Krugman: The Great Depression Ended Because of Hitler

The fact is the Great Depression ended largely thanks to a guy named Adolf Hitler. He created a human catastrophe, which also led to a lot of government spending.

As you know, I’m famous for worrying about space aliens. It looks like it has to be some forcing event. Obviously you don’t operate on that basis, so what people like me will do is keep hammering on this stuff and hopefully it will eventually break through. The safety net has been enough to avoid mass suffering, to muffle it. People are exhausting their savings. This is where you start to wonder how much individuals really do matter. Maybe there is somebody on the political scene who will emerge. I don’t know where that comes from.

When I began to teach U.S. economic history at the University of Washington in the late 1960s, I quickly realized that this tale of the wartime “Keynesian miracle” could not withstand critical scrutiny once one went beyond the barest account of it in terms of the elementary Keynesian model and the standard government macro measures, such as GDP, the consumer price index, and the rate of civilian unemployment. Almost immediately I saw that unemployment had disappeared during the war not because of the beautiful workings of a Keynesian multiplier, but entirely because about 20 percent of the labor force was forced, directly or indirectly, into the armed forces and a comparable number of employees set to work in factories, shipyards, and other facilities turning out war-related ”goods” the government purchased only after forcing the public to pay for them sooner (via wartime taxes and inflation) or later (via repayment of wartime borrowing). Thus, the great wartime “boom” consisted entirely of (1) some people’s mass engagement in wreaking death and destruction and (2) other people’s employment in producing supplies for these warriors after the government’s military labor drain, turning out ”goods” never valued by consumers or private producers in voluntary transactions, but rather ordered by government functionaries and priced completely arbitrarily in a command-and-control economy. In no sense was the alleged ”wartime prosperity” comparable to real, normal prosperity.