Military Keynesianism Can’t Work … Because WWII Was Different from Current Wars

George Washington's picture

World War II Was Different

“Military Keynesians” – people who think that war is good for the economy – base their theory on the idea that World War 2 pulled us out of the Great Depression.

I have exhaustively demonstrated that this is a myth: war is not good for the economy.

But even if WWII were good for the economy, things are completely different today.

World War II Employed Armies … Not Drones

Wikipedia points out:

Some critics, and even some supporters, contend that in the modern world, these policies are no longer viable for developed countries because military strength is now built on high-technology professional armies, and the military is thus no longer viable as a source of employment of last resort for uneducated young people.

Given that America fights its current wars with drones and smart bombs, it “employs” far fewer men then during WWII. It is a different world.

The Marshall Plan, Special Trade Provisions and Other Unique Circumstances Made WWII Different

Steven Hill noted yesterday:

Krugman has written, “Deficit spending created an economic boom – and the boom laid the foundation for long-run prosperity.”


But this viewpoint ignores a fairly obvious counterpoint. The United States emerged from World War II as the world’s conqueror, with virtually every economic competitor destroyed. Suddenly, America was the big boy on the block, leader of the Pax Americana, and our industries enjoyed numerous competitive advantages over international rivals. The dollar, suddenly, was the dominant global currency, and that granted Americans cheap money and influence that spurred unprecedented economic growth.


In addition, we then launched the ambitious Marshall Plan, which not only rebuilt our former adversaries, but also created international markets for US producers. One of the Marshall Plan’s conditions was that nations receiving funding were required to give American exporters preferred access to their emerging markets. The years of the Marshall Plan, from 1948 to 1952, saw one of the fastest periods of growth in European history, with industrial production increasing by 35 percent and agricultural production substantially surpassing prewar levels. American businesses, especially those specializing in manufactured goods and raw materials, benefited greatly from these fast-emerging markets. Any massive stimulus plan today would not benefit from those same advantages.


Krugman has rejected this critique, writing, “Trade was a minor factor in the American economy both before and immediately after the war, with imports and exports a much smaller share of gross domestic product than they are now.” Krugman admits that there was an increase in trade for a few years in the late 1940s due to the effects of the Marshall Plan, which allowed ruined economies to buy more from the United States, but it’s impact “was temporary,” he says.


But Krugman’s response is unconvincing. Here is a simple thought experiment to illustrate why. Imagine if America had lost World War II and not emerged as the dominant power. Does anyone seriously believe that all of that wartime stimulus money would have resulted in anywhere near the post-war boom that the United States experienced? Krugman is underestimating the impact of being the world’s conqueror, and the financial, economic and psychological advantages that conveys.


Certainly, a large dose of fiscal stimulus right now would spur an increase in aggregate demand, but without a surging export sector, that would probably result in more government jobs (and perhaps more than a few “bridges to nowhere”) than private-sector jobs. There’s no guarantee it would boost private-sector growth, since America’s struggling export and manufacturing base still would face stiff competition from many upstart international rivals, with none of the advantages enjoyed by US exporters in the aftermath of World War II. The world today, and America’s position in it, are far, far different from what they were in 1945.




In short, the world is decidedly multipolar now, and even if it was possible to pass a massive stimulus plan through the US Congress, there’s simply no guarantee that it would have an equivalent positive impact without the favorable conditions that existed after the Second World War.

Optimism – More Than Keynesian Stimulus – Got Us Out of the Depression

Economist Robert Higgs – who has studied the effect of World War II on the economy in great detail – argues that it was optimism, rather than stimulus spending, which got us out of the depression:

Which brings us to what may be the most important factor of all: the performance of the war economy, despite its command-and-control character, broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression. In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production—never mind that it was just a lot of guns and ammunition—dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators.




