It's been funny to watch Paul Krugman no longer say the New Deal brought us out of the Depression. He conceded that it led to the double dip recession of 1937. However, it was the demand that was stimulated with the Second World War which brought us out of the Depression. That's why today we need things like Joe Biden's Inflation Reduction Act. That's why the Cares Act with Donald Trump was so important, because demand has to be stimulated. What if anything is wrong with
this idea? Well, absolutely everything. And and again, this is one of those things where not just the left gets it wrong, but even a lot of conservatives will say, you know, like they'll be mostly on the right track saying the the New Deal did not get us out of the Depression. Correct. Great. Then they'll say World War Two did. If you say that, I mean, in addition to being wrong, you're just handing the whole argument to the other side.
You're saying, well, Roosevelt did some domestic spending, but if he had done more spending like we had in the war, then it would have worked. You sure that's the argument you want to make? So thankfully, the guy who really started us all thinking on this, or we've been thinking about it, but who really, really did the charts and graphs and the numbers is Robert Higgs. And he had an article in, I can't remember, it was a journal of economic history or something
like that. But the the main title of the paper is Wartime Prosperity with a question mark. And I don't offhand recall the subtitle, but you read that article and you say, ho, whoa, wait a minute. Yes, everybody is, is misunderstanding this. And so he's showing on the graphs that, yes, nobody denies that if you seize resources from the public sector, from the private sector, you siphon them away from private consumers and then you go blow it on something.
Yeah, OK, It will create that thing like we know that. But the point is that thing doesn't contribute to consumer welfare. When private entrepreneurs spend money, they have a profit and loss test which tells them if they are in in some way contributing to consumer welfare. The the state does not have that feedback mechanism. So it's expenditures have to be arbitrary. It's expenditures are politically determined, not determined on the basis of
consumer preferences. And so during the war, that's when you have the, the worst of this. Now, you may say, well, we needed to fight the Japanese. That's it. Or, you know, whoever we're fighting, that's, that's beside the point. That's a completely separate point. The, the, the point we're saying we're arguing is, was this a source of prosperity for the average American? Not whether it was necessary to win the war or any of that. That's, that's a completely different thing.
Did it bring about prosperity? And he goes and looks and says, look, when you when you siphon, you know, 10 million men out of the economy, the ones who have the the most work experience, who are the physically strongest. And you siphon off you like 40% of GDP or whatever into the waging of the war. And the official numbers tell you the society got more prosperous. You know something's wrong with those numbers, right?
Like if today I took all the able bodied men and sent them away or lined them up by and executed them by firing squad, and then we saw that all the economic indicators said the economy was now doing better, we would know something's wrong with the indicators. And of course they were because they're treating public sector spending like it's indistinguishable from private sector spending. So he goes through and and and analyze.
So then also says you're not factoring in all the deprivation people suffered by the rationing during that time. That's rationing is not prosperity. So he says the real prosperity came in 1946 when you got after the demobilization, you started to get normal economic activity again and the expectation of the private sector that no wild disruptions of the ordinary flow of commerce would be taking place. That's when the prosperity
occurs. Now, by the way, there's a very provocative article in the old Review of Austrian Economics by Richard Vetter and Lowell Galloway called the Great Depression of 1946. And that's tongue in cheek because of course, there was no Great Depression of 19461946 was probably the single most prosperous year in all of American history. So what do they mean the Great Depression of 1946? They mean this is what happens when you blindly just read some numbers off a piece of paper.
Because if you read the numbers off the piece of paper, the numbers don't look very good for 1946. But that's because the, the, the, the, the public side of the spending has, has collapsed because they're not waging the war anymore. And so some indicators of, of prosperity look bad, but that's not bad. Like employment was great, production was great, consumer goods production was great. That's what you need to look at, like things that involve the welfare of the people.
And if you look at that, you realize there's no depression in 1946. You have to be a dope to think that you're you're looking at the numbers all wrong, as we had been during World War 2. And I love what you said earlier about using time price as a better indicator rather than GDP. So yes, 400,000 American deaths and giving half of Europe to the Bolsheviks did not stimulate the economy. You make the excellent case
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