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One of the enduring myths about the US economy, which like most such myths is used to support a lot of very bad economic theory, is the notion that there was some sort of big economic boom at the end of World War 2. Case in point: Tyler Cowen links to a working paper called The U.S. Postwar Miracle by David R. Henderson. Henderson also mentions the paper in a blog post of his own.

The download page for the paper includes a few paragraphs from the introduction which are reproduced below:

We often hear that big cuts in government spending over a short time are a bad idea. The case against big cuts, typically made by Keynesian economists, is twofold. First, large cuts in government spending, with no offsetting tax cuts, would lead to a large drop in aggregate demand for goods and services, thus causing a recession or even a depression. Second, with a major shift in demand (fewer government goods and services and more private ones), the economy will experience a wrenching readjustment, during which people will be unemployed and the economy will slow.

Yet, this scenario has already occurred in the United States, and the result was an astonishing boom. In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP.

While government spending fell like a stone, federal tax revenues fell only a little, from a peak of $44.4 billion in 1945 to $39.7 billion in 1947 and $41.4 billion in 1948. In other words, from peak to trough, tax revenues fell by only $4.7 billion, or 10.6 percent. Yet, the economy boomed. The unemployment rate, which was artificially low at the end of the war because many millions of workers had been drafted into the U.S. armed services, did increase. But during the years from 1945 to 1948, it reached its peak at only 3.9 percent in 1946, and, for the months from September 1945 to December 1948, the average unemployment rate was only 3.5 percent.

Ask people who lived through that period as young adults what economic conditions were like, and you will inevitably get the answer that they experienced an economic boom. The U.S. economy during the post-World War II years is exhibit A against the Keynesian view that economies will necessarily suffer high unemployment and slow growth when governments make big cuts in government spending. Why did the U.S. economy do so well in the years following World War II given how badly it had done in the years preceding America’s entry into the war? The answer, in a nutshell, is that dramatically reducing government spending and deregulating an economy can take that economy from sickness to health. In short, one of the main things a government can do to help a weak economy recover is to step aside.

The paper goes on to provide more supporting material, etc., but essentially, Henderson brings up the big postwar economic boom, a boom so impressive he terms it a miracle, and then goes on to point out its proof that a big cut in government spending over a short period of time won’t cause an economic mess.

The following graph shows real GDP per capita (data from the BEA’s NIPA table 7.1) beginning in 1944:

Figure 1

Now, recall, World War 2 ended in 1945, at which point spending dropped a lot. But what happened to the economy? As the graph shows, what Henderson refers to as a boom or a miracle actually looks like a big decrease in GDP per capita. Furthermore, it doesn’t create the conditions for rapid growth either. The 1944 peak wasn’t reached again until 1953, and it didn’t stay permanently above that level until 1955, though it threatened to fall below that level as late as 1958!

Moving on, in the last paragraph I quoted from the working paper, Henderson compares the postwar economy favorably to the pre-war economy. We can compare the period from 1944 to 1960 to the period from 1929 to 1940 (beginning of the Great Recession to a year before the US’ entry into the war) by indexing. The following graph shows the percentage change in real GDP per capita from the 1944 peak for every year from 1944 to 1960. Similarly, it shows percentage change in real GDP per capita from 1929 to each year until 1940.

Figure 2.

Notice… the economic collapse during the Great Depression was much sharper – almost twice as deep as the one that followed the end of World War 2. However, the recovery following the 1929 collapse was also a lot faster, and it began precisely (drum-roll) when the New Deal began. Whereas it took about fifteen years for the economy to move appreciably beyond where it had been in 1944, the 1929 peak was surpassed ten years later, and the economy by then was growing extremely quickly. By 1939 and 1940, real GDP per capita was expanding at over 7% a year. In fact, real GDP per capita growth rates exceeded 7% in five of FDR’s first eight years in office, and yet, the economy was poised to grow even faster during WW2. For comparison, since GDP started getting reported, there has never been a single year outside of FDR’s presidency when real GDP per capita growth rates reached 7% a year.

None of this should not be a surprise to anyone who read my book, or regular readers of this blog. After all, I had a post some time back looking at the recovery from every recession beginning in 1929, broken out by whether the government had decreased spending, increased spending a little, or increased it a lot. There weren’t that many recessions when the government cut spending, but in those where it did expansions were slower and shorter than when the government increased spending. The relationship between expansions and tax cuts is more clearcut; tax hikes were associated with faster, more durable expansions than tax cuts.

