It's been a wild ride in the
Captain America series. Steve Rogers died via magic bullet, traveled through time, faced off against the Red Skull, then finally came back to life with the help of Bucky. Now that all that's over with, the series take a turn and focuses on more pressing matters.
I refer, of course, to evil super-soldier clones and their political agendas.
In
Captain America #603, "Bad Cap," created in the 1950s while the original Cap was in suspended animation, travels by bus from New York to Idaho and ponders the state of the economy along the way. He notices rows of empty houses and long unemployment lines and begins recalling the days of the Great Depression.
He then wonders why the Depression ended-- as the war brought "a wave of industry to America"--while current conflicts abroad make little to no difference on unemployment.
This is a strange thought. Though he doesn't explicitly state in his internal monologue that World War II
caused the end of the Great Depression, he is strongly implying it. In fact, he is implying that the wartime spending and increased factory production helped reduce the unemployment rate domestically. Indeed, unemployment in the U.S. quickly fell below 10% after the war began and eventually all but faded.
This is in line with the major view shared by Keynesian economists and historians alike. That is, that massive military and infrastructure spending during the war increased the labor force, increased production, helped boost aggregate demand, and pulled the economy back from collapse. Paul Krugman referred to the war as a "
large public works project." In this sense, many see the war--and fiscal expansion--as having been the primary cause of the end of the Great Depression
Of course, this is a subject of much debate. Many attribute the reduction in unemployment during WWII more to
the draft than
war spending. There are also arguments citing other factors (aside from fiscal policy) that accelerated GDP growth and economic recovery. These debates about the effects of war spending on the Depression aren't exactly new--and many have been resurfacing given the parallels with the current Great Recession.
For instance, in a piece written for the
Wall Street Journal last year, economist Robert Barro argued that the
fiscal multiplier during World War II was actually less than we thought. According to him, the multiplier was something closet to 0.8, meaning that gross domestic product (GDP) rose by less than the increase in government expenditures (whereas if the multiplier was a flat 1.0, each unit of government spending would have led to a unit increase in GDP):
The other way to put this is that the war lowered components of GDP aside from military purchases. The main declines were in private investment, nonmilitary parts of government purchases, and net exports -- personal consumer expenditure changed little. Wartime production siphoned off resources from other economic uses -- there was a dampener, rather than a multiplier.
A notable paper written in 1992 by economic historian, Christina Romer, entitled "
What Ended the Great Depression?" argued that fiscal stimulus played a relatively minor role and that recovery mainly stemmed from monetary expansion--that is, gold inflows into the United States during the 1930s led to lower interest rates, which encouraged more investment and eventually increased aggregate demand.
Regarding World War II's effect on the economy, Romer wrote:
That monetary developments were very important, whereas fiscal policy was of little consequence even as late as 1942, suggests an interesting twist on the usual view that World War II caused, or at least accelerated, the recovery from the Great Depression. Since the economy was essentially back to its trend level before the fiscal stimulus started in earnest, it would be difficult to argue that the changes in government spending caused by the war were a major factor in the recovery. [...] Thus, World War II may indeed have helped to end the Great Depression in the United States, but its expansionary benefits worked initially through monetary developments rather than through fiscal policy.
Does all this mean proponents of fiscal expansion are wrong today? Well, no. In fact, according to a speech Romer delivered in March 2009, the idea that monetary expansion played such a large role
does not necessarily negate fiscal policy as an effective recession-fighting tool:
I wrote a paper in 1992 that said that fiscal policy was not the key engine of recovery in the Depression. From this, some have concluded that I do not believe fiscal policy can work today or could have worked in the 1930s. Nothing could be farther than the truth. My argument paralleled E. Cary Brown’s famous conclusion that in the Great Depression, fiscal policy failed to generate recovery “not because it does not work, but because it was not tried.”
In response to those "small multiplier" arguments, Krugman likes to point out that there was
rationing during the war (i.e. governments tried to curb consumer spending to conserve resources).
I won't say where I personally fall in the debate, though I will say that I'm surprised Bad Cap seems to take the Keynesian position so strongly. You might recall that he has recently grown angry with what he views as a significant
departure from America's fundamental values. He refers to current politicians and policy-makers as "hippies" and "commies," presumably for pushing legislation predicated on government spending and taxation. The same sort of spending that he seems to think worked before! Well, at least for unemployment. He even joins the radical right-wing militia group, the Watchdogs, in an attempt to "reclaim" America and uphold the values of "real Americans."
Bad Cap repeats the claim that America's integrity has fallen since the time of his childhood, but he doesn't seem to be sure how. Perhaps he is a strong believer in wartime Keynesianism, but is skeptical of spending government money on social welfare. I wonder what he thinks of the 1960s and Medicare. Had America already lost its values by then?
Either way, he's been through a lot, what with the super-soldiering, being an evil clone, and the mental instability thing. Maybe he just, you know, changed his mind?
