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Old 09-13-2011, 09:20 PM   #81
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In case it's a serious question, why not just answer it?
Ok.

A war on the scale of World War II requires enormous quantities of materials and sustained high levels of production. Thats because a bunch of stuff like weapons, ammunition, supplies,support equipment, and whatnot is needed at the war front. It's a sustained requirement, as what get sent to the war front gets consumed in a variety of ways.

OK so far?

Now, to manufacture all of this stuff and ship it to the front requires lots of workers. This means that new jobs are created to support the increased production, in addition to existing jobs being redirected to support the war effort. These new workers get paid. Factories run at capacity, and new capacity is added.

Raw materials are needed. That means more jobs mining, growing crops, processing and refining materials to supply the factories.

All these workers are being paid. The workers spend that pay for more goods, food, housing, and whatnot. Activity in these markets, stalled for much of the Depression, picks up.

So, we've gone to war, created new jobs, new economic activity, maximized use of production capacity, and increased the velocity of money. No more credit crunch. (The Great Depression was a credit crunch, or balance sheet recession made worse by tightening credit further at the worst possible time) Drawbacks include death, mayhem, and debt.
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Old 09-13-2011, 09:43 PM   #82
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All these workers are being paid.
So, the mechanism for ending the depression was the government paying many workers to do something or other. Is that the answer to the question?
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Old 09-13-2011, 09:55 PM   #83
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Was there a big debt problems after WWII?

All those war-production jobs went away. And then there was a post-WWII boom that lasted a few decades.
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Old 09-13-2011, 10:10 PM   #84
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So, the mechanism for ending the depression was the government paying many workers to do something or other. Is that the answer to the question?
Well, either that or the massive destruction of capital goods, infrastructure and human life that required rebuilding,reinvesting and reproducing.

There's a saying in spanish: de lo sublime a lo surreal...roughly, from the sublime to the ridiculous.
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Old 09-13-2011, 10:13 PM   #85
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So, the mechanism for ending the depression was the government paying many workers to do something or other. Is that the answer to the question?
Partially. Paying one guy to dig a hole, and the next guy to fill it in wouldn't be very effective. People aren't perfect rational actors, but they aren't stupid, either. The workers need to have some confidence that their jobs are "real", that is, that the job will persist, so that they can confidently spend their income.

We can play with that confidence factor in isolation. Imagine you are collecting Social Security. The Whig Party is in power, and decides to balance the budget by using Lotto machines to determine who gets Social Security checks. You have no way of knowing in advance whether you will get a Social Security check in any month, or how much it will be for. Some portion of recipients may never get a check.

Do you include Social Security payments in your monthly spending plan for basic necessities?


Paying many workers to do something or other works if that something or other looks like a real job. The interesting bit is to come up with something that gives you the biggest amount of economic activity for the buck. The money spent should circulate through the economy, being earned, spent on goods, paid out to workers making those goods, and so on. Paying someone who stuffs the cash in a mattress or buys a 10 year Treasury note doesn't produce much activity.
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Old 09-13-2011, 10:22 PM   #86
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Was there a big debt problems after WWII?

All those war-production jobs went away. And then there was a post-WWII boom that lasted a few decades.
We had a fairly small national debt going into WW II, and a somewhat larger debt afterward, about 260 billion, a bit over 100% of GDP. We managed to grow the economy faster than the debt (helped by rising tax revenue) for a number of years
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Old 09-13-2011, 10:24 PM   #87
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Well, either that or the massive destruction of capital goods, infrastructure and human life that required rebuilding,reinvesting and reproducing.

There's a saying in spanish: de lo sublime a lo surreal...roughly, from the sublime to the ridiculous.
That produced the post- war economic stimulus for a chunk of the world. It's not a mechanism I would make my first choice.
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Old 09-13-2011, 10:37 PM   #88
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The question was to give the anti-keynesians a chance to explain away the HUGE government expenditures of WWII as the obvious solution that ended the depression. This is not possible. The government temporarily took up a huge percentage of the economy. This temporarily crested demand and jobs and then the economy recovered and the government stepped out. This is flat out a success of Keynesian policy. But it took Huge government investment. The lesser efforts of the New Deal, as big as they were could not jump start the economy. But the power of the government to SAVE a sputtering economy is undeniable in this instance. The antiKeynsians refuse to acknowledge this FACTUAL account of history. War and extraction did not end the depression. Huge government spending did. And huge government investment does not only have to be to blow stuff and people up. We need new roads new bridges new transportation new energy projects. We CAN invest Huge monies in smart projects and it can start a recovery. BUT then these projects MUST be temporary so the government shoves the economy into gear but then gets out of the way. It could work. It did before.
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Old 09-13-2011, 11:03 PM   #89
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So, the mechanism for ending the depression was the government paying many workers to do something or other. Is that the answer to the question?