I would also note that Henderson also makes a number of comments about how the unemployment rate was very low during the immediate postwar period. I’ve noted this in posts before: Bureau of Labor Statistics figures begin in 1948. Any unemployment figures from before that time are estimates produced later, and usually using a different methodology or assumptions than those produced today, making them not entirely comparable to figures from 1848 on. But even ignoring that, people in school, in the military, and folks not looking for a job are not considered unemployed. The GI Bill put a number of people in school. As to military enrollment, according to Table 248 of the 1951 Statistical Abstract of the United States, it fell from 12 million in 1945 to 3 million in 1946, and then stayed around 1.5 million for the rest of the decade. By contrast, in the 1930s, the number of personnel in the military rose from about a quarter million in 1930 to 335,000 in 1939. Put another way, by putting people in school or keeping them in uniform, government government spending forced unemployment rates down by simply by keeping a lot of people out of the labor force. (Note that the estimates for unemployment during the 1930s actually go the other way – for reasons that are not obvious, people who worked for the various New Deal programs are often counted as unemployed.)

Finally, it is worth noting – some of the commentators to Tyler Cowen’s post also seemed to incorrectly believe that there was a post WW2 boom, though they tended to attribute that non-existent boom to the fact that the US came out of WW2 intact and went out building up other participants of the war. The fact that there are a variety of incorrect views about what happened in the past is not important. The fact that people believe in things that are demonstrably (and easily demonstrable, at that) not true is vital and unfortunate. As Michael Kanell and I point out in Presimetrics, theorizing based on incorrect facts leads to very poor theory, poor theory leads to abysmal policies, and abysmal policies lead to very unfortunate outcomes that negatively impact the lives of all of us.

Added on November 7, 7 AM:

Henderson notes in comments that his paper provides two reasons why GNP data (which he uses, or GDP data for that matter) was wrong during the World War 2 years, or at least not comparable with the post-War era. I had meant to mention them but forgot. Apologies.

Henderson’s reason 1: An “index-number problem.” As Henderson puts it:

When price controls were removed after the war, prices shot up. Therefore, the prices used to convert nominal GNP into real GNP made real GNP look lower than it actually was.

Henderson’s reason 2:

Second, the GNP and GDP data, which are supposed to measure the value of production, instead measure government spending on goods and services at their cost—that is, at the price the government paid for them. But we no have no idea what the value of all those goods and services bought by the government during the war was worth. So we can’t compare GNP during the war with GNP after.

Both of these issues are dealt with by something made explicit in the post – real GDP per capita was essentially flat from 1947, the year the economy bottomed out according to real GDP per capita figures, to 1949. And yet, price controls were lifted in 1946 and rationing was long gone. The production of battleships and tanks and whatnot had also run into a wall by then, in deference to the production of nylons, automobiles and meat.

Additionally, notice the respective trajectories of the two curves in Figure 2 after each bottoms. Notice that when growth finally began in the post-War period, it was much slower than the growth in the New Deal era. Additionally, it may not be obvious from the graph, but after 1938 growth was accelarating!. As noted above, real GDP per capita grew at more than 7% a year in 1939 and 1940 (!!!) , and at a rate of 15.9% in 1941. Realistically, we cannot attribute 1941 figures to World War 2 – the US only entered the war, woefully unprepared, on December 7th, after all. Additionally, 1941 growth, though lower than 1942, exceeded those of 1943, 1944 and 1945, when the war effort really took off. If the war was really the cause of rapid growth, 1941 would not have been that impressive, and certainly it would have been less impressive than 1943 and 1944.

But, let us ignore the fact that the economy really took off after 1938, and assume that the growth rate from 1932 to 1938 (the one dip during the New Deal era) had prevailed from 1938 to 1947. Since the annualized growth rate from 1932 to 1938 was (an extremely impressive) 4.7%, real GDP per capita would have been 31% higher in 1947 than in 1941. I bring that up because Henderson has this paragraph:

As noted, there is no good way to compare output after the war with output during the war because about 40 percent of wartime output was not sold in a market. But it does make sense to compare postwar output with prewar output. We can take 1941 as the last year before America’s official entry into the war because the United States did not enter the war until December 8, 1941. In that year, real GNP (in 1964 dollars) was $287.1 billion. In 1946, the first full year after the war ended, real GNP was $337.9 billion, and in 1947, it was $336.8 billion (both in 1964 dollars). Thus, real GNP in the first two transition years after the war was more than 17 percent higher than before the war.

