The Economics of the New Deal and World War II

0:00So today what I'd like to do with my 40-ish minutes is, and we'll see how long we have here, is to talk about Franklin Roosevelt's New Deal and then also talk about the issue of whether World War II, in fact, lifted the country out of the Depression. Because oftentimes people will say, all right, I admit that the New Deal in and of itself didn't lift the country out of the Depression, but the war did because of the economic stimulus it allegedly brought. So I want to evaluate that claim because there are more and more scholars today who are beginning to dispute that even though mainstream liberals and mainstream conservatives do still typically say that World War II was a great economic stimulus. There are a number of scholars who are disputing that and in fact arguing that the economy really only returned to full health in the wake of World War II rather than during it and I'll try to give some evidence for that.

0:55Well, this is a bit self-referential, this beginning here, but in May of last year, a historian named Ted Widmer warned in the New York Times, and I'm quoting him, that a recent spate of books from the right, including Jim Powell's FDR's Folly and Thomas E. Woods Jr.'s Politically Incorrect Guide to American History, have accused President Franklin D. Roosevelt of prolonging the Great Depression and generally screwing up America." Well, Widmer would have none of this crazy talk, of course. Quote, FDR embodied hope to a people consumed by despair, he hastened to remind us. And continuing to quote Widmer, Roosevelt reinvented the presidency during his first hundred days in office through bold policy innovations, brilliant speeches and broadcasts and a personal connection with the American people that has not been equaled since.

1:50Through his words, his improvisations and his effortless optimism, Roosevelt resuscitated American capitalism and in so doing may have saved democracy as well. Well this is prose and analysis fit for a freshman term paper or a fan club newsletter and yet these platitudes and cliches were written in the New York Times by what we are led to understand as a professional historian. Here once again we confront the model of president as demigod, restoring hope, saving democracy, taking bold action, all in all just oozing with brilliance. Biographies of Ilduche must read something like this. The impression Widmer leaves is that were it not for a few oddballs like Powell and Woods, Americans might once again be able to enjoy their undisturbed contemplation of the Greatness of Franklin Roosevelt, that there exists a vast and growing body of serious scholarship that debunks the Roosevelt myth is, as usual, left completely unmentioned.

2:52Now, Widmer aside, many on the mainstream left acknowledge that FDR's New Deal programs did not lift the country out of the Depression. According to Robert McIlvain, we have this statement, for all it did, for all it changed, the New Deal never succeeded in its primary Even Doris Kearns Goodwin, the serial plagiarist, who is Dean of the President as Demigod School of Historiography, concedes in her study of the period, the America over which Roosevelt presided in 1940 was in its eleventh year of depression. No decline in American history had been so deep, so lasting, so far-reaching. In 2004, the prestigious Journal of Political Economy, which may be the world's top academic economics journal, featured an article by Harold Cole and Lee Ohanian, demonstrating that the Depression persisted not in spite of the New Deal, but because of it.

3:50Well, what could this mean? Well, one of the legislative acts that Colin Ohanian criticized is the National Industrial Recovery Act, which created the National Recovery Administration, or NRA. This is not the National Rifle Association, I hasten to add. That act finally codified in law the kind of voluntary government-business partnerships that we talked about last time in the 1920s. New York Senator Robert Wagner said I do not think we will ever have industry in order until we have a nationally planned economy and this is the first step toward it. The act called for the organization of the various industries into trade associations that would draft production codes. All member firms of the industry would be expected to abide by the codes which would deal with minimum prices, minimum wages, hours of production and other aspects of the production process process, and in general tended to restrict production.

4:48The minimum price requirement, by the way, meant that you couldn't undersell your competitor too vigorously or you'd be in violation of the code. So that's how that worked. So it permitted the creation of industry-wide cartels throughout the economy. John T. Flynn was a liberal journalist of the 20s and 30s who slowly but surely became A critic of FDR and he observed that FDR's National Recovery Administration was simply a gentler example of the trade associations that Mussolini had established in Italy. And this is Flynn talking. What they liked particularly was his corporative system. He, meaning Mussolini, organized each trade or industrial group or professional group into a state supervised trade association.