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The question was to give the anti-keynesians a chance to explain away the HUGE government expenditures of WWII as the obvious solution that ended the depression. This is not possible. The government temporarily took up a huge percentage of the economy. This temporarily crested demand and jobs and then the economy recovered and the government stepped out. This is flat out a success of Keynesian policy. But it took Huge government investment. The lesser efforts of the New Deal, as big as they were could not jump start the economy. But the power of the government to SAVE a sputtering economy is undeniable in this instance. The antiKeynsians refuse to acknowledge this FACTUAL account of history. War and extraction did not end the depression. Huge government spending did. And huge government investment does not only have to be to blow stuff and people up. We need new roads new bridges new transportation new energy projects. We CAN invest Huge monies in smart projects and it can start a recovery. BUT then these projects MUST be temporary so the government shoves the economy into gear but then gets out of the way. It could work. It did before.
"I've hired you to help me start a war. It's a prestigious line of work, with a long and glorious tradition." - Vizzini

"Never start a land war in Asia!" - Vizzini

Keynes may have actually been a military-state strategist upon reflection! His theory on deficit spending typically raises the age-old burden of "Who pays for all this $#!•?" when deficit spending policy does not realize sufficient economic growth and output to pay the bills, so to speak. However, his theory does consistently work like a charm during times of War - if you win the War, of course. The US Govt did indeed pay "workers do do something or other" during WWII which certainly created short term full-employment and the answer to "Who pays for all this $#!•?" turned out to be the the Axis Powers through war reparations - actually, only the Germans and the Japanese as the Italians claimed they could only pay their reparations bill through art work that could not be removed from their limestone foundations in Milan and Rome which allowed them to use delay tactics until the US finally gave up and took a write-down sometime in the '70s.

Two side notes: 1) Make sure to win the War or else the workers' paychecks will ultimately bounce which will make them really, really p!ssed off, and 2) Make sure to settle the war reparations such that it always exceeds your war preparation costs. Always get a good War accountant: War has to be a profitable venture or else it's probably not worth pursuing.
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Old 09-14-2011, 12:49 AM   #90
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BUT then these projects MUST be temporary ...
Why must they be temporary?
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Old 09-14-2011, 08:16 AM   #91
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The question was to give the anti-keynesians a chance to explain away the HUGE government expenditures of WWII as the obvious solution that ended the depression. This is not possible. The government temporarily took up a huge percentage of the economy. This temporarily crested demand and jobs and then the economy recovered and the government stepped out. This is flat out a success of Keynesian policy. But it took Huge government investment. The lesser efforts of the New Deal, as big as they were could not jump start the economy. But the power of the government to SAVE a sputtering economy is undeniable in this instance. The antiKeynsians refuse to acknowledge this FACTUAL account of history. War and extraction did not end the depression. Huge government spending did. And huge government investment does not only have to be to blow stuff and people up. We need new roads new bridges new transportation new energy projects. We CAN invest Huge monies in smart projects and it can start a recovery. BUT then these projects MUST be temporary so the government shoves the economy into gear but then gets out of the way. It could work. It did before.
The main problem today is there is not incentive to create jobs. Look at the issue Boeing faces and also the oil companies looking for drilling contracts. I'd say govt does not WANT new jobs to be created..........it's pretty clear!
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Old 09-14-2011, 08:32 AM   #92
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Well, either that or the massive destruction of capital goods, infrastructure and human life that required rebuilding,reinvesting and reproducing.
Isn't this the Broken Window Fallacy . . . the idea that we can't create growth by destroying something, even if it's replacement creates a job?

I always love when WWII comes up, because we start to see some arguments break down. There is a reason why Ha won't answer the question "by what mechanisim did WWII end the depression" even though he's the one who said it did. He won't answer because he doesn't like the answer.

But the conflicts go deeper than just a dislike for government spending as "stimuls." WWII represents the worst kind of government spending, it's worse than digging holes and filling them in. It's worse than pointless (from a purely economic point of view) it's destructive to both physical and human capital. It is the "broken window fallacy" writ enormous.

But it's even worse than that. The WWII war effort didn't just include destructive government spending. It imposed unthinkable regulations on every aspect of society, dictating from on-high such mundane things as how much sugar a household could buy.

It's an interesting paradox for people to think through.
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Old 09-14-2011, 08:44 AM   #93
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That produced the post- war economic stimulus for a chunk of the world. It's not a mechanism I would make my first choice.
Me neither. Mine was a silly attempt at providing a few words of context to a previous post. I shouldn't have posted because I'm not really sure what this thread is about, and that's always a bad sign. Kinda like the roads in West Virginia - forever winding all over the place.
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Old 09-14-2011, 08:53 AM   #94
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Solving the Paradox

WWII ended the depression because it lifted the constraints that held back the economy, even as it undoubtedly reduced our potential output by killing so many of our working aged men.

