IMMEDIATE RELEASE 26 March 2020
Today’s Events in Historical Perspective
America’s Longest-Running Column Founded 1932
Today is 1929-1945 in microcosm
By Douglas Cohn and Eleanor Clift
WASHINGTON – The coronavirus-induced economic crisis has an analogous economic predecessor – the combination of 1929’s stock market crash, the Great Depression, and World War II, all rolled into one.
Both crises began with a stock market crash although one was caused by unregulated speculation and the other by a devastating pandemic. Both led to massive unemployment as high as 24.9 percent during the Great Depression and a rising number in the coronavirus crisis, beginning with 3.8 million jobless claims just reported, which are nearly 20 times greater than typical weekly claims.
What is less obvious are the analogous recoveries. First, the right premise must be established. It is not how many people are without work, but how many people are without income.
Federal budget deficit spending funneled money to World War II military personnel and companies producing armaments. Today’s budget deficit stimulus package is also about to funnel money to people and companies.
The following chart puts the earlier 17-year-long 1929-1945 crisis in perspective. America’s unemployed became America’s armed forces. And this is only half the tale because federal expenditures for military weapons, rations, equipment, etc. need to be included to explain how massive federal wartime spending brought an end to the Great Depression.
Year Unemployment Military Personnel
1929 3.2% 255,031
1930 8.7% 255,648
1931 15.9 % 252,605
1932 23.6% 244,902a
1933 24.9% 243,845
1934 21.7 % 247,137
1935 20.1% 251,799
1936 16.9% 291,356
1937 14.3% 311,808
1938 19.0% 322,932
1939 17.2% 334,473
1940 14.6% 458,365
1941 9.9 % 1,801,101
1942 4.7 % 3,915,507
1943 1.9 % 9,195,912
1944 1.2% 11,623,468
1945 1.9% 12,209,238
No chart is necessary for the March 2020 period, which is what makes this an analogy in microcosm. The government is about to pay people who are out of work just as it paid military personnel during the war. The government is about to pay companies just as it paid companies during the war. And because money spent to wage war does not generate profits or create products it is no different – from a fiscal point of view – than money distributed to unemployed people and shuttered businesses.
If the portion of the $2 trillion stimulus going to unemployed people replaces most of their incomes, then it is comparable to the money that went to service personnel during World War II because there is a difference between being out of work and being out of income.
Finally, how will this end? It is all Keynesian economics, the idea that government spending eventually creates consumer spending, which in turn entices industrial output. This is why the nation did not fall back into a depression after World War II, but actually entered a prolonged boom period that created enough wealth to offset the debt created by wartime deficit spending. The same will be true of the $2 trillion debt being created to bridge the financial damage created by the coronavirus pandemic. It is interrupting rather than undermining the economy, and once again federal spending will ensure a booming recovery.
Douglas Cohn’s latest books are World War 4: Nine Scenarios (endorsed by seven flag officers) and The President’s First Year: The Only School for Presidents Is the Presidency.
© 2020 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
END WASHINGTON MERRY-GO-ROUND
IMMEDIATE RELEASE 26 March 2020