Some prominent Keynesians actually believed war was good for the economy because they thought any such massive fiscal stimulus as war spending inevitably would boost the economy enormously.
Quoting Paul Samuelson:
When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. [DRH comment: he nailed that number.] We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable–were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties–then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.
The post-war bust was a lot smaller than the Keynesians expected. The US unemployment rate went up from 1.9 percent to 3.6 percent between 1945 and 1947 while federal spending dropped 60%. The Broken Window Fallacy really is a fallacy. Much of what was produced during the war was consumed or destroyed and the free market really is capable of putting people to work.
By the way, this is my second reference to The Fifth Element today. Great movie. In my opinion, one of the best made in the 1990s, not least because of the great performances by all of the main characters including the illustrious Gary Oldman. There are so many other things right about that movie including the music and the costume design (by none other than Jean-Paul Gaultier). The weirdness of the costumes and alien designs works very well with the humor.
Have you seen The Fifth Element yourself?
