It has always been widely accepted that World War II was a fiscal stimulus for the Tucson and greater U.S. economy recovering from the Great Depression. However, Price Fishback, the Thomas R. Brown Professor of Economics at the University of Arizona’s Eller College of Management, has summarized evidence from a number of studies that suggests the opposite.
In the new report “World War II in America: Spending, deficits, multipliers, and sacrifice” published on VoxEU, Fishback states: “Americans sacrificed heavily to win the war, while their Allies sacrificed even more.”
“For most Americans, the WWII experience might better be described as a sacrifice in which they gave up their normal consumption, worked longer and harder, and a significant share gave up lives and limbs to join their Allies in defeating Germany, Italy, and Japan,” Fishback said.
Defense spending in the U.S. rose from 1.4 to 37 percent of GDP from 1940 to 1945. Fishback said this created a “quasi-command” economy where war spending crowded out normal economic activity, like private consumption and investment.
The second world war did raise the country’s GDP by 72 percent, but with a closer look at state and county level data, Fishback argues that the U.S. economy would have been better off had the war never started. A large part of the economic activity in the U.S. during WWII was devoted to the war, from the uncharacteristic rate of wartime production that made the U.S. economy “the arsenal of democracy” to the 17 to 18 percent of the workforce placed into the military at compensation levels lower than normal, less than a low-skilled wage laborer.
“Sometimes people think, ‘Well, you know, fighting wars is good because it stimulates the economy.’ Well, it stimulates the economy in a strange way, suddenly you’re producing missiles and things like that which are going to go get blown up,” Fishback said.
There was a clear opportunity cost when the U.S. was manufacturing “17 million rifles and pistols, over 80,000 tanks, 41 billion rounds of ammunition, 4 million artillery shells, 75,000 vessels, nearly 300,000 planes, and many more items and services for the war.” Not to mention the military had first claim on all materials and resources.
“It’s not a market economy, it’s a semi-market economy where a lot of things are being determined by the military,” Fishback said.
This led to a decline in the quality of goods, extra costs of retaining rationed goods that were in high demand from the military and even the total absence of some goods.
“When you’re briefing all those military goods, there were no automobiles and no tires and no refrigerators and no durable goods being produced at all; no housing being built except for temporary housing,” Fishback said. “A lot of this was a sacrifice to fight the war. It’s not like the war was a bad idea, I mean we were trying to save the world for democracy and things like that, but it was not something where you got more guns and more butter at the same time.”
Another often overlooked cost of WWII is that of the transition from peacetime to wartime and back again. Production lines have to completely transform and this can often come with crippling costs for the company.
“If you look at Detroit, they stopped producing regular automobiles, they were producing Jeeps and tanks and aircrafts and all sorts of things like that. A lot of that stuff got left behind or mothballed,” Fishback said.
The techniques used to mass-produce aircrafts, automobiles and other war-related items do not translate to the commercial versions of those machines where aspects like comfort are paramount. So, there is a real cost for manufactures to switch back to their typical peacetime trade.
“It was a good thing we fought the war,” Fishback said. “What we produced, the massive amount of stuff we produced was really impressive, but we were doing things, however, where it was costing us a lot. We were giving up all sorts of consumption and lives and all sorts of things. So, if you actually counted the value of lives lost and output destroyed and things like that worldwide, I think it would probably add up to about one to two years of the world’s GDP.”
Jack Ramsey is a University of Arizona journalism student and former Inside Tucson Business intern.