5:33He called it a cooperative. These cooperatives operated under state supervision and could plan production, quality, prices, distribution, labor standards, etc. The NRA provided that in American industry each industry should be organized into a federally supervised trade association. It was not called a cooperative, it was called a code authority, but it was essentially the same thing. This was fascism. Well, if the word fascism seems over the top, consider that NRA head Hugh Johnson, who, by the way, once referred to the NRA as a holy thing, the greatest social advance since the days of Jesus Christ. Hugh Johnson gave Secretary of Labor Francis Perkins a copy of Raffaello Viglione's book, The Corporate State, a book that looked sympathetically on Mussolini's policies in Italy.

6:24Cole and Ohanian, writing in 2004, found that the NRA damaged the economy and argued that The New Deal cartelization policies are an important factor in accounting for the failure of the economy to recover back to trend. Later in the 1930s, after the NRA had been declared unconstitutional by the Supreme Court, but with some elements of cartelization still lingering, even FDR himself came to acknowledge that these cartelization policies had played a key role in prolonging the Depression. He said, the American economy has become a concealed cartel system. Disappearance of price competition is one of the primary causes of the present difficulties. Well, well-known pro-FDR historian William Lugtenberg conceded that the NRA, quote, did little to speed recovery and probably actually hindered it by its support of restrictionism and price raising.

7:19Six decades after the program was implemented, further research prompted the even more vigorous criticism of Cole and Ohanian, who concluded, New Deal labor and industrial policies did not lift the economy out of the depression, as President Roosevelt had hoped. Instead, the joint policies of increasing labor's bargaining power and linking collusion with paying high wages prevented a normal recovery. Not only did the adoption of these industrial and trade policies coincide with the persistence of depression throughout the late 1930s, but the subsequent abandonment of these policies coincided with the strong economic recovery of the 1940s. Well, many people assume that the minimum wages imposed by the NRA codes must have been a good thing. Minimum wages seem like a good thing to some people, but any minimum wage discourages employment to some degree if it's over the market clearing wage.

8:12But the NRA imposed wages did all the more. Compared to the minimum wages we know today, these were quite high minimum wages, averaging 90% of the average hourly wage in 1933. So, of course, it has the disemployment characteristics that I mentioned last time in about the 1920s and the voluntary wage hikes. The Agricultural Adjustment Act, about more of which you can see in the book, likewise worsened the position of the vast bulk of Americans, using tax revenues to pay farmers to reduce their acreage or to cease farming altogether. The artificial shortages thus created would increase farm incomes while, of course, making food more expensive for everyone. In 1933, 10 million acres of cotton and 6 million pigs were actually destroyed for this purpose.

9:00Not only was the non-farm population looted in order to support this program, but American farm workers suffered as well. With less farming being done, there was of course less for them to do and less need for their labor. In fact, the 1936 article in the Atlantic observed that some 2 million people had been thrown out of work by this program alone. Beneath the surface of most New Deal programs was the assumption that purchasing power needed to be restored if the economy were to return to normal. The magazine of Wall Street exposed this fallacy by suggesting as follows. Since the president believes that reducing the work week and raising wages would help the economy by boosting purchasing power, why not swell purchasing power still more by establishing a 10-hour week and quadrupling wages?

9:47or why not have a ten-minute week and raise wages by a hundred times if it's that easy. Each New Deal program had its negative effects but the collective effect was also substantial. I mentioned last time Ohio University economist Richard Vetter and Lowell Galloway who argue as follows, the Great Depression was very significantly prolonged in both its duration and its magnitude by the impact of New Deal programs. Similarly, economist Benjamin Anderson who's got credentials coming out his ears who lived at the time, wrote,

10:47and how early signs of recovery in the midst of so great a disorder is an amazing demonstration of the vitality of private enterprise. Well Anderson's point that the Roosevelt administration's arbitrariness and hostility undermine business confidence is reflected in polling data compiled at the time. It was only in the late 30s that organized polling began and in 1939 American businessmen were first polled about their views on the American economy's present and future. When asked by the American Institute of Public Opinion whether they thought the Roosevelt administration's attitude toward business was responsible for delaying the recovery of the private sector, 54% of businessmen polled said yes, 26% no, with the rest no opinion. Some 56% expected the American economy a decade hence to be saddled with more government control with 22% expecting less.