To sum up, World War II got the economy out of the Great Depression, but not in the manner described by the orthodox story. The war itself did not get the economy out of the Depression. The economy produced neither a “carnival of consumption” nor an investment boom, however successfully it overwhelmed the nation’s enemies with bombs, shells, and bullets. But certain events of the war years—the buildup of financial wealth and especially the transformation of expectations—justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.

America’s performance in World War 2 made the U.S. a superpower. The fact that we defeated the Nazis, Mussolini and imperial Japan made us proud.

But now we’ve been a superpower for more than half a century. Indeed, we’ve been the sole superpower for more than 20 years … since the fall of the Soviet Union.

There is no way that Americans can be proud that we’ve become a superpower for the first time. Indeed, Americans are now terrified of losing our superpower status to China and coalitions of nations.

So a war today cannot have the same effect of creating optimism that WWII did.*

We’ve Got Much More Debt Now Than at the Beginning of WWII

U.S. debt at the beginning of World War 2 was actually much lower than it is today on a debt-to-gdp basis … even after all of Roosevelt’s New Deal programs. Here is a chart taken from Office of Management and Budget data (via Talking Points Memo):

debtgdp Military Keynesianism Cant Work ... Because WWII Was Different Because WWII Was Different from Current Wars

While people can debate how much debt the U.S. economy can handle, the fact is that there was a lot more breathing room before WWII than today.  Put another way, the stimulus of WWII had more of an effect, because it was acting on a lower debt load to start with.

If This Was Like WWII, It Would Have Worked By Now

I noted last year:

We’ve been in Iraq for years longer than WWII. We’ve been involved in 7 or 8 wars in the last decade. And yet we’re still in a depression. (And see this).


If [things were the same as in WWII], don’t you think things would have improved by now?


Indeed, the Iraq war alone could end up costing more than World War II. And given the other wars we’ve been involved in this decade, I believe that the total price tag for the so-called “War on Terror” will definitely support that of the “Greatest War”.

In fact, it is well known that the longer wars last, the worse they are for the economy.    The 11 years we’ve been fighting in Afghanistan are almost 3 times longer than the the 4 years we spent fighting  WWII.   And leaked reports say that we’re not very close to victory in Afghanistan.   Therefore, the entire “war on terror” (or whatever we’re calling it these days) is much worse for our economy than the much shorter engagement of WWII.

* In addition, most Americans think that the Iraq war was a mistake and the Afghan war is “not worth it” anymore, whereas virtually all Americans thought that WWII had to be fought and won.  As such, there is much less of a boost from pride and optimism about our future.

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Bartanist's picture

We are at constant war. The government employs more people overtly and covertly than ever. It is not helping and IMO it is hurting because it is a massive misallocation of resources.

... Oh well, apparently it is what they require to retain their (sic) "power".

fearsomepirate's picture

Does anyone seriously think the postwar boom would have happened ifTruman had gotten his way with extending wartime price controls and centrally planned rationing?

If throwing resources at wars created prosperity, the USSR should have been the richest place in the world.

Eric L. Prentis's picture


Correction: The chart says Debt-to-GDP. It actually shows National Debt (Federal, State and Local)-to-GDP (currently 101%).


Total Debt includes public and private debt, which is presently about 370% of GDP. The previous maximum public and private debt-to-GDP occurred in 1933, at 260%, was only 160% in 1945, and reached a post WWII low of 130% in 1952. Conclusion, Americans currently have way too much debt that they cannot possibly service. Adding more debt, at this time, for a new war, is economic suicide.


Krugman acts like a shill for the warmongering neocons and the financial elite. Just spend more money to keep the status quo 1% in power, he says. Krugman represents himself as a progressive, what gall. Krugman’s call for more government debt is garbage economics, and he knows it. A policy of “more debt and austerity for the people” is sure to fail. Instead, we need structural reform, starting with unwinding the $707 trillion OTC derivatives market and debt forgiveness.


