George Selgin: prediction

Transcript context

…George, the US economy in the ’40s and beyond, were it not for World War II, what would we expect had there not been the war with the Depression of the ’30s? What I argue in the book, and of course, what I believe, is that we might still be in trouble. The war did help end the US Depression, but not just in the way that people normally think. The common view is, “Well, we started finally doing fiscal stimulus, and how! And that got the spending going, and that got us out of the Depression.” The problem with that simple explanation is that the big boost in spending ended. Wartime spending, or overall government spending — all levels of government — as a percent of GDP, fell back down almost to where they were in 1939 after the war ended, and that happened very quickly. All the soldiers are coming back, and the Keynesians now, who are getting in the saddle, are predicting a major depression. But the war did something else, and that’s why that major depression didn’t happen, and we ended up with a big investment boom. That something else was to change the attitude of government towards business from the hostility it exhibited during the New Deal to, if anything, overly cozy cooperation that was planting the seeds for the military-industrial complex. So, by the time the war ends, businessmen, instead of being pessimistic, have got their confidence built up big time, and the government, instead of being hostile, is favorable. So, you get this immense investment boom that makes up for the shrinkage in wartime spending, and that’s the real key to recovery. That’s what might not have happened if there hadn’t been a war. We might have had a more lasting regime uncertainty problem or regime hostility problem. Of course, the counterfactual here is raw because we don’t know who would have been elected. Roosevelt obviously died, and Truman would have taken his place one way or the other, and Truman’s attitudes were different from his. At least I can say that by changing, helping to bring about the change in the government-business attitude, even before, even while FDR was still in office — in that respect, the war made a very positive long-run difference. Question in the front center, yes. David, oh, that’s you. Yes, hi.…

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