If you use real GDP per capita rather than real GNP, the difference between 1941 and 1947 figures is 20%. But… that 20% difference is only impressive if you start from the assumption that growth would have been mediocre without the war. That might be a reasonable assumption if you’re a libertarian or a conservative and have bought into the prevailing mythology about the New Deal era, but as I noted just two paragraphs up, simply extending the pattern from 1932 to 1938 would have resulted in a much bigger change between 1941 and 1947 than the one that was actually observed. (i.e., 31% as opposed to 20%) Thus, Henderson may not realize it, but he is inadvertently pointing out that at some point between 1938 and 1947, economic growth really decreased by a lot.

So when did that happen and how big was it? Well, we know it didn’t happen in 1939, 1940 or 1941 (growth rates exceeding 7% for the first two years and almost 16% in 1941). We know it didn’t happen from 1942 to 1944. Which leaves…. precisely the time period where the official data shows a big drop – the end of the war and the immediate war period. Additionally, since every year from 1939 to 1944 had a growth rate significantly in excess of the 1932 – 1938 growth rate that would imply 1947 real GDP per capita being 50% higher than 1941 real GDP per capita, a simple slow-down in economic growth won’t make the math add up – you need some fairly big negative numbers… and that again is precisely what the data shows.

Added on November 7, 9 AM:

Henderson also seems to implicitly assume that just because items the government spending goes into GDP at cost, as opposed to at some market price, it must imply that GDP was lower than reported. But if anything, it might indicate the exact opposite. How much would the market have valued another B-17 or rifle, without knowing whether that marginal unit was the difference between losing the war to the Germans and Japanese or not? In fact, many Americans were willing to give up huge amounts of their lives to the war effort. My own grandfather was too old to be drafted, and with two children, would have been exempt from the draft if he wasn’t too old, yet he gave up his business and took a massive paycut to tour Europe as an enlisted man from the driver’s seat of a Sherman tank. And clearly, my grandfather wasn’t alone out there. I would argue if anything, given the alternative to victory was the sort of occupation viewed in Europe and Asia, and given what Americans gave up to the war effort, the amount Americans collectively valued what the government was buying was understated by the cost the government paid.

15 Responses to “The Myth of the Post World War 2 Economic Boom”

  1. Postwar GDP per capita figures should take into account the high birth rate of the time – the baby boomers.

    • Mike Kimel says:

      I used real GDP per capita rather than real GDP to account for pop changes. However, the high birth rate shouldn’t have affected the economy too much at the time – a couple decades later perhaps, but not at the time. Since we have an infant in the house, I can say with authority: babies don’t actually produce much, other than poop of course.

  2. Congrats on the baby.

    Maybe employment/population comparison of the time might see a drop with all the postwar women leaving work?

  3. David R. Henderson says:

    Dear Mike,
    I handle the issues you raise in the piece. The GNP data from World War II are meaningless and I explain why in the piece. I also deal with your GI Bill argument.

    • Mike Kimel says:

      Ah… apologies, I had meant to point out two details about your treatment of the validity of GDP and/or GNP data when I wrote the post, but forgot to mention it. I’ll expand this post a bit tomorrow to take that into account, but essentially, you rely on the index-number problem and the fact that stuff the government makes is valued at cost and has no market price to argue that the WW2 data is not comparable to the post-WW2 data.

      True, but between 1947 (the bottom according to real GDP per capita) and 1949 the economy was essentially flat. And yet, presumably given rationing ended in 1946, and by then the economy was focused producing nylons rather than battleships, there should not have been a drop from 1946 to 1947. And even if you could blame the decrease from 1946 to 1947 on these accounting issues, can you really extend that explanation all the way through 1949?

  4. Eric Titus says:

    Nothing about the data contradicts the ‘standard’ explanation that WWII spending helped boost the economy, and then consumption by returning GIs continued the boom.

    Consider the following, based on BLS data.
    Personal consumption grew throughout the war, after an initial drop in 1942 when the US entered.
    Personal consumption was the main driver of post-war growth.
    Government spending was still at a high level after the war compared to the prewar years. In fact, if you look at where GDP was immediately prior to the war, and the starting point immediately afterwards, any argument that the war did not boost the economy needs to be more sophisticated than Henderson’s.

