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History US Military Economy

ROOSEVELT’s New Deal, 1933-1945

New Deal deficits create strong economic growth: correlation .73 from 1934 through 1939. New Deal Provides Five Times War Growth: Total growth from 1933 to 1941 was 86%. Total growth from 1942 to 1947 was 17%. Unemployment change followed deficit change R=.74.  Note that unemployment decreased at a steady rate from 1934-1941 except for one year.  That one year, 1938, the increase set back the recovery by about three years.  Without that setback the economy would have recovered in1940. That setback was actually a two year process, when Roosevelt attempted to balance the budget. This created the mistaken impression that World War II caused the ending of the Great Depression.  This delayed recovery caused the end of the Great Depression to be postponed until 1943 instead.  The biggest economic drop years in the last 100 years cover the multiyear 1930-33 trade war of the Great Depression and the 2 post world war three year stagnation periods 1919-21 and 1945-47.  Reality follows with a simple model based on Military Lowering & Deficit Raising Economic Growth Rate: Best Fit occurs from 1941-1948, with Correlation of  -0.97.  Key statistic is the Net Military Burden (Military minus Deficit) Increases from 1941 to 1946 steadily lowering the growth rate from positive 15.9% to negative 11.9%.  1946-1948 both trends reverse as the lowest military (3.7% of the economy) of the entire Cold War in 1948 creates enough growth to re-elect President Truman.

WILSON and the Twenties (1913-1926)

Note the 1914 US economic slump as the World War begins.  Not unlike the Swedish slump in WWII. Both are cases of a neutral country losing trade with some of the warring parties.  Note how the war boom is more than cancelled by the three year postwar slump.  Note how the postwar slump translates into Wilson’s League of Nations confirmation problem. Note how the roaring twenties only roared for five years (1922-26), after the Spindeltop Texas oil surge and automobile sales covered the easy top 20% of Americans, then stalled. Although the stock market crashed October 28, 1929, the economic growth drops of the Great Depression did not start until June 1930 when the Smoot Hawley tariff bill was signed into law.

HOOVER Election and the Great Depression (1927-1933)

Hoover was elected in the 1927-1928 two year no growth economy.  The Smoot-Hawley special session of Congress starting in September 1929 lead to the stock market crash four days after the bill was finalized by the committee. Economy continued strong until the June 11, 1930 signing of bill.  1000 economists signed a petition to Hoover to not sign the bill predicting it would lead to a trade war with Europe.  Trade was 7% of the economy in 1929.  After the signing of the bill, trade dropped to 2% of a then 30% lower economy in 1933.  Hoover attempts to balance the budget doubled the rate of collapse in 1932.  Economy bottomed in1933 due to lost trade from bill at an unemployment rate of 25%.


Notice that the economy grows about 10% per year 1934-1943 except for 1937-38.  The 1938 recession was due to trying to balance the budget running for reelection in 1936.  The new social security tax and jobs program cuts shrunk economic growth 5% and increased unemployment from 14% in 1937 to 19% in 1938.  Without this blunder, full employment would have been by 1940 not 43.  Unemployment was dropping about 3% per year with New Deal jobs program spending.  We would have been spared the myth the war ended the depression.  Note the high net military burden devastates the growth rate in the 1944-47 period.


With the tariff bill crashing the world economy in depression, the GATT restarts world trade January 1, 1948 and combined with lowest military of the Cold War to produce the first growth after the war in 1948, just in time to re-elect Truman after three years of negative growth.


Ike doubles Truman’s 5% military to 10% military budget percent of the economy after Korea leading to the worst decade of the Cold War in lost share of world GNP by the US.


Kennedy increases the deficit with an investment tax credit which steals all the credit from the lower military also creating the sixties boom.


Johnson’s war stalls the economy with flat productivity in 1967 and slowing growth in 1969-1970.


The burst of growth in 1972 comes as Nixon signs a 20% social security increase into law. But Watergate, end of war, and oil crisis trigger two year slump in 1974-75.  The recovery comes to late in 1976 to save Ford. This preserves the record of low military states losing all Cold War elections as the man from high military Georgia wins.


Carter’s does the responsible raising taxes in 1978.  Economy slows in 1979-80 further due to oil crisis and military buildup.


The biggest peacetime increase in military spending of the Cold War hires jobs away from productive industries, creating the 1982 recession and 10.8% unemployment. The three year phased in tax cuts were twice as large as the military increase, giving a net stimulus to the economy by re-election year 1984 as the high military half of the country grows at triple the rate of the low military half of the country.  This military states real estate bubble bursts in the Savings and Loan crisis at the end of the decade.


The 1990 tax increase and the three year post Cold War slump combine to defeat him in 1992. The Gulf war is not enough to stop the tide of the massive end of Cold War military cuts.  These released military resources later create a great manufacturing boom in the nineties under the next president.


The 1993 military cut combines with Bush 41 Cold War peace dividend and the fastest changing part of the long cycle boom period to give prosperity and a balanced budget.  Despite 1993 trade treaties manufacturing jobs and incomes rise as 23 million jobs are added to the economy.  Trade losses are not enough to offset the manufacturing injection from the end of the Cold War military economy.  Military spending economy drops from 6.5% in 1986 to 2.9% by 1999, adding 3.6% of GDP to capital investment in the real economy each year.  The normal 54 year cycle takes the form of the internet economy, which is so strong that while balanced budgets slow the stock market, the economy continues for a while longer before the mild military buildup at the end of the Clinton years creates a stall that is amplified by the post 9-11 two year military buildup.


2.8 million factory jobs are lost in the two year military buildup after 9-11-01, 1 million from trade and 1.7 million from the military buildup. Iraq surge helps trigger the collapse of the house of cards mortgage fall in 2007 set up by runaway real estate in military buildup states in the early war years.  This is very similar to what happened in the eighties Reagan military buildup followed by the Savings and Loan bust.  Once again the bi-coastal military and the monetary drain the real economy of the industrial Midwest where job losses were triple those of the military half of the nation.  Military spending surged from $280 billion before 9-11 to $405 billion including homeland security increase after 9-11.


The first Democrat since World War II to NOT cut military in his first year in office, adding to the sluggish economic recovery.  Bad advice came from hawk economist Larry Summers.  Obama should have listened to Biden or Clinton’s Nobel Laureate Economist Joseph Stiglitz.  Tripling troop levels in Afghanistan was not good for the economic recovery, although Larry Summers’ military Keynesianism would predict that military jobs would be good for the economy.

For more on the Depression War Roosevelt Period:

For more on the 100 year military economy US history: 1910-2009

Professor Robert Reuschlein, Dr. Peace,

Nominated for the Nobel Peace Prize 2016

Real Economy Institute, Madison, Wisconsin

CONTACT: 608-230-6640,



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