Dan Conway's picture

I don't have a no-bell economics prize but I don't think the Germans, British, Belgiums, Dutch, French, Poland, Czechs, Russians, etc. would say WWII was stimulative.  While the clean-up of ground zero was stimulative for those companies that got the clean-up contracts but I don't think 9/11 was stimulative to the U.S.A.  Hitler and Bin Laden were not stimulants to the U.S.A. economy.  How did this man get his PhD?  More importantly, why isn't some doctor making sure he takes his medications? 

NEOSERF's picture

All I get out of this is that to have a new Marshall Plan, Europe needs to collapse first...but who really would benefit from the rebuilding of Europe...uhmmm I think with 9% employment in manufacturing in the US it isn't likely to be us...more like China swoops in and benefits the most..

TrulyStupid's picture

World War II:   The US was last to enter the war and benefiited economically from allies demand for manufactures and agricultural goods.             Gold reserves were sent to the US for safe keeping and investing in the economic boom.   Employment was as near full as possible, prices and wages were controlled, income taxes were high and so were savings.    Personal consumption was effectrively rationed. The people extended credit to government through liberty bonds (mostly tokenism but illustrates the mindset). The warriors were conscripted  and higly motivated to get it over with and return to civilian life.

Now:      The US exports capital and GDP, using it to blow up other countries GDP. Gold reserves have been "leased" to insolvent entities and  otherwise reduced. Jobs have been exported overseas along with a good portion of the industrial base... China is now the main benefit of flight capital from the ongoing war deficits of the combatants. Wars are semi-permanent, the warriors are mercenaries and most war spending is to anaccountable corporatre entities. Some would say wars are fought only for the benefit of the war profiteers, whose windfall profits rely on continued belligernce and unchecked supply side subsidies. Unemployment and underemployment is rising as jobs and capital are exported. The sheeple are convinced that war is good for the economy and receive unlimited credit to "go shopping".


Jim in MN's picture

Fukushima news today on NHK Japan

Tokyo evacuation was considered, public not informed


First aerial footage of the reactors since last March


rsnoble's picture

Don't forget 1000's of nukes change things as well.

Thanks to technology we now have the power to destroy the planet.  So I guess technically WW3 could get us all out of debt because we'll all be dead.

Azannoth's picture

"virtually all Americans thought that WWII had to be fought and won" - Not True! The majority of Americans where actually on the German side only massive (jew owned) propaganda machine with FAKE war crimes etc. and eventually the Forcing of the Japanese attack *swung* American sentiments into supporting the War

hell just do a Google search for "American sentiment ww2" and you'll know all about it, Americans where mostly against entering the war with Germany and many held pro-German sentiments

CPL's picture

Henry Ford is one of many American's singled out and given thanks by Hilter in his many reprintings of Mein Kampf.


Just like last time, there are Reichstat/Vichy supporters this time around again.  there just wrap themselves up in the ECB to hide.

john39's picture

the rothschild controlled banker clan system loves wars... they play both sides and make massive loans, both for military hardware and build-up and reconstruction.  Its a no lose proposition for them.  they are scum.

Element's picture

Exactly ... the USD has to be taken down first, and Euro, to get the "international currency", so the question of war is one of what Rothschild ultimately wants.  War is just the tool they use to get there.

Holy Crap!! ... It's Jesus Christ !!  ... tell me he isn't trying to immitate the appearance of JC ... either JC or Neil off of the Young Ones.

That slimy fucker is going to create hell wherever he can

Xkwisetly Paneful's picture

Good try.

Sentiment was against entering WWII because of WWI,

but it sure is fun to try and hide that joo hate otherwise.

You may be an imbecile if you believe the majority of the American public sided with Dolphie.

Fake war crimes, millions of imaginary joos dead, UK bombed to smithereens, France long gone and most of the US public agreed with these actions(the evil zionistas even forced the Japanese to attack PH) -seriously I read it on

Element's picture

You're completely full of shit.

David Irving comprehensively tore apart the false version of joo and Brit history you pump.

