What Pearl Harbor Should Teach Us

Caption: The mast of a United States Navy battleship near the end of the day on December 7, 1941. All the observation masts, and the radar, couldn't help America see the Japanese coming that day. That was because we didn't want to look.

Image credit: Screenshot of PBS' NOVA episode "Killer Subs In Pearl Harbor" by Cujo359 (see NOTE 1)

Once again, it's Pearl Harbor Day. Once again, I'm sure there will be people reminding us about how Pearl Harbor taught us that we should all be vigilant, and never forget, blah, blah. I've written before that there are other, perhaps more profound, lessons we can learn from our experience, and from those of the other major participants. I've also written that often times we make our judgments about history based on an incomplete or erroneous understanding of events.

Caption: Historians looked at grainy photos like this of the Pearl Harbor attack to see if a Japanese minisub managed to fire its torpedoes. Too bad we don't pay this kind of attention to the economic history of that time.

Image credit: Screenshot of PBS' NOVA episode "Killer Subs In Pearl Harbor" by Cujo359

I'm reminded of a NOVA program I saw a couple of years ago on a search some historians and World War II veterans undertook to find a missing Japanase miniature submarine that was involved in the Pearl Harbor operation. They used submersibles, computer simulations, and even a few explosions to try to figure out what might have happened to it.

Caption: Forensic engineers and explosives experts destroy a metal tube to determine how the Japanese minisub was destroyed. Nowadays, it's just not a proper television show unless you blow something up.

Image credit: Screenshot of PBS' NOVA episode "Killer Subs In Pearl Harbor" by Cujo359

You might wonder why they bothered. I think there are several reasons, but maybe the most important thing one has to do to learn the lessons of history is to understand what really went on. What that program ought to tell you is that the Japanese had some very courageous people - people who ended up serving in a cause that was based on some very bad assumptions, and that the many deaths that resulted were especially tragic in that light. There are also lessons to learn about military tactics - about how an attack that is pressed in different ways can often succeed where one based on a single approach might not. Had the Japanese only used their submarines that day, our war in the Pacific may have been much shorter, but possibly kinder to the Japanese.

Whatever lessons you try to draw, you're more likely to draw correct ones if you understand that time and the things that actually happened.

Unfortunately, the economic history of that era, which is in some ways as interesting as the reasons we became involved in World War II, is not studied with enough intensity by nearly enough people. If it weren't for Pearl Harbor, it's possible we'd still be in the Great Depression, given the attitudes among our elites both then and now.

This is a graph of the period from the Stock Market Crash in 1929 to 1949, four years after the end of World War II. It shows the Gross Domestic Product as a blue line, and the relative size of the federal budget as a red line:

[see NOTE 3 for more explanation]

Notice the familiar shape of the economy of that period. For the first three-plus years after the crash, which were the last years of the Hoover Administration, the economy stayed in recession. Hoover did not merely leave well enough alone. He tried to bring some sanity back to the market, including regulations that were designed to make it less volatile. Still, nothing helped, because he and the Republicans were not willing to spend money the government could not collect.

It wasn't until Franklin Roosevelt took over in 1933 that things began to change. The first legislation of the New Deal passed in three months, and among other measures, it began to spend money on projects like the Civilian Conservation Corps and the Tennessee Valley Authority. Soon, the government was spending money on rural electrification in the South and the West, both of which would come in handy as we mobilized industry for World War II. Those electrification projects would power the Manhattan Project's fuel production facilities, and many of the factories that would produce the airplanes and aluminum that we built to arm ourselves and much of the world. Not to mention that it made the growth of the West in the latter half of the Twentieth Century possible.

Those who look carefully will also notice that there was another recession in 1937, which corresponds roughly with a drop in federal spending in 1936. This is no accident. The Roosevelt Administration and Congress began to worry about deficit spending, and sure enough, government spending fell, and our economy went with it.

Caption: Adolf Hitler at a rally in Nuremberg in 1928. If it weren't for him and his merry band of homicidal lunatics, who knows how much we would resemble a Third World economy right now?

Image credit: Heinrich Hoffmann/Wikipedia

If Germany and Japan hadn't started to scare us in 1937 and 1938 with their activities in Eastern Europe and eastern Asia, we might still be trying to recover from the Great Depression. The sad truth was that the only form of stimulus the government would agree to spend was for the military. Those were the years when the first new capital ships were laid down, and when the War Department, as it was then known, began to encourage aircraft manufacturers and armories to come up with new weapons designs. This military spending finally ended the Depression.

Much as you might think otherwise to hear the economic debates of today, there was no secret to how the U.S. got out of its depression in the 1930s and '40s. It put people to work, paying them good wages, because by 1943 or so nearly everyone who could work was doing so. When the war ended, and federal spending reduced, the economy experienced a short recession, and then kept on going. The people who had been working during the war years had been saving their money, and once the companies that had been producing weapons returned to their original lines of work, most found ready markets.

In short, people had money to spend, and they spent it. That the government was spending more than it took in for years mattered not at all, even before the United States finally adopted a fiat currency.

