Tuesday, December 30, 2008

Applying vs. Manufacturing Band Aids

Body Parts:

The New Deal never ended the Great Depression, though it prevented the collapse from spreading like a contagion beyond its 1933 limits. That needs to be understood. Government welfare saved lives by preventing starvation, e.g., but government welfare did not bring prosperity. The economy began to rebound when war broke out in Europe, creating a market for American military manufacturers--ships, airplanes, tanks, guns, ammunition, clothes, food. Britain, the Soviet Union, France, and China began to buy American weapons and munitions through Lend-Lease. When the US entered the war in 1942, the American economy was unthrottled and prosperity returned (though consumption was restrained by defense policy limits on consumer goods). It was not that war itself brought prosperity; it was the unleashing of the economy. The war required that as much food and goods be produced as Americans could produce by working 24/7. It was agricultural and industrial productivity that made the nation prosperous. That is the lesson for today and a lesson that Obama and his economic advisors need to learn.

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