    Henderson tries to get around this by generating his own statistics, but the deeper problem is that he doesn’t really seem to understand Keynesian economics, choosing to use a straw man construction instead.
    Keynes didn’t claim that governments could permanently maintain high growth through deficit spending. Rather, he argued that economic slumps were the result of low aggreggate demand, which also reduced business expenditures on investment. Classical/Neoclassical economics, on the other hand, must find other explanations, since demand is considered to be fairly constant.
    In a healthy economy such as the postwar world, there is no need for governments to increase demand–the return of the GI generation did the trick.

    If, as Henderson claims, the shift from government demand to consumer/business demand was seemless, this would actually be a pro-Keynsian point. One of the criticisms sometime leveled at big government policies is that the demand will vanish as soon as the government stops spending.

  5. [...] had a post the other day (which appeared at the Presimetrics blog and Angry Bear, and which was followed up by my fellow Angry Bear, Spencer, here) looking at a [...]

  6. Just a layman says:

    Well, I guess this settles it. Your graphs show that instead of a “Great Depression,” we were having a rip-roaring boom in the 1930s. People’s impressions at the time apparently didn’t reflect the reality, I guess. Analogies to today seem striking. While our government is proclaiming recovery, many people just don’t seem convinced. I for one, feel like there is something missing here.

    • Mike Kimel says:

      Just a layman,

      Think of it this way – economic growth is much faster in China today than in the US, but the average American is better off than the average person in China. The Great Depression took a big chunk out of the US output. The fact that the growth rate was so fast helped us get back to where we started (and move on) more quickly, but losing a big chunk of what you own is painful, even if you’re rebuilding quickly. And the losses weren’t evenly distributed – some people lost everything. So there was a lot of pain.

      However, if you’re now thinking that a big loss guarantees rapid recovery, think again. Within a year of the Great Depression bottoming out, the economy was growing very fast. Contrast that with the present time (as one example) – its been a year since the economy bottomed out, and nobody will ever confuse this period with one of rapid growth. (I’ve had a few posts explaining why already – the short answer is that FDR’s policies worked.) Similarly, the supposed recovery from the Depression of 1920 wasn’t all that great, despite the moniker of the Roaring 20s. (See first graph here.)

      Anyway, that’s what you’re missing.

  7. Gareth says:

    “Notice… the economic collapse during the Great Depression was much sharper – almost twice as deep as the one that followed the end of World War 2. However, the recovery following the 1929 collapse was also a lot faster, and it began precisely (drum-roll) when the New Deal began”

    Start with 1921 the depression. President Harding – economic policies

    Robert J. Gordon – Keynesian Economist

    Here is a keynesian economic historian which had this to say about 1921-23

    Robert Gordon, a Keynesian, admits, “government policy to moderate the depression and speed recovery was minimal. The Federal Reserve authorities were largely passive. … Despite the absence of a stimulative government policy, however, recovery was not long delayed.” Kenneth Weiher, an economic historian, notes, “despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.” He then briskly concedes that “the economy rebounded quickly from the 1920-1921 depression and entered a period of quite vigorous growth,” but (as with most such historians) he chooses not to dwell on this development or learn anything from it, or to do further work on the subject”

    “During and after World War I, the Federal Reserve inflated the money supply substantially. Once the Fed finally began to raise the discount rate—the rate at which it lends to banks—the economy slowed as it started readjusting to reality. By the middle of 1920, the downturn had become severe, with production falling by 21 percent over the next 12 months. The number of unemployed people jumped from 2.1 million in 1920 to 4.9 million in 1921″

    “The price deflation of the 1920–1921 depression was more severe. From its peak in June 1920 the Consumer Price Index fell 15.8 percent over the next 12 months. In contrast, year-over-year price deflation never even reached 11 percent at any point during the Great Depression. Whether we look at nominal interest rates or “real” (inflation-adjusted) interest rates, the Fed was very “tight” during the 1920–1921 depression and very “loose” during the onset of the Great Depression”

    “This context highlights the importance of the 1920–1921 depression. Here the government and Fed did the exact opposite of what the experts now recommend. We have just about the closest thing to a controlled experiment in macroeconomics that one could desire. To repeat, it’s not that the government boosted the budget at a slower rate, or that the Fed provided a tad less liquidity. On the contrary, the government slashed its budget tremendously, and the Fed hiked rates to record highs”

    Veiws of the President Harding in office at that time, which were unchanging – are eerily famillar to Ron Paul positions. – No disaster…
    “Warren G. Harding, on the other hand, said in the 1920 acceptance speech he delivered upon receiving the Republican nomination, “I would be blind to the responsibilities that mark this fateful hour if I did not caution the wage-earners of America that mounting wages and decreased production can lead only to industrial and economic ruin.” Harding elsewhere explained that wages, like prices, would need to come down to reflect post-bubble economic realitie”

    “Harding likewise condemned inflation: “Gross expansion of currency and credit have depreciated the dollar just as expansion and inflation have discredited the coins of the world. We inflated in haste, we must deflate in deliberation. We debased the dollar in reckless finance, we must restore in honesty.”