(watch all ten parts of this fuckhead and get a clue ... the behaviour of Churchill was that of a drunken traitor who deliberately incited Hitler to bomb London in order to expand WWII)

You're clearly here for one purpose, to discredit the tsunami of truth and fact flooding out of zerohedge daily.

Your use of "" shows you are on-the-job, and who's only purpose is to discredit.

It ain't working.



Allied warmongering

i-dog's picture

Thanks for posting that link. It confirms everything I've known about Churchill for a very long time ... and adds a few more tidbits that I wasn't aware of. What a disgusting creature he was -- from his beginnings in the Boer War, through WWI and into WWII. On top of that, his family have been traitors to the British nation for centuries.

Element's picture

That's a video talk that everyone should watch i-dog.

In both the Pacific and the Atlantic contexts nascent WWII became full-blown WWII, due to deliberate strategic provocations.

The 'little-people' and what happened to them really didn't come into it.

The little-people have to defend themselves, because their elected 'leaders' are more than happy to set them a mantrap.

Revealing that indelible fact (among others) is what got Irving thrown in the slammer.

Shibumi2's picture

Great argument:


"War is not good for the economy, but even if WW2 WAS good for the economy, war is not good for the economy"


OK, then.

Kaiser Doomheiser's picture

@ Shibumi2:

If war is so good for the economy, let's just have nuclear armegeddon right now. That should send the DJIA soaring.

HelioCentric's picture

the only reason the united states came out of ww2 expriencing an economic boom ex: us car industry
was that there was no competition from german and japanese carmakers for obvious reasons, they are the stiffest competitors to american carmakers today, since their countries were basically destroyed resources had to be diverted to rebuilding the countries and this gave the american car industry a virtual monopoly on the american market, im not sure about international markets

besides how can war be good for an economy last time i checked wars only destroy, rationed food, rationed goods. thats not prosperity

Eeyores Enigma's picture

It's all about demand destruction now. Both the" bombing back to the stone age" throughout the ME and the trumped up debt crisis everywhere else.

Got to take our collective foot off the GAS peddle before the world understands that peak oil means no more growth.

If/when that is understood then things will get real bloody.

Sandmann's picture

WWI pulled the USA out of Depression because of French and British war orders paid for in Gold and then the sale of British North American investments at a huge discount. It also removed the British Empire as a trade competitor making it dependent upon the United States. As a consequence Britain was insolvent by end-1940. By 1947 50% British GDP was Marshall Aid. From being the richest country on earth in 1900 Britain was a basket case by 1947 with food rationing and coal shortages.

All War did for Britain was make it prone to inflation ever afterwards to erode huge Debt and have service charges of 40% Government Spending after 1921. Debt Interest was the largest item of British Government Spending from 1921 to 1937 - all because Britain thought it could destroy a trade rival and simply bankrupted itself and the global financial system by transferring huge gold reserves to the USA which simply funded a credit boom internally and exported capital to Germany to pay Reparations until 1929

Element's picture

Let's not forget that WWII was so stimulatory in the UK that state austerity rationing of items like sugar, butter, tea, meat, etc., did not get wound back until the mid-1950s.

After WWII huge state resources went straight into building a modern Jet-engine airforce, hydrogen bombs, ballistic missiles, and a more modern navy to confront the Russians with.

The austerity induced by war and by preparations for another war was crushing for civilian workers and taxpayers.

Economic boom it was not.

Beam Me Up Scotty's picture

I remember as a kid hearing about how many times over the world could be destroyed by the nukes that the USSR and the USA had. I'm sure there are more than enough to destroy the world at least once. Will there be an economy Dr. Paul Krugman if everyone is DEAD? We didn't have nukes during WW2 with the word megaton associated with them.

Manthong's picture



The War on Terror

The War on Drugs

The War on Poverty

We lost..  The Banking/Corporate/Government Kleptocracy and Oligarchs won.

BeetleBailey's picture

The War on Bankers...the next "War"....

