WWII was the first war not followed by substantial deflation. Can the wartime economy be considered to be in equilibrium? Were those who subscribed for war loans paying trivial interest rates tricked into the biggest “time consistency” fraud?

However it is measured, the war seems to have been a time at which the capacity to yield economic services grew. Happily, much of that capacity was consumed in ensuring the defeat of fascists (albeit at the price of surrendering half of Europe and half of Asia to communism). We can’t directly measure the “value” of winning; but does that mean it has no value, as Higgs seems to think?

Picking up on the De Long, Summers and C Romer pieces referred to in the article: while it may not have been fiscal stimulus that dragged the US out of recession (one might have thought this put paid to that argument over 50 years ago – Brown, E. C. (1956), ‘Fiscal Policy in the ’Thirties: A Reappraisal’, American Economic Review, 46(December), 857–77.) that leaves plenty of scope for monetary expansion, spontaneous or Fed initiated. In the current context, that lends plenty of support to QE3 (and 4?) .

This seems a fairly good summary: http://www.colorado.edu/ibs/EB/alston/econ8534/SectionX/Fishback,_US_monetary_and_fiscal_policy_in_the_1930s.pdf

The repair of a few missing key production inputs (power, water, rail & roads) will make the rest of the economy highly productive and will grow quickly.

Hirshleifer found that recovery hinges on governments maintaining or restoring property rights and a market system that supports the economic division of labor. The survival of a functioning competitive market system was the key to recovery.

See http://www.econlib.org/library/Enc/DisasterandRecovery.html

what has so often excited wonder, the great rapidity with which countries recover from a state of devastation; the disappearance, in a short time, of all traces of the mischiefs done by earthquakes, floods, hurricanes, and the ravages of war.

An enemy lays waste a country by fire and sword, and destroys or carries away nearly all the moveable wealth existing in it: all the inhabitants are ruined, and yet in a few years after, everything is much as it was before.

JS Mill

If you check the graph, see the deficit kicked in about 1932, during the end of the Hoover presidency. Roosevelt just continued where Hoover left off stimulus wise and they kept running a big deficit all through the depression years.

Is it not fundamentally wrong to compare The War Effort to conditions today? After all, productivity was all that mattered. Also, there was very little red tape, green tape and if union members went on strike over pay and conditions they would likely have been hung drawn and quartered.

Herbert Hoover stood by the unions, insisted that business should not use wage cuts to improve their profitability and tried to keep prices high wherever he could. The great American railways were built with private money in the 19th Century, and then got borrowed by the government (using war powers) during World War I, the government encouraged unionisation before handing the railways back to private owners.

Hoover also encouraged “voluntary” cartel formation in various industries, to deliberately throttle production and keep commodity prices high.

It’s all documented in detail in Rothbard’s book, “America’s Great Depression”.

There would be little argument that a drop in energy prices likely leads to increased production and generally lower prices, which is the sort of thing that can kick start investment better than anything else?

… they would likely have been hung drawn and quartered.

Well, no actually.

The War Effort produced labour saving machines like the CNC and MiG welder, modern day stimulus just exists to produce jobs for the boys.