My Theory on WWII's Economic Effects

I've been reading several new analyses on the Great Depression, and how FDR's New Deal failed to solve the issues and instead prolonged the depression. In the past, the history books have generally attributed the exit of the depression to an increase in government spending, both because of the New Deal, and due to World War II. Keynesian deficit spending is the new buzz word today as government officials try to figure out how to prevent an economic collapse. John Keynes argued that the best way to stimulate a suffering economy is for the government to get involved by 1) reducing interest rates and 2) investing in the infrastructure. This theory seemed to be vindicated by the war, as the government spent deep into a hole during that time, and the economic affects of the war were very positive, finally bringing the nation out of depression. So this is what all the bailouts are all about. They're trying to stimulate the economy by investing money in struggling corporations, push money into the system to keep spending up.

Many economists are doing further studies and analysis into the causes of the extended depression and what ultimately got us out of it. These have almost unanimously agreed that Keynesian policy wasn't as successful as originally believed. In fact, many are now arguing that the policies actually prolonged the depression. UCLA economists Harold L. Cole and Lee E. Ohanian hypothesize that the Great Depression would have ended in 1936 if it weren't for the New Deal. Economists Robert Lucas Jr. and Leonard Rapping believed that it should have ended in 1935.

The problem, some economists pointed out, with this concept of spending is that there is a point of equilibrium. When you spend money, that money has to come from somewhere. While the government pushes aid to the public sector, it damages the private sector. Henry Hazlitt observed: “For every public job created by a bridge project a private job has been destroyed somewhere else. We can see the men employed on the bridge. We can watch them at work...But there are other things that we do not see, because, alas, they have never been permitted to come into existence.” So new jobs were being created, but unemployment still wasn't improving much (it didn't dip much below 15% during the New Deal), and wealth wasn't growing fast enough. At least not until the war.

So if it wasn't Keynesian spending, what ultimately moved us out of it? Some argue the expansion of monetary policy, where it was deflation caused by a shortage of money supply that originally caused the depression. Others point to an influx of wealth from Europe due to the costs of the war.

These both would have had effects on economic progress. But here's a theory that I came up with for the big increase in GNP since the war. Women. I think maybe the war broke the Great Depression primarily because of the expansion of the role of women in the economy.

I've previously discussed some basic thoughts on economics, that if a person is not producing wealth sufficient for themselves and their dependents, they are draining wealth from the system. The economy is a sum of the produced wealth (products and lasting services) minus its dependencies (how much dependents use up these products, such as food, and how much the value of products were lost over time, i.e. cars). While World War I certainly increased the role of women in society somewhat, women were still a very small and relatively insignificant part of the workforce, and thus were primarily a part of the dependents. Men had to provide for the women as well as the children of their family in addition to themselves.

But the World War II changed the role of women in society. They were called on to work in the production effort that was lagging far behind due to the drain of the war on both the work force and produced materials. The role of women in the economy saved it with the increase in production (produced wealth), as they were no longer just a dependency, but a producer.

Since the war, the role of women has not been reduced, but instead has in fact expanded, particularly with the growth in popularity of the feminist movement. Women are becoming nearly as prevalent as men in the workforce. This is why the GNP has grown so rapidly. The number of producers had become much greater with the combined forces of men and women. More was suddenly being produced than was being used up, thus total wealth grew quickly.

It wasn't Keynesian spending. It wasn't a clever maneuver by the government. It was us. We began to produce the wealth. We are the only ones that can produce wealth. The government does not. The government is a dependency, a large one at that. They don't produce a product of wealth. It is a luxury service. We pay for it, they don't pay for themselves. They do not add to, but take from the GNP. We the people produce the wealth of this nation.

Well, I'm not a historian, nor an economist (although it's really fascinating), so... yeah, it's just a theory.