11:39In another 1939 poll, Fortune magazine received much the same answers. The magazine asked executives, with which of these statements do you come closest to agreeing? One, the policies of the administration have so affected the confidence of businessmen that recovery has been seriously held back. Or two, businessmen generally have been unjustly blaming the administration for their troubles. Nearly two-thirds agreed with the first statement and only a quarter with the second. Robert Higgs, a great economic historian, calls this phenomenon regime uncertainty and argues that it bears a substantial share of the blame for why the Great Depression lasted as long as it did. He concludes that given the unparalleled outpouring of business-threatening laws, regulations, and court decisions, the oft-stated hostility of President Roosevelt and his lieutenants toward investors as a class, and the character of the anti-business zealots who composed the strategists and administrators of the New Deal from 1935 to 1941, In 1931, the political climate could hardly have failed to discourage some investors from making fresh long-term commitments.

12:46Well, we know from investment data compiled from the period that long-term investment, the kind that's needed for recovery, was precisely what uncertain businessmen were moving away from. Long-term bonds carried a substantial risk premium, indicating that businesses were uncertain about the future. Mr. Higgs' polling data from the 1930s suggests that this uncertainty about the future boiled down to uncertainty about future government policy. Businessmen took seriously the threats and denunciations that ceaselessly issued forth from the White House. The Illinois Manufacturers Association, for example, in a statement forwarded to Roosevelt via the Commerce Secretary, cautioned that the principal obstacle to business revival with accompanying increase in unemployment is the almost universal attitude of uncertainty and Apprehension on the part of business executives regarding the future policies of the federal government on issues directly affecting the welfare of private enterprise.

13:43Many similar statements were forthcoming. In 1934, a meeting of more than a hundred business executives and financial experts in New York under the auspices of the American Management Association submitted a report to Roosevelt through Treasury Secretary Henry Morgenthau, concluding that uncertainties regarding the fiscal situation likely to result from the government's borrowing and spending activities with consequent effects upon monetary and revenue policies are retarding, re-employment and recovery. But those activities continued. In June 1935, Roosevelt proposed a series of tax increases that included higher inheritance taxes, gift taxes and personal income taxes, as well as a graduated scale of corporate income taxes. Walter Lippmann, who had once been a supporter of the New Deal, complained that the tax bill reflected, in his words, the absence of any plan and the lack of intellectual effort, the work of tired brains, relying on their wishes and their prejudices and throwing out casual suggestions which they are too hot and bothered to think about.

14:46The New Republic magazine observed, and the New Republic is a big supporter of FDR, The New Deal's admirers assure us that FDR's massive spending projects provided jobs and economic stimulus. Now it is true that government make-work jobs do benefit those who get the jobs, but we need to take the analysis further than this single obvious question. The New Deal's admirers assure us that FDR's massive spending projects provided jobs and economic stimulus. Now it is true that government make-work jobs do benefit those who get the jobs, But we need to take the analysis further than this single obvious step. When we consider the likely outcome of some economic policy, we cannot focus only on the short-run effects on some alleged beneficiary or some earmarked group.

15:31It is necessary to think about the long-term effects on the whole economy. We have a book for sale in the bookstore here called Economics in One Lesson by Henry Haslund. It's a classic. It's been in print for over half a century. And that's the one lesson, that if you want to evaluate an economic policy, you don't simply look at the short-term effects on some intended beneficiary. That's extremely superficial. You have to look at the long-run effects on the whole economy. And then in his entire book, each chapter consists of applying this important lesson. Well, economists John Joseph Wallace and Daniel K. Benjamin have estimated that the public sector jobs created by the New Deal's make-work programs either simply displaced or actually destroyed public sector jobs. How could this be?

16:17Well, if people are taxed, let's say, $10 million to fund some government project, they now have $10 million less to spend on things they need and that drop-off in spending will cost other people their jobs. So imagine, for instance, a government-funded bridge project. We can see the bridge being built and we can see the people doing the building. As Haslett writes, the employment argument of the government spenders becomes vivid and probably for most people convincing when you see the actual bridge being built and the people employed building it. But, says Haslett, there are other things that we do not see because, alas, they have never been permitted to come into existence. They are the jobs destroyed by the $10 million taken from the taxpayers. All that has happened at best is that there has been a diversion of jobs because of the project.

17:04More bridge builders, fewer automobile workers, television technicians, clothing workers, farmers. The very existence of the bridge, says Haslett, is usually enough to win the argument, with all those who cannot see beyond the immediate range of their physical eyes. They cannot see all the things that were never able to come into existence because the necessary resources were diverted to the bridge, like the unbuilt homes, the unmade cars and washing machines, the unmade dresses and coats, perhaps the ungrown and unsold foodstuffs. Someone who understands how to assess both the direct and the indirect consequences of government programs can indeed see these things in the eye of his imagination. But to see these uncreated things, says Hazlitt, requires a kind of imagination that not many people have.

