Any analysis of the increased government spending in WW2 is of course ignoring the MASSIVE AUSTERITY that was imposed on the entire.US population.
Rationing isn't austerity in the common sense of the word, everyone had jobs, shelter, food, clothing and economic mobility that the opportunities from the expanding economy brought. The New Deal policies weren't suspending during the war afterall and were a fundamental part of the growing standard of living and the growth of the middle class.
I don't see how the destruction of much of Europe had much to do with it, after all European GDP recovered very quickly and yet we didn't see the US economy falter as a result. And since American GDP was focused on armaments throughout the entire period you can't logically claim that Europe's devastation made way for US exports.
Major firms had capital thanks to lucrative government contracts, the population had plenty of war bonds, new markets that were once closed due to protectionism were opened up thanks to GATT and other free trade agreements there was huge demand for consumer goods and a large modern industry and hard working workforce willing to work for it. "Keynesian" economics frankly worked in getting the industry recovered and booming again even when the demand for war material rapidly receded in the wake of V-J Day because consumer demand picked up the slack.
War production for the purposes of capital destruction is an orwellian totalitarian concept of economic deprivation of the populace to keep them stupid it is not, and I stress this 100% what "Keynesian" economics proposes; there is a distinction, seeing massive armaments spending as stimulating for economic growth and recovery is just simply a subset of massive economic investment in infrastructure
in general like for example Ike Eisenhower's investment in the interstate highway system which is a massive infrastructure investment and the road to alaska (that was during WWII I think but its still investment for the future).
Then there's all that war R&D that has turned into massive multipliers for technological growth of GDP...
Finally I would like a source to your claim about Krugman, it's almost certainly missing context.
I was *also* on my phone when I first read your post, so I couldn't respond :(
Hopefully the Austrian School vs "Keynesian" thread at Something Awful is still around and not requiring archive privileges to read, I got most of my general thoughts on the debate from there like for example how the Austrian school isn't even remotely mainstream and is a fringe economic school of thought.
So far the discussion has been very civil, lets hope it continues that way.
Austerity...
"Austerity" in the current debate is about cutting social services and other wealth distribution services that directly harm the poor and puts the tax burden disproportionally on them while reducing the same burden on the "job creators" because of crony capitalism.
Austerity during a recession fundamentally makes things worse as it cuts jobs and further hurts demand which further hurts job and economic growth. What makes recessions so bad isn't the sluggish growth its the drop of GDP with respect to your debt, debt isn't a problem its having your economy not able to outgrow your debt is where things get ugly. Because each round of austerity hurts the economy the debt problem gets worse so they cut more and so on and so forth.
But paleoconservatives aren't interested in really solving the crisis, they are pursuing an ideologically driven agenda that is fundamentally dishonest where they ignore the facts and the data and attempt to force through measures designed to reduce the size of government to favor business partners and cut down on regulations that get in the way of profits.
You see the results of this extremely easily in how in the US despite job losses and slow job growth, productivity has been going through the rough. Because they make the remaining workers work harder and invest in other manpower cutting technologies and processes to be more efficient but are otherwise not investing in expanding their business or increasing sales because there's no demand! There's no demand because because we're in a recession we can't get out of because half the conversation doesn't want a recovery because they would rather screw over all the poor people so they can make government irreversibly smaller and businesses bigger! While keeping the paramilitary police state fully funded and expanded.
@Painrack completely agree.
@ Surlethe The problem with US inflationary targets is that they
aren't letting inflation go up and its a huge problem for US recovery. If they inflated a little the debt would be partly devalued and the "job creators" would be forced to invest their savings into something worthwhile and stimulate demand otherwise see their savings drop in value.
But this isn't happened which I believe Krugman also points out in other texts, the Fed is deathly afraid of inflation and won't let it budge. Though I'm assuming your referring to the US, if your referring to Britain or the EU then I have no idea.