Mass default. Screw the credit scores. Mass bankruptcies. Crash the whole system.

AnAnonymous's picture

The stimuli are not there to make the economy recover.

They are there to make sure that US citizens come on top when it comes to consumption and keeps the way the world is organized, the US world order, built in such way to favour US citizens' consumption of the Earth.

No, piling on debt is not to get out of debt as the US citizen circus want it to be believed.

US citizens are simply maxing the credit cards, making sure they get the most out of the age of abundance.

AnAnonymous's picture

Same old scam again.

The song that war benefits the economy was a song used by US citizens to justify their wars, as they were supposedly, in their own words, peace lovers.

And again, and again, and again, and again...

War is extortion business. Extortion is not supposed to benefit the extorted.

Shifting the focus from the extorter to the extorted in terms of benefits is usual to US citizens.

Actually, in US citizen mythology, the extorter sacrifices oneself to the welfare of the extorted.

That is US citizens'tale and one has to submit to believe that crap.

War benefits not the economy (which includes the extorted) but the warmongers, the soldiers, the weapons manufacturers at the exclusion of the extorted...

War brings benefits. A large number of US citizens living in the US live off the wars dividends.

Very few of them believes that war benefits the economy, even if they are ready to claim it.
Only they know is that war is improving their own standard of life.
And this is what matters to them.

laomei's picture

It's easy to make easy profit if you literally bombed all of your competition into dust and required them to buy shit from you.

WhiteNight123129's picture

LaoMei, you said it. God I want to drop my western background, dump the Judeo-Christian-Mulsim monotheist bullshit which is crippling us for millenaries now, which goes like the milkshake song "my church is better than yours, damn right, it´s better yours damn right, I can teach you (my bible, Quran, St James Code, Torah what-have you) but I have to charge (money or charge my gun), damn right !!"  . The Chinese had 30 years of histeria top with Mao and now coming right back to confucius, no bullshit, no grand theory of everything, just common sense and balance, no histeria. 

The US won the war Keynes is stupid!

Tell Japan if Keneysian war expenses worked. This is so dull debate, I can not take it. It has nothing to do with Keynes or whatever, it is just that the US won the war. See how great Keynes theory worked for France, Germany and UK in World War I. Even the winner suffered but the loser (Germany) suffered tremendously because of hte war. In wars you destroy human capital and fixed assets, I you bring the great Brits economists of XIX century (which are not Ricardo, but obscured names today (like Jevons) people which studied price from which actually the Austrian followed), they would be appaled people talk about nut cases like Keynes!


Xkwisetly Paneful's picture

Religion is crippling nothing it is certain individuals and absent religion same individuals would be using something else.

AnAnonymous's picture

Krugman does not underestimate anything (on this case at least)

Krugman is a US citizen.

US citizenism rose up on the promise of a new relationship to power.

Far from delivering that, US citizens have been since then used to weaseling out their way by denying that power matters.

It is no surprise that Krugman kicks the can when it comes to admit that power matters.

Krugman behaves US citizen way.

earnulf's picture

I love the chart that shows debt to GDP leveling off for the next six or so years!    Like that is going to happen with us adding 1.5 Trillion in debt per year to the total.   Our economy isn't growing despite what the government says and if they were to accurately report the GDP, our ratio would be even worse.

Element's picture

drones are people too

CEOoftheSOFA's picture

WW2 was no different than any other war. The war was unnecessary (according to Winston Churchill). We should have let Hitler and Stalin beat each other into another Dark Age. We would have reaped the economic benefits anyway.

Optimusprime's picture

Krugman drones on, repeating the neo-con warmongering mantra, Keynesian variation.  It is a major part of the cloud of obfucation under which public discussion languishes.

Sometimes I wonder if it would be better to tune out our academic economic pundits altogether.  Their contempt for the truth is overwhelming, and their subservience to our Zionist Occupied Goavernment is more and more apparent.

