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View Diary: Why Can’t We Spend? (17 comments)

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  •  Plus stimulus spending didn't end the Depression. (0+ / 0-)

    That's a pervasive Keynesian myth.

    Measured unemployment was still almost 10% in 1941, with broader measures of real unemployment much higher.

    Modern Keynesians admit as much and try to salvage their argument by claiming the stimulative effect of WW II finally ended the Depression.  Krugman is a leading proponent of that argument.

    But this claim is an abuse of the economic data.  Yes, unemployment fell from 10% to basically 0% in a year.  Drafting 10 million men out of the labor force will do that for you.  And yes, the war year's GDP soared but that's mostly because price controls and government edicts for military production badly distorted how we measure GDP.  You simply can't compare pre-war and war-time GDP.

    The real benchmark for the end of the Depression is was the economy generating more wealth than before the crash or not.  During the war, the economy was not generating wealth.  It was consuming it at unprecedented rates.

    By the wealth benchmark, the Depression didn't end until after 1946.  After all that "sitmulative" war spending was suddenly cut off and the command and control structure was removed.

    That the economy began a strong and sustained recovery in 1946, instead of falling back into the widely predicted new Depression, tells you all you need to know about stimulus spending.

    Results count for more than intentions do.

    by VA Classical Liberal on Wed Jun 02, 2010 at 06:25:30 AM PDT

    [ Parent ]

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