industry; even if you had a good business idea, you wouldn’t be allowed to execute it.
An economy can’t prosper when markets are being overruled by command-and-control rationing. During the war, companies found it easier and more profitable to produce for government than to produce for consumers. Even companies such as Eastman Kodak, the film and camera company, began manufacturing rifle scopes and hand grenades for the military. GM stopped making cars for civilians and made military vehicles instead. Tires, gasoline, shoes, beef, sugar, coffee and much else were rationed. The standard of living in the U.S. during the war collapsed; conditions for consumers were much worse than in the ‘30s. Remember that the best definition of a depression is: A period of time when most people’s standard of living falls significantly.
Without productive private investment, recovery is impossible. Near the end of the war, as government spending subsided, private investment did return to the U.S. But that never happened in the USSR, China, or Eastern Europe, which is why they never did recover. Lack of private investment is why Britain remained something of a dump right up to the election of Thatcher. Wartime spending didn’t help the recovery, it slowed it.
During the war, a majority of businessmen – typically over 75% – believed the U.S. would retain the fascist-style economic system that it had grown into during the ‘30s and that it seemed to be cemented into by the war. With that thought so widespread, the lack of private investment is no surprise.
But with the closing of WWII, the fear of being locked into a command-and-control economy began to ease – an unintended consequence of FDR’s wiliness. FDR knew that the business world would cooperate in wartime production only if business leaders were running the show. He slowly began replacing New Dealers in his administration with the businessmen who had been squashed by New Deal policies. The new recruits worked behind the scenes in Washington to undo what the early New Dealers had accomplished. Necessity had overcome ideology.
On top of that, the Democrats were losing their grip on Congress. By 1944, they had only 56 senators and 242 representatives. In 1946, the Republicans regained both houses of Congress.
And FDR himself died, which left businessmen feeling a lot safer. The long dark night of anti-business tirades and crusades had ended. The Dow made a significant jump, and so did the daily volume on his death.
Sure, Truman was still around, but he didn’t have Roosevelt’s dangerous popularity. As a result, private investment flooded the post-war market, and a boom followed. Where did the capital to fuel the post-war boom come from? In a way, it was an accident of wartime policies.
During the war, the personal savings rate skyrocketed. There were plenty of reasons for that. For one, quality durable goods exempt from wartime rationing were difficult to find even if one wanted to buy them. Second, a big war creates uncertainty. If you’re not sure whether a husband or father will return alive, saving makes sense. The importance of savings in the 1940s is a reason for pessimism about our prospects today: unlike during WW2, today’s savings rate is still negligible. And the artificially low interest rates the government has engineered continue to discourage saving and to encourage consumption, debt, and speculation.
When the war ended, the accumulated savings supported both investing and consumer spending. It’s an experience that refutes the Keynesian notion that consumer spending stimulates the economy and saving suppresses it.
You can’t solve today’s problem of overconsumption and debt with more overconsumption and debt. The conditions that pulled America out of the Great Depression underscore that point. Once savings rates increased and made capital available for the economy, private investment soared, and shortly afterward, so did the rest of the economy.
Although history doesn’t repeat, this time it definitely rhymes. The Obama administration is trying to replay all of Roosevelt’s moves, and it’s making all of FDR’s mistakes in spades and more. The Obama bailouts of public companies are a new twist – even FDR didn’t go that far. The U.S. is already in a war economy. Will Obama ramp up the wars, thinking that what’s been done so far isn’t enough?
The bottom line is that, based on everything we know about the Great Depression, the Greater Depression, which is still in its early stages, is going to be nasty indeed.
http://www.caseyresearch.com/editorial/4060
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