🚀 Faster, Please! — The Podcast #26

The conventional narrative about the economic history of World War II says that new learning from wartime mobilization jumpstarted a postwar golden age of fast economic growth. But, economist Alexander Field writes in his 2011 book, A Great Leap Forward, "It was not principally the war that laid the foundation for postwar prosperity. It was technological progress across a broad frontier of the American economy during the 1930s." Field develops that argument in his new book, The Economic Consequences of U.S. Mobilization for the Second World War, released last fall. In this episode of Faster, Please! — The Podcast, I'm joined by Alex to discuss his argument. Alex is the Michel and Mary Orradre Professor of Economics at Santa Clara University's Leavey School of Business. In This Episode * Depression-era technological progress * Economic detective work (8:04) * What about the scientific advances of WWII? (13:23) * The US economy if WWII never happened (17:39) Below is an edited transcript of our conversation Depression-era technological progress James Pethokoukis: You write in A Great Leap Forward, a book that I consult frequently and mention frequently in my writings: “The years 1929-1941 were, in the aggregate, the most technologically progressive of any comparable period in U.S. economic history. … It was not principally the war that laid the foundation for postwar prosperity. It was technological progress across a broad frontier of the American economy during the 1930s.” Your new book builds upon that argument, but could you, just for a moment, give a quick summary of A Great Leap Forward, and then how that moves into your new book? Alexander Field: The basic argument of A Great Leap Forward was that behind the backdrop of double-digit unemployment for at least a decade, potential output was growing by leaps and bounds during the Great Depression. It wasn't really recognized until Simon Kuznets had to try to do a back-of-the-envelope calculation of what the potential of the economy could be. But the contributors to that were, I think, several. Number one was the last third of the conversion of the internal transmission of power within American factories from the shafts and belts, which was a signature of the 19th-century factory, to fractional-horsepower electric motors and electric wiring. And the second part was just an enormous amount, surprisingly, of research and development spending. Just astounding, if you think of the Depression as being so disastrous macroeconomically, but in terms of the number of people employed growing by leaps and bounds, number of labs established. And then finally, although it's widely accepted that the New Deal spending was too small in a Keynesian sense to immediately bring the economy out of the Depression, nevertheless, that spending on streets and highways and bridges and hydropower and so on had very strong positive supply-side effects. I think it's the combination of those three factors that I see as responsible for making potential output so much larger in 1941 than people thought it was. For the layman, your finding in that book, your thesis, is extraordinarily counterintuitive. You would never expect that underneath that sky-high unemployment number and the failing banks and the breadlines, there was this sort of innovative ferment happening and foundations laid for future progress. Similarly, to the extent that people would have an economic opinion about World War II, I would guess: 1) that it brought us out of the Great Depression, and 2) that it was a period of key advances, key technologies and the fact maybe we learned how to do things more efficiently during the war, whether it's build boats or what have you. Those two things are what played a huge role in postwar prosperity—I think that might be sort of the everyman way they would conceive of it. That is not exactly what you found. I think you've done a very good job characterizing what I see as the two key themes in the conventional wisdom about the Second World War. Basically, the argument that fiscal and monetary stimulus rapidly closed the output gap, the unemployment rate went from under 10 percent in ‘41 to unimaginably low, below 2 percent, in ‘43 and ’44. That's accepted and I'm not challenging that. But the second part of the conventional wisdom is what the economists call learning by doing: the emphasis on the decline in unit costs with accumulated output as a result of producing military durables. And the argument is exactly as you stated it. The argument is that learning spilled over into the postwar period and kind of underlined the supply side foundations for the golden age, which is ‘48 to ‘73. Now, my argument is different. I see the Second World War from a productivity history perspective as a detour. My argument is that the progress, the growth of potential output up through 1941, that's essentially most of the reason why the US stands astride the world economy in ’48, not what happened between ‘41 and ’48. It might have been different if the US had persisted in producing a hundred thousand piston-driven aircraft a year. But we didn't. We didn't produce piston-driven aircraft. Most of the products that we got very good at making, we stopped making them fairly soon after Victory over Japan Day. And I view most of that specific human capital as not really having a great deal of relevance after the war. As you mentioned, the things we got good at making were not just the instruments of war, but the instruments of war at a particular period. They were not going to be applicable to future conflicts, but they're also not applicable to a civilian economy that, once the war was over, began to expand very quickly. You mentioned the airplanes. I would also assume the kind of ship building that was done in the war was also not particularly applicable to the post-war era. That's right. That's exactly right. I see basically, the success of US industry under government leadership in producing the military ordinance that supplied our armies, as well as those of Britain and the Soviet Union, our allies, and so on — I see that basically as the application of technologies that had been honed in the ‘20s and particularly in the 1930s, producing automobiles and refrigerators, and applying that management experience to mass producing military durables, rather than the view that it was experience producing military durables that laid the foundations for the postwar period in terms of the supply side. Economic detective work I think people would think that we didn't need to look anymore at the Great Depression or World War II, that this is, they would say, settled science. We know exactly what happened and why it happened. Apparently the role of the World War II, what happened there, is not settled science. So what were people missing previously? What did you find that presents a different perspective? I think, as you say, it began with the findings about the Great Depression. I think what we're doing in the business of research, particularly academic research, is we're researching things: We're trying to find something new to say. But finding something new to say is only part of it; it also has to be something that actually might be true. And so it really it came out of really deep immersion in a variety of sources, both statistical and documentary: reading the minutes of the War Production Board, reading the minutes of the planning committee. And as this happened, a lot of preconceptions that I had about the war began to fall away. For example, the central empirical finding, surprising finding, in this book, or the argument, is that the productivity of American manufacturing—and it is within manufacturing that we would expect to see the effects of learning by doing—actually dropped dramatically between 1941 and 1945. And one of the things that I kind of picked up from this immersion in the sources was, rather than a view of American industry during the war as 24/7, 365 days a y… This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit fasterplease.substack.com/subscribe