Left-leaning economists often look back with nostalgia to the 1950s. Paul Krugman and Thomas Piketty, for example, long for the 1950s, when the income and wealth gap between the rich and the poor was less than it is now. True, people were less well-off then than now, but why does this matter? It is better to be equal in misery than unequal in prosperity.
Robert Kuttner, an economic journalist who often writes for the New York Review of Books, has done them one better. In an article, “Bringing the Supply Chain back Home,” appearing in that journal on November 18, he pines for the days of national economic planning during World War II. In those days, we had genuine prosperity that went far beyond recovery from the Great Depression. President Biden, with sufficient resolution and popular support, can restore us to those glorious times.
I am not exaggerating. Here is what Kuttner says:
World War II was an emergency that demanded a complete economic mobilization. In response to the war, the US government put forward a system of comprehensive economic planning unlike anything seen before or since. The government requisitioned critical materials, imposed wage and price controls, and underwrote the creation of war production factories and the purchase of a vast quantity of weapons…. The war experience demonstrated how a planned economy could use untapped economic potential that a market economy—with limited government policy tools like subsidies, tax incentives, and modest deficits—is unable to reach. Yet this government intervention stopped well short of socialism: the contractors were mostly private corporations, for which the war was a bonanza.
Robert Higgs has shown the mistakes in the notion of “World War II prosperity,” but this isn’t what I want to stress, so I will just touch on them briefly. As Higgs says, “If a nation shoves 11 million persons into military service and, as a result, reduces the number of unemployed persons by eight million, that performance scarcely signifies the achievement of true prosperity.”
And Kuttner himself acknowledges: “There were no civilian automobiles produced between February 1942 and October 1945 because auto plants were converted to the production of tanks, jeeps, aircraft, and artillery.” This is what we’re supposed to want to have back?
Of course an economy geared to wartime production can produce a great many tanks and airplanes. Soviet Russia did so as well, but this is hardly the sign of a successful economy. But, as suggested before, the main topic I want to address here isn’t the economic fallacies in Kuttner’s argument. It is rather that national planning of the sort he supports depends on viewing other nations as opponents. Instead of seeking peaceful relations with foreign nations, based on cooperation to mutual benefit through the international division of labor, we should instead emphasize national economic development and minimize dependence on foreign goods.
Kuttner is explicit about this: “Contrary to Ricardo’s notion of competitive advantage, many countries in fact use subsidies and trade barriers successfully to create technological capacity, generating greater wealth over time. As many economic historians have pointed out, countries like France and Germany, as well as others in East Asia, built their industries with extensive government aid and tariffs on foreign goods.”
The result of a reversion to trade barriers will be to make war more likely, and the extreme hostility that Kuttner directs against China is hardly encouraging. He might respond that this need not be the case. Wouldn’t a move toward national self-sufficiency decrease, rather than increase, the chances of war, since nations would be turned inward, rather than outward? This answer is not convincing: nations that deem certain resources necessary for their economic expansion will have an incentive to seize them forcibly if they are unable to secure through trade. Kuttner views America’s World War II economy with great favor, but he neglects to mention that the rise of economic planning during the 1930s throughout Europe was a time of militarization and buildup toward war.
There is another disturbing characteristic of the national planning that Kuttner favors. In such an economy, everyone is concentrated on one objective, realizing the goal of the national plan. To accomplish this, individual valuations must be swept aside and the values of the planners imposed on society. This can hardly be favorable to the freedom of opinion characteristic of a free society; this is in fact Hayek’s principal argument in The Road to Serfdom, that economic planning leads to totalitarianism.
I suspect Kuttner would be willing to pay the price. He contrasts the limited nature of the planning that can take place in the United States with the more comprehensive planning that can be undertaken in China, and in doing so seems to me to wish that we could move in the Chinese direction. But judge for yourself: “China is a Leninist one-party state. In World War II the US was a command economy, though without anything close to Beijing’s total control over the economy and society. Today, the US government’s powers are much more limited than they were during the war and after. Washington can offer subsidies and incentives, and it can require publicly funded projects to purchase domestic goods, under the Buy American Act. But even if the recommendations of the supply chain report go into effect, the US will be a long way from the command economy of World War II, much less China’s degree of dirigisme. And the more Biden’s industrial policies impinge on the freedom of America’s powerful multinational corporations to source supplies wherever they want, the more political resistance he will encounter.”
How unfortunate that we cannot go all the way back to the grandeur and glory of the World War II economy! But Kuttner wants us to try.