In the 1930's, like today, demand was constrained by a massive debt overhang left in the wake of a speculative bubble. Indebted agents sought to increase their savings and deleverage. But at the macro level, one person's consumption is another person's income. Therefore indebted agents can't increase savings unless savers increase their spending. But nobody in the economy wanted to increase their spending, everyone tried to be a saver, enter the paradox of thrift.

The one agent willing and able to increase spending was the Federal government. The jobs created by the war effort allowed indebted agents to deleverage which eventually lifted the primary constraint to full employment.

That's the basic story of "how WWII ended the depression."

Lessons for today are that government spending on a sufficient scale, even for economically useless things, can provide the same benefit - breaking the paradox of thrift and allowing indebted agents to deleverage.

But is that the best way? I'd argue no. If the problem is overleveraged agents, it seems better to target that problem directly to relieve that specific bottleneck rather than to spend trillions everywhere hoping that some of that money helps folks deleverage.
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Old 09-14-2011, 08:57 AM   #95
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The main problem today is there is not incentive to create jobs. Look at the issue Boeing faces and also the oil companies looking for drilling contracts. I'd say govt does not WANT new jobs to be created..........it's pretty clear!
Boeing is looking to create new jobs? Or just move jobs to a lower wage state in SC while getting rid of them in Washington state?

So unless the govt. kowtows to everything that private industry demands, it's blocking new jobs?

Because the govt. being so accommodating (the SEC and the CFTC sitting on their hands) worked out terrifically in the last decade, didn't it?
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Old 09-14-2011, 10:07 AM   #96
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Isn't this the Broken Window Fallacy . . . the idea that we can't create growth by destroying something, even if it's replacement creates a job?.
Yup. The fallacy goes something like this. "Oh, a broken window! That means more work for the glazier, so he can feed his family, and more work for the glass factory!". Alas, this assumes that the fellow who owns the shop with the broken window had no better use for the money. Suppose he had planned to use that money to buy a couple of hand held checkout devices, which would allow his busy shop to handle 30% more customers during the day, and free up counter space used by the old cash register to carry a new line of merchandise?

Simple destruction of goods may produce economic activity, but there may be better ways to produce that same activity at lower cost, or higher efficiency.
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Old 09-14-2011, 10:16 AM   #97
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Okay, let's pay people to dig holes and others to fill them in. If it promises to work to move our economy in a good direction, why not do it? What do you have against it? And why should I care? I think you're letting ideology get in the way of finding working solutions.

Because it will not get the economy moving in the right direction....

Non-productive work is not good for the economy.... it is a cost that is put on the people who pay the taxes...

If you remember back in the 70s there was a policy of not allowing more than a bit more than 2 million cars in the US from Japan... it was to help the US auto workers... but the cost to the economy was over $700K per job saved... it would have been cheaper to have just paid them their salary and let Japan import as many cars as they wanted...

Just throwing money at something is not the way to go... do something that actually will create a job with a company that will continue to employ that person after the stimulus is gone...
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Old 09-14-2011, 10:18 AM   #98
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Boeing is looking to create new jobs? Or just move jobs to a lower wage state in SC while getting rid of them in Washington state?

So unless the govt. kowtows to everything that private industry demands, it's blocking new jobs?

Because the govt. being so accommodating (the SEC and the CFTC sitting on their hands) worked out terrifically in the last decade, didn't it?
Doesn't Boeing have the right to move their jobs whereever they want, or is that now illegal? I suppose it would be better to move them overseas, and lose those jobs forever? Companies have been moving jobs to right to work states for decades. Master Lock here in Wisconsin moved all their jobs to Tennessee because the wages were so much lower. They could have moved them to China but they didn't........

The regulation environment is one big reason why the top 500 companies in America are sitting on over $1 trillion in cash and not reinvesting in new facilities, markets, creating jobs, etc. The govt says they want the private sector to create jobs, then regulates them into oblivion so its not worth it.
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Old 09-14-2011, 10:22 AM   #99
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If you remember back in the 70s there was a policy of not allowing more than a bit more than 2 million cars in the US from Japan... it was to help the US auto workers... but the cost to the economy was over $700K per job saved... it would have been cheaper to have just paid them their salary and let Japan import as many cars as they wanted...
yeah, that worked really well. Right before the car companies went into bankruptcy, you could roll past their employee parking lots and see all the shiny Toyotas and Hondas parked neatly in rows.........

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Just throwing money at something is not the way to go... do something that actually will create a job with a company that will continue to employ that person after the stimulus is gone...
All the big stimulus did is save some govt jobs, even the President acknowledges there were no "shovel-ready" projects......
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Old 09-14-2011, 10:23 AM   #100
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Doesn't Boeing have the right to move their jobs whereever they want, or is that now illegal? I suppose it would be better to move them overseas, and lose those jobs forever?
Boing hasn't been able to get an exception to the DoD procurement rules yet.
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