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September 5, 2011 1:25 am

The Economics of Destruction

avatar by Gabriel Martindale

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A LCVP (Landing Craft, Vehicle, Personnel) from the U.S. Coast Guard-manned USS Samuel Chase disembarks troops of the U.S. Army's First Division on the morning of June 6, 1944 (D-Day) at Omaha Beach. Photo: Robert F. Sargent.

With the tenth anniversary of 9/11 looming ever larger on the horizon, debate about its causes and consequences is set to dominate the airwaves. Of course, after a decade of reflection and chatter about the tragedy, it’s pretty easy to predict what the various talking heads are going to say; after ten years of talking about anything, it’s hard to come up with a new angle. However, I must say I’m rather perplexed about how one aspect of 9/11 is consistently ignored, not only in the famous ‘Mainstream Media’, but by everyone else too: the great boost that the terrorist attacks gave to the economy of New York City. Just think about it for a moment: thousands of people were taken out of the New York labour force at a stroke, slashing unemployment and, even better, piles upon piles of rubble were created for workers to clear up, stimulating the economy and providing oodles of jobs. In a way, it’s a shame that since 2001 Al Qaeda has been successfully prevented from carrying out more acts of mass murder on American soil, for a regular dose of creative destruction would solve America’s economic maladies in no time at all.

Now, I sincerely hope that 100% of people who made it through that paragraph would condemn it as not only tasteless and sick, but downright insane, if not actually evil. I hope that for the same reasons you pause for thought next time you hear someone confidently declare that World War Two ended the Great Depression.

This popular idea hinges upon the undeniable fact that after a decade of chronically high unemployment across almost the entire Western world, it quickly tumbled once hostilities broke out, reaching an all time low in America of 1.2% by 1944. But why did unemployment fall by so much? The answer is of course because millions of men who might otherwise have been on the dole were sent across the world with rifles to shoot at each other. What proponents of this theory are saying, in effect, is that we can solve unemployment by paying one half of those out of work to shoot the rest in the head. If that sounds more like the brainchild of Vlad the Impaler on a particularly tetchy day than the stuff of civilized democratic politics, it’s actually significantly more humane than the idea of boosting the economy through World War. At least in my scenario the poor fellows concerned wouldn’t have to spend four years in a Malayan jungle battling diphtheria and diarrhoea.

But, of course, I’m being somewhat unfair. It wasn’t just conscription that cut the surplus labour force down to size; lots of people also found jobs in munitions factories and, because of all the new tanks, fighter planes, and big, big bombs being built, production skyrocketed. But did this increased production translate into an improved quality of life? For certain factory owners the answer is yes, but what the vast majority of people during WW2 experienced was, famously, rationing, that is to say they were severely limited in their access to the most basic needs: food, clothing and fuel, not to mention the luxuries we normally enjoy in a capitalist economy. Economic prosperity is properly measured not by statistics, whether GDP or anything else, but by the satisfaction of the material needs of real human beings. If we conscripted millions of slaves to construct stink bombs 24/7 and set them off at every street corner, our productivity would be ‘up’ in some meaningless sense, but we would all by any sane measure be worse off.

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In short, as Gary North neatly puts it, WW2 ended some problems (chronic unemployment, poverty) by creating far worse problems (50 million dead, the destruction of whole cities, mass suffering and misery across the world for 6 whole years).

It’s true that the case is somewhat more complicated for the U.S. Americans were lucky enough to avoid the destruction of property and persons visited on Europe and stayed out of military engagement entirely for the first two years. With its industrial capacity not being bombed to smithereens, America became the warehouse of the allied war effort, boosting exports massively. While the wealth of the world as a whole dropped drastically there was also a substantial redistribution of it from the devastated and indebted nations of Europe and elsewhere to the relatively unscathed U.S. There is some relative economic benefit to war as long as you stay out of it as much as possible. However, these productive capabilities would have been much better employed producing things for Americans to enjoy and use than creating bombs that, by definition, can only destroy human wants, not meet them. That this didn’t happen long before 1939 was largely down to the structure of economic planning and control built up by Presidents Hoover and Roosevelt since 1929. This leads us to the second, somewhat unexpected, benefit of WW2. Because of the inflation unleashed by the U.S. government to meets its financial obligations, the price and wage controls of the 1930s were de facto abolished. The death of FDR and the advent of a relatively sensible ‘Do Nothing Congress’ from 1945-7 prevented these from being effectively re-established. With Roosevelt having already transformed the economy greatly along corporatist in the lines 1930s, the ironic effect of the War was to leave the American market substantially freer in many respects than when the war began. This allowed for two decades of rising living standards, brought to an end when Nixon ended the Gold Standard and allowed non stop expansion of the money supply to consistently whittle away at the purchasing power of the dollar and the wealth of ordinary Americans.

It should be clear by now that, when Keynesians like Paul Krugman point to WW2 as an example of how government intervention can stimulate the economy, they are not only talking nonsense, but, in as much as they are saying anything intelligible at all, are being incredibly callous. The poisonous doctrine of ‘demand deficiency’ can lead to conclusions even more lunatic than hoping for a space alien attack.

Depressingly, though, it’s not just among left-wingers that this argument is popular. Millions of self-described conservatives and free-marketeers also parrot it, without apparently stopping to think through what they are saying. The reason seems to be that it provides an easy way of countering the claim that FDR’s New Deal ended the Great Depression. Such an evidently preposterous argument doesn’t need a counter: how on earth did he ‘end’ it by prolonging it more than any depression in modern history? In reality, not only did stimulus economics fail to end the depression, it created it. President Hoover, far from being the laissez-faire President of popular myth, was in fact the biggest spending, biggest borrowing Commander in Chief in American history, that is until the next one.

However, the prevalence of this viewpoint across large sections of the Right is evidence of something more sinister: the way that Keynesian ideas have infected discourse way beyond the confines of the Left. Common sense says that a war which leaves tens of millions of dead and great swathes of the globe under rubble would be an economic disaster, but the ideological systems that are dominant in economics make too many of us suppress our innate sense and decency in favour of moonshine and moral degeneracy. As Milton Friedman put it ‘In one sense, we are all Keynesians now’. Fortunately, there are still some out there who are very much not Keynesians; listening to them is not only sensible in practical terms, it is also our only chance to formulate economic principles and policies that don’t offend the most basic canons of human morality.

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