17:54Now these programs did not simply divert jobs from some people to others, or capital from some projects to others, as in a zero-sum game. They actually, on net, destroyed wealth. In the private sector, resources have to be employed in line with consumer preferences. If entrepreneurs want to see a profit, if you want to make, for example, porcupine popsicles, you're not going to make a profit because nobody would want that. If you do not employ resources according to consumer desires you make losses and you either have to change your business plan or see your capital slip out of your hands. Government on the other hand lacks this crucial feedback mechanism since government earns its money not by satisfying consumers and then earning profits and knowing whether to expand or contract but by the coercive means of taxation.

18:44Without having to pass a profit and loss test it can never know How Relatively Efficient or Destructively Uneconomic its Projects Are, How Much of Something is Needed, Where Should it Go, What Materials Should be Used, etc., etc. Operating outside the realm of voluntary human relations and answering to no profit and loss tests to guide them in resource allocation, government is inherently unable to answer these and countless other questions, simply seizing resources from the private sector and employing them arbitrarily. During the downturn within the downturn that occurred from mid-1937 to mid-1938, one congressional representative confessed, We Democrats have to admit we are floundering. We are a confused, bewildered group of people.

19:31For all the talk of the brilliant leadership of Franklin Roosevelt and his advisors, this is a far truer assessment of the architects of the New Deal. Well, what about World War II? Didn't that create economic stimulus? Well consider, whenever an earthquake or a flood or a tornado strikes, you can always count on some reporter somewhere to tell us that on net this will boost the local economy, since the rebuilding effort will create jobs and increase business for local merchants. Similarly, and by the way, that happened in Katrina too. Sure, people's homes have been destroyed, the city's ruined, but think of the jobs we'll create putting people to work rebuilding. I mean, there are people who are perverse enough to actually think that's a logical argument. I'm going to try to address that.

20:16Likewise, whenever a war breaks out, you get the same reporter who will say, okay, sure, people are dying, buildings destroyed, disease, but think of the economic stimulus when we rebuild all these buildings. So it sort of makes you wonder, why shouldn't we start bombing our own cities in a war? Because think of the economic stimulus that it would provide. Well, as if on cue, in May 2004, the Washington Post published an article called, Across America, War Means Jobs. Well, the article, to its credit, acknowledged that the matter wasn't quite so simple. But the article nevertheless quoted a great many people who asserted that the war was a boon for the economy. If it wasn't for defense department contracting, said Brian Smith of Columbia Sewing Company, we would not be here and 200 people would be out of a job.

21:06The mayor of Roanoke was thrilled, saying these people have grown up sewing in textile plants and there are so few now. They were desperate to have jobs and it's going to expand again. I'm so grateful. Appliance salesman Gary Gayer told The Post, the economy is always helped by war, that's just a fact. Well, I can hardly think of a more dangerous view to hold. Well, you know, war is regrettable, but at least we'll have a job. War does stimulate certain sectors of the economy. The missile building sector of the economy does very well during war. But it is illogical to equate stimulus in certain sectors with prosperity for the American people as a whole. Again, remember the one lesson. It is not enough to concentrate on some earmarked sector of the economy. We must consider the effects on the economy at large.

21:53That is the whole point of economics. And it was with this point in mind that the great Frederic Bastiat, who was a great economist of the mid-19th century, a Frenchman, wrote about what he called the broken window fallacy, in which, perhaps you've heard this before, but the standard story goes as follows. Imagine a shop window that's broken by some careless boy who throws a ball through the window. A normal person would conclude this is a terrible tragedy because the shop owner now is without a window. But you get the modern economist, or let's say a Keynesian economist, coming along saying, no, no, no, no, actually this is a great boon, you see. Because then the glass repair man, the window repair man, will be put to work repairing it.

22:38So you see, you've neglected to see what a great stimulus to the economy this is. Well, what Bastiat argues is that we need to consider both what is seen and what is not seen. What is seen is the window repairman going to work and the money that he earns and the stimulus that that provides. But what is not seen is what could the shop owner have spent that money on if he hadn't had to spend it on repairing his window? He might have bought himself a new sweater, in which case he'd have both a sweater and a window if it hadn't been broken in the first place. But under this situation, in which his window is broken, he has to spend his sweater money on window repair, he has only a window. So it is a loss. It is a loss to him. It's not just a wash or a stimulus. It is a loss.

