How to grow the U.S. Economy

Written on:October 3, 2012
 
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Both presidential candidates promise the voters they will “grow” the U.S. economy. Their plans to do this are schematic at best. For the last four years, despite massive deficits and money creation, the U.S. economy has (officially) achieved something like 2% growth yearly, and even that appears in question at this time.

Commentators contrast this performance with the 10% achieved yearly by China. Setting aside the problems the Chinese are saddled with, 10% growth is no record. America has done better.

Between 1940 and 1945 the United States doubled its GDP. With most of that occurring from 1942 through 1944, the U.S. economy achieved growth rates in excess of 20%.

The common put-down on such extraordinary performance is that “it was war” – as if a war situation somehow produces economic miracles. In fact the growth was neither spontaneous nor haphazard. It was carefully planned in advance, occurred through close cooperation between government and industry and included extraordinary innovation, technical excellence and outstanding labor force achievements. When victory approached war production was choked off and conversion to civilian production initiated, with the switch nearly instantaneous and almost painless.

As our current methods fail and the shock of the “fiscal cliff” nears it is appropriate to examine the WWII economic model and its potential application to the present.

Once again, this model was planned and carefully executed. It proceeded as follows:

  • Over the period the U.S. government borrowed roughly 140% of GDP from U.S. citizens and institutions.
  • Part of the money was used to recruit, train, care for and pay a military force of up to 12 million. Being draftees, these served at roughly minimum wage.
  • Most of the balance went to pay for infrastructure and armament production. Fixed price contracts with U.S. corporations covered both deliveries and production plant building.
  • Manpower shortages required recruiting and training a new industrial workforce – about 40% being women with no previous experience. The new workers quickly acquired the needed skills and performed extremely well.
  • Civilian production was curtailed but not canceled, which helped the post-war transition.
  • The bulk of wages to both military and civilian personnel were saved, providing a demand boom after the war.

All this occurred against a background of constant change and redesign due both to production requirements and feedback from the front lines. The advances in product design, technology, management and logistics were immense.

The WWII industrial build-up is now seen by most as a patriotic miracle triggered by the Japanese attack. It was not. It involved friction, mistakes and a fair amount of blood, sweat and tears. But it was a process, willed, planned and managed. As such it can be duplicated and is scalable in both size and duration.

We are currently in a situation similar to 1939/40. The economy is in a near depression; industry is decimated by off-shoring, with skills, technology and know-how lost; unemployment/underemployment is over 20% and government revenues inadequate.

What made the WWII economic take-off?

First was the goal: to win; next a strategy, requiring a list of goods and arms to be designed, produced and delivered, to our armies and our allies; the ultimate result was national survival.

Today our greatest strategic threat is energy dependence – not just on imported oil, but on fossil sources becoming costlier and harder to find. We need to achieve over time a fully sustainable energy supply. This will involve supply proper, efficiency of use, infrastructure and new energy sources, meaning R&D. This challenge will demand more time and sustained effort than WWII, but it can propel our economy forward in the same manner.

After the goal come the conditions:

The most important was (and will be) that all wealth transfers occurred within the closed circle of the American economy:

  • The money was borrowed from the people by the government.
  • Part was recycled as wages to workers and soldiers, and part as payment to U.S. corporations.
  • All investment in plant, equipment, technology and research was on domestic soil.
  • All savings were in American banks and were ultimately spent for U.S.-made civilian goods.

Other than energy – burned oil and coal – nothing left the United States except expendable arms and munitions.

The economic development based on plants, skills and technology developed in wartime provided the revenue to pay off the debt.

It can be done again, on the same terms.


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