    I would love to see another article examining this time period I brought up. It recovered faster then the years after WW2, or the 1929 crash; New Deal.

  8. Gareth says:

    Dear. Sir

    I did stick to the facts, all the paragraphs can easily be traced back to its original source. Yes, I know that requires work on your part, but alas the writings were not to be cited as my own, hence the quotations.

    The following is not from any following centric austrian, progressive, conservative website, where I can be enamored all day with those that think alike.

    They are not to be published for profits, nor to claim credits for my own, if I had truly wrote my analysis of you’re article or of the years I cite, we would not be able to advance discussion as you would shut me down as à “kook“.

    “The recession of 1920–21 was characterized by extreme deflation — the largest one-year percentage decline in around 140 years of data.[2] The Department of Commerce estimates 18% deflation, Balke and Gordon estimate 13% deflation, and Romer estimates 14.8% deflation. The drop in wholesale prices was even more severe, falling by 36.8%, the most severe drop since the American Revolutionary War“

    “The recession lasted from January 1920 to July 1921, or 18 months, according to the National Bureau of Economic Research. Though long by modern standards, this was shorter than recessions from 1910-12 and 1913-1914 (24 and 23 months respectively) and significantly shorter than the Great Depression (132 months)“

    “From May 1920 to July 1921, automobile production declined by 60% and total industrial production by 30%“

    “The AT&T Index of Industrial Productivity showed a decline of 29.4%, followed by an increase of 60.1% – by this measure, the recession of 1920–21 had the most severe decline and most robust recovery of any recession between 1899 and the Great Depression.“

    “Using a variety of indexes, Victor Zarnowitz found the recession of 1920–21 to have the largest drop in business activity of any recession between 1873 and the Great Depression. (By this measure, Zarnowitz finds the recession to be only slightly larger than the Recession of 1873–79, Recession of 1882–85, Recession of 1893–94 and the recession of 1907–08.“

    Can we not compare Warren Harding & Herbert Hoover to each other?

    “His conservativism, affable manner, and ‘make no enemies’ campaign strategy enabled Harding to become the compromise choice at the 1920 Republican National Convention. During his presidential campaign in the aftermath of World War I, he promised a return to “normalcy.” This “America first” campaign encouraged industrialization and a strong economy independent of foreign influence. Harding departed from the progressive movement that had dominated Congress since President Theodore Roosevelt. In the 1920 election, he and his running mate, Calvin Coolidge, defeated Democrat and fellow Ohioan James M. Cox, in the largest presidential popular vote landslide in American history (60.36% to 34.19%) since first recorded in 1824“
    (http://en.wikipedia.org/wiki/Warren_G._Harding#Postwar_depression_and_recession&gt ;)

    Who else modernly do we know, who has position to `make no enemies“

    “Harding cut taxes. The top marginal rate was reduced annually in four stages from 73% in 1921 to 25% in 1925. Taxes were cut for lower incomes starting in 1923. By late 1922 the economy began to turn around. Unemployment was pared from its 1921 high of 12% to an average of 3.3% for the remainder of the decade. The misery index which is a combination of unemployment and inflation had its sharpest decline in U.S. history under President Harding.“at that time.
    (http://en.wikipedia.org/wiki/Warren_G._Harding#Postwar_depression_and_recession&gt ;)

    Herbert Clark Hoover (August 10, 1874 – October 20, 1964) was the 31st President of the United States (1929–1933). Hoover was a professional mining engineer and author. As the United States Secretary of Commerce in the 1920s under Presidents Warren G. Harding and Calvin Coolidge, he promoted government intervention under the rubric “economic modernization”. In the presidential election of 1928, Hoover easily won the Republican nomination, despite having no previous elected office experience“

    “To pay for these and other government programs and to make up for revenue lost due to the Depression, Hoover agreed to roll back previous tax cuts made by Warren Hardings Administration had effected on upper incomes. In one of the largest tax increases in American history(at that time), the Revenue Act of 1932 raised income tax on the highest incomes from 25% to 63%. The estate tax was doubled and corporate taxes were raised by almost 15%“

    My point is there were striking diffrences between Herbert Hoover administration, and Warren Hardings administration. Herbert Hoover admin. promoted the inverse of Warden Harding admin. Also what Hoover did do, was socialism for the rich, as most everything he tried was with, the corprate class, like “I do not know“ George Bush. Unlike FDR, which I credit FDR for, at least the masses at large got something back for all that spending.

