During a war, it is commonly assumed that the citizenry must sacrifice so the troops can have the equipment they need. "We can't have both guns and butter," as the saying goes. However, in the case of the biggest and most expensive war mobilization in history — the Second World War — Americans actually did have both.
A new paper from J.W. Mason and Andrew Bossie at the Roosevelt Institute shows that military production shot up from 1941-44, but almost none of this came at the expense of civilian consumption. Moreover, the massive surge of war spending gave jobs to virtually every single person who wanted one, and this ultra-tight labor market dramatically reduced income inequality — which particularly benefited people at the bottom of the social ladder, like poorer African-Americans.
This matters not only as a piece of interesting economic history, but as a demonstration of what might be accomplished with an all-out assault on climate change. A Green New Deal would mean a similarly huge surge of spending to replace all the greenhouse gas-emitting systems with zero-carbon ones. Like just before the war, the U.S. today is far below its potential output. America could launch an all-out assault on climate change and still have a rising standard of living for most of its population.
The following chart shows the basic story. During the war, American GDP exploded by 80 percent — the fastest rate of growth in history. Almost all of that came on top of civilian consumption, which declined slightly from 1940-41, but increased thereafter:
Now, the economy of 1940 was somewhat unusual. It had only partly recovered from the Great Depression, thanks largely to Franklin Roosevelt foolishly turning to austerity in 1937. That meant there was a lot of economic slack, particularly in the form of mass unemployment, which could be taken up easily once war mobilization started. If the economy were at full strength, this analogy to wartime spending might not be so applicable.
But the U.S. also has a great deal of economic slack today. As Mason calculated in a 2017 paper (an analysis I extended earlier this year), even before the coronavirus pandemic economic output was something like 15 percent below the pre-2008 growth trend, because there was not enough stimulus after the financial crisis. Today, of course, the economy is in a deep hole because of the pandemic, and will require another massive stimulus if it is to get back to full strength if and when a vaccine arrives.
For years after the Great Recession had stopped getting worse, many elites assumed that lackluster growth was as good as could be done. Even liberals fretted about a so-called "skills gap," or lack of innovation, or other "structural" problems. But the lesson from the war is that if the economy is mired in a low-growth, low-demand sandpit, a tsunami of spending can shock it back to life. From 1940 to 1945, war-related employment increased by about 13 million — about five million from the unemployed population (which vanished), and a further eight million from increased labor force participation, particularly of women, and the final million drawn from agriculture.
All this had profoundly egalitarian effects on American society. Union membership leaped from 16 percent to 27 percent. The share of income going to both the top one percent and top 10 percent fell by about a third, with corresponding gains at the bottom. "There is no remotely comparable example of such rapid income compression in any other period of American history," Mason writes. What's more, people at the bottom of the social ladder benefited the most. Take Black Americans: "The war period saw by far the greatest convergence of Black and white incomes since Reconstruction. The difference in average wages between Black and white men fell by a staggering 50 points during the 1940s[.]" All that was accomplished mainly through an ultra-tight labor market, which made jobs plentiful and hugely increased the bargaining power of workers, rather than any kind of civil rights policy.
The wartime economy also provides lessons in how the government can coordinate rapid technological advances — about half of the surge in production during the war was thanks to a spectacular increase in labor productivity. For instance, aircraft production went from 3.2 labor hours per pound of airframe in 1942 to 0.47 hours by 1945 — a nearly sevenfold advance in just three years. "The Willow Run bomber factory in Ypsilanti, Michigan went from producing 100 bombers a month in the spring of 1943 to 500 a month by the summer of 1944," writes Mason.
Of course, a Green New Deal will of necessity have a much different practical focus than war mobilization. But that kind of warp-speed advance is exactly what we need to see with renewable technology. Solar panels, windmills, and batteries have already reached liftoff in the private market, but a massive state investment can almost certainly catalyze further advances. More importantly, it could bring other technologies that are at the conceptual or prototype stage into mass production quickly — like carbon capture, advanced nuclear designs, next-generation recycling, zero-carbon steel and concrete, and so forth.
Over the medium and longer term it makes sense for the United States to deprioritize growth as such, and to start investing productivity advances in more leisure time. But in the short term, we need a crash decarbonization program to slam down greenhouse gas emissions as fast as possible. Luckily, we can have a higher standard of living and a more equal economy while we do it.