Krugman's "1938 in 2010" Rebuttal
Krugman wrote another Op-Ed about his favorite subject "1937". The year when the Fed Gov't cut back some spending and the economy faltered. I've disputed this ludicrousness before, stating that if EIGHT years of spending didn't fix the problem, when in the hell is all this spending supposed to work? Let's also not forget that in 1934 the dollar was devalued by 50% and THAT didn't work.
In this particular Op-Ed he goes further, stating "From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today".
Pro-WWII end recession/depression economist LOVE to point out that huge spending on a massive scale ended the Great Depression. I've spoken to many of these people before and asked them EXACTLY when this massive spending ended the Great Depression. There are only two answers: 1) When the war started 2) After the war ended
Let's tackle #1 first (When the war started). These are the scariest people in the world today, because they don't believe in freedom in the least. The forced conscription of all able bodied men between the ages of 18 - 30, the detainment of 400,000 Japanese-American citizens is somehow considered economic nirvanna. I've often asked these War Lovers (my own economic professors included) a simple question "What part of your economic view of the world makes you think that an economy is doing well that rations food, energy and labor?"
I've yet to hear an answer other than moving quickly to response #2.
So let's tackle #2 (The depression ended after the war ended). Is there any arguing that America from 1945-1960 was in a period of economic growth? Certainly not. GDP was expanding, manufacturing was expanding, debt was being paid back. But the debt did not create this economic phenomena, the complete obliteration of the industrial base of England, France, Japan, Germany and Italy created the phenomena. I am not going to argue that if China, Japan, South Korea, and Germany all lost their industries due to a barrage of meteorites, that the U.S. would not experience an economic boom as strong as that after WWII.
Krugman is conveniently forgetting the power behind our economic expansion after WWII was the lack of competition and the demand for those goods from our allies/ex-enemies. I argue that if Hitler died of a heart attack in early 1943 and the Nazi's collapsed and Germany was taken over by peace-loving doves who instantly withdrew from all invaded countries, our economy would have fallen back into a depression, but with debt so high we would have possibly had our own revolution.
Mr. Krugman isn't just wrong, making this "war spending argument" he's DANGEROUS!