    It wasnt like Goerge Bush cut government spending by 2/3rds, and didnt fight two wars, and created a rescession. Any benefit the middle class got from lower taxes, such as Alternative Minimum Tax (AMT) were eliminated as the cost for daily items, energy, education, and housing increased out of whack with incomes and offeset any extra dollars the consumer may have had 01-07. Now that bush cuts have been extended again, any extra dollars the middle class will get will quickly be eroded through current prices and future prices for food, energy, housing, education, clothing.
    Warren G. Harding Speech – Inaugural address – after 1920 election
    “The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, the relations of labor and management have been strained. We must seek the readjustment with care and courage. Our people must give and take. Prices must reflect the receding fever of war activities. Perhaps we never shall know the old levels of wages again, because war invariably readjusts compensations, and the necessaries of life will show their inseparable relationship, but we must strive for normalcy to reach stability. All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved. No altered system will work a miracle. Any wild experiment will only add to the confusion“

    (Audio Verison) (http://www.archive.org/details/AcceptanceSpeech1918)

    Those views which were from an elected American President, I have only had herd from one current voting member of Congress modernly – Ron Paul. Warren Harding right or wrong did not create the great depression, nor make the one he oversaw prolonged, or worse with such economic views. Herbet Hoover was the inverse of these two men on economics concerning deflation/inflation.

    • Mike Kimel says:


      You seem like an earnest guy, and it is clear you went through a lot of work. But there is a reason I stick to data. From what I can tell, your point is this:

      1. Hoover was dumbass, and when he raised tax rates from 25% to 63%, he really screwed up the economy.
      2. Harding was a smart guy who cut taxes and the economy boomed.

      The problem with these two conjectures – and I’ve heard them before slicked up nicely by folks from right wing think tanks – is that they sound nice but aren’t compatible with data.

      Let’s start with the first one. Hoover increased tax rates from 25% to 63% in 1932. The recession that launched the Great Depression began in 1929. The economy shrunk from $977 billion to 835 billion from 1929 to 1931 – that’s about 14.5% – before that tax hike. Its not like the economy was going great guns before that. The economy shrunk another 14.1% from 1931 to 1933 (when it bottomed out). If you’re going to make an argument that the tax hikes screwed things up, you should show that things got more screwed up after the tax hike than before. (data here: http://www.bea.gov/national/xls/gdplev.xls)

      As to the second one… well, the links I provided in my earlier response to you had plenty of data shredding that. The 1920s was a decade of many tax cuts… and not one single period of 30 (that’s 2.5 years) consecutive months in which the economy was not in recession. Plus, leaving out the Great Depression (1929 to 1932), economic growth was much faster in the 1930s (when taxes got hiked) then in the 1920s (when they were getting cut).

      That’s the data.

  9. Andrew says:

    ‘Notice… the economic collapse during the Great Depression was much sharper – almost twice as deep as the one that followed the end of World War 2. However, the recovery following the 1929 collapse was also a lot faster, and it began precisely (drum-roll) when the New Deal began. ‘

    That is a ridiculously poor use of statistics. If GDP declines by 50% then increases 10%, the NOMINAL increase is 5% of the original. If GDP went down 25%, an equivalent nominal increase would be 6.7%.

    Arguing the recovery from the depression was much faster is true only in an ivory tower fashion and ignores the actual strength and breadth of the economic recovery.

    As for your over-arching argument that higher taxes and more government spending is always good thing, it seems to ignore the long-term growth in debt. That’s because the US hasn’t experienced this before, so you assume it doesn’t matter. That answer remains uncertain but will be addressed at some point.

    Finally, I’ve dealt with private companies and public companies enough in my life to know the difference is miles wide in service, quality and cost. I’ll stick with private.

    • Mike Kimel says:

      And? Are you expecting rapid growth during this recovery from the Great Recession?

      Consider the flipside. The economy grew rapidly from 1960 to 1968. Does that mean its OK for crummy growth to follow that? Should the crummy growth from 1968 to 1976 be considered faster than it actually was because growth was so fast from 1960 to 1968?

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