23:23And this is the lesson that Bastiat teaches us in his important writing, at least one of the lessons he teaches us. But we can apply this analysis to war as well. The jobs that are created to produce weapons and military equipment, as well as jobs in the armed forces, they are what is seen. We see those things and we say great stimulus. But they are paid for by taxing the private economy. Financing wartime activities diminishes private incomes and thus the ability of Americans to buy the goods they need. And because people and capital goods are now producing war-related items and services, fewer are available to produce goods for consumer needs. So those consumer goods that are not now being produced because the funds to produce them and to employ people in producing them have been siphoned off into war production, this is what is not seen.

24:13The fact that some high-profile jobs are created is only the beginning of the story. Other jobs that had once catered to the consumer have now been destroyed. Consumers, now with less disposable income because it's being taxed away to pay for war production, cannot spend what they used to and some private production must come to an end. Wartime economic conditions include other negative effects as well. Well, in extreme cases, the government rations certain crucial goods to ensure adequate supplies for the military. So during World War II, for example, consumers suffered from, among other things, the effects of the price controls and deprivation that accompany rationing. It was difficult to obtain adequate supplies of quality gasoline, rubber, meat, sugar and a great many other products, and altogether impossible to purchase new homes, cars or appliances since the government had banned their production.

25:06Quality deterioration was one way that manufacturers dealt with the controls. Fat was added to hamburger, says historian Jean Smiley. The butterfat content of milk was reduced. Cornstarch was added to spices. Coffee was stretched with fillers. Between 1939 and 1943, 19 out of 20 candy bars had been reduced in size, thereby concealing what was in effect a 23% price increase. Similar effects were felt in clothing. One official testified that quality deterioration took forms such as men's shorts made of cheese cloth with enough added sizing to give it form until washed once. Women's slips made of coarse, heavily sized muslin, water-resistant baby pants that allowed a third of a glass of water to drain through after being washed once, and cotton sweaters that were so loosely knit they could not hold their shape.

26:00Even when outright rationing is not undertaken, government purchases nevertheless distort the economy. For instance, large purchases of steel will lead to price increases, making it more difficult for private businesses that use steel to meet their competition in a global market. If the higher prices attract new producers of steel, this new production comes at the cost of abandoning other industries, thus further skewing the economy in favor of the government's preferences over those of the consumer. Fewer, dearer goods and less money with which to buy them. There is your wartime prosperity. And that is not to mention all the wealth that could have been produced if the requisite labor and material inputs had not been diverted into war production. Now it is no answer to say that the armed forces and the munitions are necessary in order to win whatever war it is.

26:50True as that may be, that's not the issue here. The issue is, does war make Americans more prosperous? Now, the view that war brings prosperity had until recently been entrenched as the conventional wisdom, particularly in historians' treatments of World War II. The war, we are told, lifted the country out of the Great Depression. Scholars on left and right alike can be found predictably repeating this claim. Seymour Melman, who is quite sound on most issues, nevertheless sums up the conventional view. He says, the economy was producing more guns and more butter. Americans never had it so good. Well, as late as 2004, I actually thought recent scholarship, which I'm going to share with you, had at last corrected this bizarre and dangerous misunderstanding of a central episode of our country's economic history, finally proving that the alleged wartime prosperity had been and logically had to be only an illusion.

27:43Then, in an appearance on a major radio program, it was Fox News Live with Alan Combs, that pitted me against a distinguished professor several decades my senior, it was Alan Lichtman. There was the myth all over again, that was the way he answered me. I explained why the idea of wartime prosperity was on the face of it obviously a fantasy, no different from the fallacies we hear all the time from the mainstream media about the jobs that earthquakes and floods will bring. But Professor Lichtman simply pointed to the national income statistics of the early 1940s, which reveal a tremendous economic boom. Well, a more egregious lack of acquaintance with modern scholarship can hardly be imagined. Since the 1990s, important scholarly work has completely undercut this fable.

28:31This scholarship has directly confronted these typical arguments, the wonderful GDP figures for the war, the incredible 20% annual growth rates from 1941 to 1943, and so on. Simply put, these statistics are completely meaningless. What do I mean by that? Well, let me cite the work again of Robert Higgs, who has been a pioneer in this. Higgs has suggested that it should have been obvious to us that something was wrong with these GDP figures. And he says this, he says, consider, consider all these peculiar aspects of these figures. Consider that between 1940 and 1944, real GDP increased at an average annual rate of 13%, a growth spurt wholly out of line with any experience before or since.

