From the National Journal this week:
Two wars are not enough.
America’s economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today.
Nobelist Paul Krugman, a New York Times columnist, and Harvard’s Martin Feldstein, the former chairman of President Reagan’s Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. Their views were shared by a third economist, Jan Hatzius of Goldman Sachs, who said the only economic scenarios he could visualize were either “pretty bad” or “very bad.” …
Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact “exogenous” shock like a major war — something similar to what Krugman called the “coordinated fiscal expansion known as World War II” — would be enough to break the cycle. “I don’t think we’re about to launch a war against anybody,” Feldstein said with tongue-in-cheek regret at the left-leaning forum, “America’s Fiscal Choices,” sponsored by four think tanks. “But Paul is right. That was the fiscal move that got us out” of the last downturn comparable to this one, the Great Depression.
Krugman is the leading Progressive Keynesian, Feldstein the leading conservative Keynesian. (That is not a contradiction in terms. See my article on the subject.) What unites them? Military Keynesianism.
Both mistakenly think World War II ended the Great Depression, a claim soundly debunked by Robert Higgs. (See Art Carden’s discussion.) How could the war have ended the Depression? The economy was mostly devoted to making things that would blow up and destroy other things — including life. Living standards certainly did not rise during the war: The purchase of consumer goods was restricted through an elaborate rationing system. Government directed production. It owned the economy.
Economists point to improved wartime aggregates, such as GNP, investment, or employment. But who cares about statistical aggregates? They only shroud what’s going on at ground level. Government spending is a component of GNP; so increases bore no necessary relationship to individual well-being. Ten million men were drafted into the military, so what did the improved unemployment rate have to do with consumer welfare? Besides, Higgs shows the statistics are suspect for a variety of reasons.
Economists often give reckless advice to governments. But when they declare that only a major war will lift the economy out of recession, we really need to start worrying. Military Keynesianism kills.