Nostalgia for War

David Leonhardt’s recent New York Times column bears a claim which at first blush is alarming:

By 2019, a prime measure of the economy’s health — gross domestic product per working-age adult — will likely have recovered less in the 12 years since the crisis began than it did during the 12 years since the start of the Great Depression. When I saw a chart making this point, in a new paper from Olivier Blanchard and Larry Summers, I was stunned. The chart is reproduced above.

but doesn’t really stand up to scrutiny. First, GDP growth is a lousy proxy for a country’s economic well-being. It depends on the nature of the additional production and where it goes. If Berkshire-Hathaway’s stock were to rise in market cap by a trillion dollars would it really mean that the U. S. economy were a trillion dollars sounder?

But look at the point of inflection in the Depression-era GDP growth. It occurs nine years after the start of the Great Depression in 1929, in 1938. What was happening in 1938? Europe was at war and war industries were gearing up. Now look at the peak of the curve. It occurs in 1944, the acme of the U. S.’s wartime command economy.

Consequently, what Mr. Leonhardt is bringing to our attention is war and the wartime command economy. I’ll have less, please. That’s a very poor choice for nostalgia.

Unintentionally, I think that Mr. Leonhardt is actually complaining about the Obama Administration’s lousy record on the economy. IMO after enacting the America Recovery and Reinvestment Act, the administration turned its attention away from the economy too soon. The ARRA should have spent more money in its first year of operation rather than dribbling it out over four years. And the president should never have signed the law imposing the largest, most regressive tax in American history—the reimposition of FICA. At the very least that should have been delayed another two years.