Originally Posted by
denuseri
Actually our "spending" on the war effort started long before Pearl Harbor.
1941 was only our "official" entry into the war.
As stated in another thread on this topic most historians due give the majority of the credit to the war itself and what was done during the years imediately following for pulling the world out of the depression.
The following is all easily found on the internet and a wide variety of other scources:
Hoover actually launched a series of programs which failed, expanded federal spending in public works such as dams, and launched the Reconstruction Finance Corporation (RFC) which aided cities, banks and railroads, and continued as a major agency under the New Deal. To provide unemployment relief he set up the Emergency Relief Agency (ERA) that operated until 1935 as the Federal Emergency Relief Agency. Quarter by quarter the economy went downhill, as prices, profits and employment fell, leading to the political realignment in 1932 that brought to power the New Deal.
"British economist John Maynard Keynes argued in General Theory of Employment Interest and Money that lower aggregate expenditures in the economy contributed to a massive decline in income and to employment that was well below the average. In this situation, the economy might have reached a perfect balance, at a cost of high unemployment. Keynesian economists called on governments during times of economic crisis to pick up the slack by increasing government spending and/or cutting taxes.
Massive increases in deficit spending, new banking regulation, and boosting farm prices did start turning the U.S. economy around in 1933 but it was a slow and painful process. The U.S. had not returned to 1929's GNP for over a decade and still had an unemployment rate of about 15% in 1940 — down from 25% in 1933.
In 1937 the American economy took a nosedive, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938.
According to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth resumed only in 1946 (Higgs does not estimate the value to consumers of collective, intangible goods like victory in war). To some Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions, and industrial output would fall to pre-war levels. That Keynesian prediction that a new depression would start after the war failed to take into account massive savings and pent-up consumer demand, along with the ending of the restrictive wartime regulations in most consumer industries, and the cutting of high tax rates starting in 1946. In any case, government spending and changing regulations (first tightening them, then loosening them) appear to have contributed to the recovery, as consumer and producer behavior changed.
The massive rearmament policies to counter the threat from Nazi Germany helped stimulate the economies of Europe in 1937-39. By 1937, unemployment in Britain had fallen to 1.5 million. The mobilization of manpower following the outbreak of war in 1939 finally ended unemployment.
In the United States, the massive war spending doubled the GNP, either masking the effects of the Depression or essentially ending the Depression. Businessmen ignored the mounting national debt and heavy new taxes, redoubling their efforts for greater output to take advantage of generous government contracts. Productivity soared: most people worked overtime and gave up leisure activities to make money after so many hard years.
Businesses hired every person in sight, even driving sound trucks up and down city streets begging people to apply for jobs. New workers were needed to replace the 11 million working-age men serving in the military.
Roosevelt had tried public works, farm subsidies, and other devices to restart the economy, but never completely gave up trying to balance the budget. According to the Keynesians, he needed to spend much more money; they were unable to say how much more. With fiscal policy, however, government could provide the needed Keynesian spending by decreasing taxes, increasing government spending, and increasing individuals' incomes. As incomes increased, they would spend more. As they spent more, the multiplier effect would take over and expand the effect on the initial spending. The Keynesians did not estimate what the size of the multiplier was. Keynesian economists assumed poor people would spend new incomes; however, they saved much of the new money; that is, they paid back debts owed to landlords, grocers and family. Keynesian ideas of the consumption function were upset in the 1950s by Milton Friedman and Franco Modigliani.
Milton Friedman originally a Keynesian supporter of the New Deal and advocate of high taxes, in the 1950s his reinterpretation of the Keynesian consumption function challenged the basic Keynesian model. In the 1960s he promoted an alternative macroeconomic policy called monetarism. He theorized there existed a "natural rate of unemployment" and he argued the central government could not micromanage the economy because people would realize what the government was doing and shift their behavior to neutralize the impact of policies. He rejected the Phillips Curve and predicted that Keynesian policies then in place would cause "stagflation" (high inflation and low growth). Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady expansion of the money supply was the only wise policy, and he warned against efforts by a treasury or central bank to do otherwise. Influenced by his close friend George Stigler, Friedman opposed government regulation of all sorts.
I have said it before and I will say it again:
Both parties need to rethink the entire deal and they need to include as many of the other world leaders/ governments as possible in the desicion making proccess becuase whatever they do its going to effect everyone on the planet not just the USA.