Xkwisetly Paneful's picture

Contempt for the truth-HAHAHHAHAHA your entire existence is borne out of contempt for the truth.

Languishing obfuscation! OMFG

Want some languishing obfuscation. They discovered oil in the middle east roughly 100yrs ago and the rest of the human race has largely passed them by. Damn those evil zogsters!

Sometimes I wonder if it is better to tune out the obviously mentally deranged deluded lunatics altogether.

spanish inquisition's picture

In the last 100 years, most countries that are being attacked have been controlling their own money and/or threatening the petrodollar. Everything else is a smoke screen (religion, politics, race, democracy, freedom and yes, economics) and will be used to further the aims of currency consolidation into privately owned central banks.

Xkwisetly Paneful's picture


The biggest threat to the dollar has been the Euro,

did I miss the invasion?

In DEC of 2008 when shit hit fan, US bonds sold yielding under transaction costs,

they paid the FED to hold their money.

Global commerce conducted in dollars is  around 65%, 40yrs ago it was around 75% even with the Euro.

At this rate in 200yrs your delusions may be true.

But please don't let any of this or places like Vietnam, Kosovo, Somalia, Afghanistan, Libya not having relevance to the dollar or Iran/Iraq who if they could have brought down the dollar would have instantly if not sooner get in the way of a great imagination.

Because afterall it sounds good just like blaming the evil zionistas it really sounds good.

spanish inquisition's picture

Wow, talk about me having a wild imagination. I cast no aspersions on any religion and did not infer any. I checked history of wars and cross checked start dates of Central banks.

I think in human history, there has always been a group trying controlling the money supply. Rothchilds took the heat and still do, because they built an efficient organization. But the organization couldn't of gotten where they were with out the Rockefellers and Sauds. At that level of Fascism, religion is nothing more than a tool for controlling people to them.

I don't believe that militant Zionists have anything to do with the tenets of Judaism anymore than militant Neocons with Christianity or militant Islamists with Islam. At the level of global Fascism we are at, identifying yourself a Jew, Christian or Muslim is a tool to hold onto power, control people and get them to kill each other like every other difference. But the controlling the money club needs conflict to keep everyone occupied while going about their own business.

In my view, you are doing nothing more than behaving exactly as you were programmed to do.

Xkwisetly Paneful's picture

Missed every word but the last three which didn't even refer to your post other than analogously?

Surrender noted.

No tie in whatsover between historical US conflict and protecting the petro dollar,

likewise no real threat to the petro dollar in the sight.

Otherwise thanks for the usual canned paranoid delusional rhetoric.

spanish inquisition's picture

What I referenced in the note is easily attainable by looking on wiki (I don't think I should have to spoon feed something so basic), but you wouldn't know that because in your note you state you didn't read mine before you posted a reply.

Missed every word but the last three

You then proceed to reply to something you haven't read. You really think there is no tie in between US conflicts, the dollar and oil? No idea?.. Iraq trading in Euros, Libya proposing gold Dinars, Iran currently moving away from petrodollar? Advisors to Nigeria. You can look it up, the information is out there.

You then launch a personal attack in the same style you accused me of in the first place. Except in your case, it is used correctly as a third rate bigoted reply.

p.s. ZHers did I just fall for a planted troll? Is this PhilGramm? Am I being punk'd?

yt75's picture

And more importantly, the US was the number one oil producer out of WWII, and globally plenty of oil was left.

Not the case anymore.

See for instance Nature jan 26 article : "oil's tipping point has passed" below (pdf):

Zero Govt's picture

You can "page " Paul Krugman all you like GW

there's one thing about Marx humming zombies, everything goes in one ear and straight out the other

Socialists: humming the same tune for a Century despite it laying waste to every country it touches

StychoKiller's picture

Rich DeVoss, founder of Amway, gave a great speech, called "Selling America", for the Junior Achievement Org. of Canada:

Especially, side two:

His defense of the Capitalist System STILL has not been topped.