We're not doing that now. What Europe's experience is once again making clear is that the economic reality that a nation that won't keep its people employed is headed for trouble is still true. Here's a graph I did earlier this year of our economic situation:

Image credit: Chart by Cujo359 from BLS data using Libre Office

What's worse, the thing that made the economic recovery of the post-World War II years possible, the more equitable distribution of income that enabled people to spend on the things they needed and wanted, has been reversed, as this chart from another article of the Gini Index of the U.S. from 1947 to the present clearly shows:

Image credit: Chart made using Libre Office by Cujo359 (See NOTE 2)

The people who are talking about a "recovery" aren't the ones who are still unemployed, and may remain unemployed for decades more.

So, this is yet another lesson we refused to learn from World War II. Even though we were spending on weapons, which are typically one of the least useful products for future economic growth, the economy grew like crazy. We put people to work making things we needed, and we profited at the time and well into the future as a result.

Today, there are lots of things we need, yet the fools who run our government, and the fools who seem to be in charge of telling us what to think about the economy, are bound and determined to make the same mistakes Hoover made in 1930 and 1931, and the same one that Roosevelt made in 1936. Those recessions happened because people obsessed about the wrong thing, and that's what's happening today, too. Just like the navy that wasn't worried about Japan doing the same thing the British did a year before in Taranto, we are in for even worse until something makes us wise up.

Afterword: Before I took up the task of finishing this essay, I read this at Robert Reich's blog this morning, concerning today's employment report:

The fact is some 350,000 more people stopped looking for jobs in November, and the percent of the working-age population currently employed continues to drop — now at 63.6%, almost the lowest in 30 years. Meanwhile, the average workweek is stuck at 34.4 hours.

...

The reason the economy is still under-performing is overall demand is inadequate. Businesses won’t create more jobs without enough customers. But consumers can’t and won’t spend because they don’t have the money. Unless or until the private sector — businesses and consumers — are able to boost the economy, government must be the spender of last resort.

But the nation has bought into the Republican frame of thinking that we have to “get our fiscal house in order” before the economy can get back on track. Although Barack Obama was reelected and Democrats gained seats in the House and Senate, that frame is still dominating debate.

Today’s Job Numbers Show Why Job-Creation Must Take Precedence Over Deficit Reduction

All of which is true, save for one fundamentally important thing - this is a bipartisan framing now, not just a Republican one. No one talks about the need to close the output gap in America. Few talk about all the things that need to be done here, but aren't, because DC focuses on nonsense.

I'm starting to think we'll never learn, because the first lesson we refuse to learn is that if you're willing to vote the people back into office who are causing these problems, they will never be solved. The number of people who voted third party this year is depressing, because the sad fact is that neither of the major parties is doing what's right for the country, even if you think that what either progressivism or conservatism believes is what's right for the country.

NOTE 1 NOVA, and the NOVA program "Killer Subs In Pearl Harbor", are copyrighted works of the Public Broadcasting System and WGBH. These screenshots do not represent any support of the ideas expressed in this article by NOVA, PBS, WGBH, or anyone else associated with that program.

NOTE 2 Source for these data: U.S. Census (Excel spreadsheet).

NOTE 3 The blue line is self-explanatory, I think. The red line is federal government spending relative to itself, meaning that the lowest spending during the period 1929-1949 is considered "1", and the highest is "100". It exaggerates the level of spending differences to do this somewhat, but it makes the relationship between federal spending and economic growth clearer than any other measure I found at the FRED.

UPDATE: I'll give letsgetitdone the last word on this one, from an article he published in Corrente back August:

I don’t think policymakers should acknowledge that our growing debt is any kind of threat at all. The level of Federal Government debt is a very different matter from the level of State Government debt, or private sector debt. These last are a very serious problem for the US economy. But Federal Government debt is no threat at all, because it in no way affects the solvency of the United States Government, or its ability to deficit spend currently or in the future, as I’ve explained here, and in other posts.

...

Keeping in mind that the $800 Billion fiscal stimulus deficit spending program was implemented over two years, $400 Billion in deficit spending reductions per year translates to subtracting what amounts to the impact of 5 stimulus bills from the economy over the next decade. How austerians expect that to protect the fragile economy, and provide for long-term economic growth isn’t something they bother to explain, but I think they’re calling for a mission impossible for the US economy. They have no serious detailed and credible explanations of how continued growth will be possible with private debt at such historically high levels, State governments contributing nothing but fiscal drag to the economy, and the Federal Government also retrenching by an average of $400 Billion per year in deficit spending.

[emphasis and link from original article]

As I've mentioned before, we aren't Greece. The United States government can issue currency in whatever quantity it needs. It will not go broke. Period. It may run out of spending authority, and thus be unable to continue to run legally, but that's a hurdle Congress imposes, not one that follows from either the Constitution or economic theory.

Worrying about the federal deficit in these circumstances is something only an idiot or someone completely ignorant of economics would do.