“Community Reinvestment Act” has become, like “confiscatory taxes”, code language for “I’m an ideologue and you should not talk to me.”
Proof that in the world of libertarian lasseiz-faire economists, you pretty much just have to memorize the talking points to be considered an “economist.”
In their embrace of Keynesianism, many economists have concluded that even though the New Deal’s hodgepodge of policies never brought about full recovery, World War II did, as the economy expanded to produce munitions and enlarge the armed forces. Huge, deficit-financed government spending, they argue, finally wiped out the lingering mass unemployment.
The truth, however, is really quite simple. In 1940, after eight years of New Deal pump priming, the unemployment rate remained about 10 percent even if, unlike the Bureau of Labor Statistics, we count people enrolled in federal emergency work-relief programs as employed. The gigantic buildup of the armed forces, primarily by conscription, then pulled the equivalent of 22 percent of the prewar labor force into the military. Voilà, unemployment disappeared, as it was bound to do regardless of any wartime Keynesian fiscal policies.
Mr. Higgs says all the jobs created by the war don’t count as real jobs because the government created them, and that the Great Depression was only masked by WWII. I don’t see anything in the article that explains how all these guys who fought in the war came home to get jobs, make money, and take part in an economic boom, all during a Great Depression that hadn’t ended.
To put it more simply, Higgs says that we had tons of unemployed people because there was a Depression, and that the government undertaking mass hiring for the war effort didn’t fundamentally change that. If that were the case, at the conclusion of the war unemployment would have again skyrocketed as our soldiers returned home and factories de-tooled from making munitions. But that didn’t happen.
Higgs thinks it’s because just at the moment the labor market would have been flooded with supply, investors stepped in and, with new confidence inspired by the war’s end, invested tons of money into making things. However, this makes no sense. If I’m an investor and I see a country suddenly about to be flooded with unemployed people who won’t be able to buy things, why would I invest in production?
Fact is, the investment was spurred by demand. And the demand was spurred by all of the money people had to spend after being employed by the government for years. People had money saved up and needed things they’d waited for a decade to buy. The demand caused the investment. Good old Keynesian stimulus.