29:17Moreover, that extraordinary growth took place not withstanding the movement of some 16 million men, equivalent to 28.6% of the labor force in 1940, into the armed forces at some time during the war, And the replacement of those prime workers mainly by teenagers, women with little or no previous experience in the labor market and elderly men. Is it plausible that an economy subject to such severe and abruptly imposed human resource constraints could generate a growth spurt far greater than any other in its entire history? Further, is it plausible that when the great majority of the servicemen return to the civilian labor force, Some 9 million of them in the year following VJ Day. While millions of their relatively unproductive wartime replacements left the labor force, the economy's real output would fall by 22% from 1945 to 1947.

30:13That's pretty devastating to me. That does suggest, obviously, there's something very implausible about statistics that suggests great prosperity. So we'll get to what exactly really happened. Gene Smiley is, with Higgs, one of a small but growing number of dissenters, who concludes in his book, The American Economy in the 20th Century, the national income data showing such amazing prosperity during the war is simply not believable. Again, Vedder and Galloway, I cite, warn that aggregate economic statistics need to be viewed with a skeptical eye, particularly in periods such as this where there are pronounced governmental interventions in markets. Well, a central problem is that there cannot be meaningful national product accounting without market prices and the U.S. economy during World War II did not generate real market prices.

31:04It was a command economy full of distorted prices. In a command economy, the fundamental accounting difficulty is that the authorities suppress and replace the only genuinely meaningful manifestation of people's valuations, namely free market prices. The prices the US government paid for the goods and services it bought were essentially arbitrary in that they had no foundation in consumer choice as all other prices do. When the government places more of the economy into the command system, with spillover effects on the nominally private economy that remains outside the government's immediate control, the resulting output figures become more and more tainted by arbitrariness. GDP figures are especially arbitrary during economic conditions like those of World War II, a time when at least two-fifths of national output was part of the war economy and large classes of the remainder were controlled in one way or another and thus arbitrarily priced.

32:00Adding up a whole bunch of arbitrary nonsense numbers yields nothing but a gigantic arbitrary nonsense number. And yet it is nonsense numbers like this, that is the GDP figures for the war years, One way economists estimate a country's capacity to produce is to draw a constant rate of growth line connecting the output produced in two benchmark years. Robert Higgs did exactly that for the years 1929 and 1948, drawing a line depicting the rate at which the U.S. economy would have grown in the absence of the unusual conditions prevailing during the Depression on the one hand, in 1949 and 1948, drawing a line depicting the rate at which the US economy would have grown in the absence of the unusual conditions prevailing during the Depression on the one hand and the war on the other. And not surprisingly he found that the United States produced well below its capacity during the 1930s, the decade of the Depression.

32:51But during the war years he found that the American economy produced far above its production capacity, a contradiction in terms, which is why Higgs contends that the apparent super The ever-trend wartime boom in output was nothing but an artifact of an unjustifiable accounting system. Another problem with taking these GDP statistics at their face value is that we are also forced to accept what they tell us about the extremely prosperous year of 1946. As the official statistics would have it, the US suffered a terrible depression in that year. Real GNP fell by more than 20% in 1946 alone, the worst single year downturn in American history. Real output fell by 22.7% from 1944 to 1947. But the Great Depression of 1946 is every bit as much a phantom as the wartime prosperity to which the same faulty statistics also point.

33:44Americans were fantastically prosperous and enjoyed low unemployment in 1946. If you accept one though, you must accept the other. Since there was no Great Depression of 1946, What GDP figures obscure is that the private economy performed extraordinarily well in 1946. Private output increased by 30% that year alone, by far the most extraordinary single-year jump in private output in American history. That is a measure of prosperity, not how much the government is spending, but how much the civilian economy is producing. That is where wealth is created in America. Well, as the official statistics would have it, World War II was a time of great prosperity, and 1946 was a time of depression. The truth is just the opposite.

34:29What these statistics really show is just how substantially government activity can distort the true economic picture. And they also show that common sense must also be distorted.

34:45Government activity can distort the true economic picture, and they also show that common sense must always prevail. Diverting wealth away from private use and taxing consumers to pay for the diversion is not how prosperity is created. Are we asking too much to expect our historians to grasp that point?