Peter Schiff

Peter Schiff

There is overwhelming agreement among economists that the Second World War was responsible for decisively ending the Great Depression. When asked why the wars in Iran (Peter Schiff is in the not too distant future here. Maybe he is a remote viewer and forgot to shift realities … or this is just a typho. 🙂 ) and Afghanistan are failing to make the same impact today, they often claim that the current conflicts are simply too small to be economically significant.

There is, of course, much irony here. No one argues that World War II, with its genocide, tens of millions of combatant casualties, and wholesale destruction of cities and regions, was good for humanity. But the improved American economy of the late 1940s seems to illustrate the benefits of large-scale government stimulus. This conundrum may be causing some to wonder how we could capture the good without the bad.

If one believes that government spending can create economic growth, then the answer should be simple: let’s have a huge pretend war that rivals the Second World War in size. However, this time, let’s not kill anyone.

Most economists believe that massive federal government spending on tanks, uniforms, bullets, and battleships used in World War II, as well the jobs created to actually wage the War, finally put to an end the paralyzing “deflationary trap” that had existed since the Crash of 1929. Many further argue that war spending succeeded where the much smaller New Deal programs of the 1930s had fallen short.

The numbers were indeed staggering. From 1940 to 1944, federal spending shot up more than six times from just $9.5 billion to $72 billion. This increase led to a corresponding $75 billion expansion of US nominal GDP, from $101 billion in 1940 to $175 billion by 1944. In other words, the war effort caused US GDP to increase close to 75% in just four years!

The War also wiped out the country’s chronic unemployment problems. In 1940, eleven years after the Crash, unemployment was still at a stubbornly high 8.1%. By 1944, the figure had dropped to less than 1%. The fresh influx of government spending and deployment of working-age men overseas drew women into the workforce in unprecedented numbers, thereby greatly expanding economic output. In addition, government spending on wartime technology produced a great many breakthroughs that impacted consumer goods production for decades.

So, why not have the United States declare a fake war on Russia (a grudge match that is, after all, long overdue)? Both countries could immediately order full employment and revitalize their respective manufacturing sectors. Instead of live munitions, we could build all varieties of paint guns, water balloons, and stink bombs.

Read morePeter Schiff: Why Not Another World War?