Monday, January 5, 2009

Societal Slack in World War II and Today

By Nader Elhefnawy

After the September 11th attacks, it became very fashionable to draw parallels between the present moment and World War II on a number of levels, not least of them, the prospect of the country mobilizing (to some degree) in similar fashion. Of course, the comparisons have become less frequent, with the passing of the "Greatest Generation" mania of the 1990s; an increasingly skeptical attitude toward the conflicts fought under the larger heading of the War on Terror; and the appearance of much more rigorous economic analysis of the situation, like Joseph Stiglitz's recent The Three Trillion Dollar War.

Nonetheless, with those claims ringing in my ears, I penned an article which ran in Parameters in 2004 which attempted to look at the comparison with a little more rigor. (The piece, "National Mobilization: An Option in Future Conflicts?" can be found by clicking here.) Given my recent revisiting of the question of societal slack, it seemed fitting to revisit this particular discussion as well, the last really total" war involving the major industrial powers being a particularly useful test of the capacity for mobilization of this kind.1

One may as well start with the sheer scale of the war effort. The total defense outlays by the U.S. government for the 1941-1946 period comes to about $3.75 trillion in 2008 dollars, with the budget peaking at nearly a trillion dollars a year in 1944 and 1945.2 Daunting a figure as that still is by today's standards, it represents more than twice the country's whole gross domestic product in 1940, when the mobilization began.

This extraordinary effort was only conceivable because of three factors:

* The comparatively low preexisting levels of taxation, spending and debt.
* The political feasibility of progressive taxation.
* The rapid growth of the U.S. economy during (and after) the war.

The low preexisting levels of spending and debt allowed the U.S. government great scope in raising more revenue, by enlarging taxation and borrowing additional funds. In 1940, Federal revenue was equal to 6.8 percent of GDP, while Federal debt came to $52 billion ($790 billion in 2008 dollars) 52 percent of Gross Domestic Product.3 During the war, taxes tripled to over 20 percent of GDP by 1944-45. Debt quadrupled to $260 billion ($3.16 trillion in 2008 dollars) by 1946.4

Progressive taxation was indispensable to that enlargement of taxation. The share of individual income tax in Federal receipts tripled between 1940 and 1944, from 13.6 to 45 percent (and from roughly 1 to 9.4 percent of GDP), with the highest bracket set at 91 percent. Additionally, corporate income tax swelled to a record 39.8 percent of receipts in 1943 (and from roughly 1 percent to about 7 percent of GDP between 1940 and 1944-45).

And of course, economic expansion was the base on which everything else was built. In 1940, American GDP was $101 billion (roughly $1.58 trillion in 2008 dollars) according to the Bureau of Economic Analysis. By 1945, it was $219 billion (or $2.7 trillion), an over 70 percent increase. It was that growth which permitted the U.S. government to take in so much more revenue (equal to 45 percent of 1940 GDP in the last year of the war), and spend so much (the $82 billion defense bill of 1945 being equivalent to a trillion of today's dollars, and roughly 63 percent of 1940 GDP).5

It also enabled the Federal government to bear a vastly expanded debt, about four times as large as at the war's start. Relative to GDP it was twice as big in 1946 as 1940-but just 121 percent of it after the growth of the interceding years.6 With the readjustment of the U.S. economy in the following years, the economy was about as large in 1950 as it had been at the end of the war, but from 1950-1973 it continued to grow rapidly, averaging 4.2 percent a year in real terms. As a result, the level of Federal debt to domestic product actually fell all the way through the 1970s, from its 1946 level to 32 percent in 1981.

A proportionate level of effort today would mean ramping up annual defense spending up to the area of $9 trillion, and $35 trillion for the whole period, supported by the raising of Federal revenues to $7 trillion a year, and the amassing of perhaps $30 trillion in Federal debt, all by 2014. Assuming a reason to attempt such an effort was to appear, does it seem plausible that this would work out?

My conclusion then, which I still stand by, is that it is very doubtful. The U.S. is in most respects a fiscally more constrained country than it was in the years before and after World War II. While the total share of Federal receipts in GDP has dipped somewhat due to the tax cuts after 2001, it is still at 18 percent. Gross Federal debt, which held roughly steady from 1948 to 1981 in real terms (hovering around $2.3 trillion in today's dollars), has since quadrupled, expanding markedly faster than GDP so that it is now equal to 68 percent of Gross Domestic Product, and the continuing deficits may be much worse than they look.7 Progressive taxation on the scale of the World War II era also seems more doubtful, even under emergency circumstances, as Christopher Hood observed in a recent article, "The Tax State in the Information Age."8

Additionally, while future economic growth is hard to predict under such altered circumstances, there are reasons to think it would not be so dramatic. One is that the U.S. economy is far less manufacturing-intensive, and much more service-oriented, meaning slower productivity growth, and overall growth, for the foreseeable future. Meanwhile, it may be that modern industrial bases, geared toward far greater efficiency than the plants of the 1940s were capable of achieving, may secure that efficiency at the price of flexibility. In the event of an emergency requiring a dramatic redirection of industrial output, all of this may imply a frustrating shortage of capacity-and perhaps, an experience more reminiscent of Britain's during the war than the U.S.'s.9

In short, while the U.S. is a much wealthier and more productive society today than it was in the 1940s (with more than five times the GDP of 1945, roughly nine times what it had in 1940), it may have relatively less slack. Those who would resort to the analogy should keep that difference in mind.

1 Slack includes, but is broader than, "mobilizable wealth" as discussed by John Mearsheimer, among others, as slack also includes in-built resilience. For a discussion of mobilizable wealth in international politics, see John J. Mearsheimer, The Tragedy of Great Power Politics (New York: W.W. Norton, 2001), pp. 62-65.
2 Budget of the U.S. Government Fiscal Year 2004 (Washington D.C.: Government Printing Office, 2003), Table 6.1, p. 109. Some might argue that the full cost of World War II did not end there, considering a range of expenses including the continuing occupations of Germany and Japan. However, the demobilization of U.S. forces was largely completed as of mid-1947, a year in which the defense budget was an eighth of its 1944-45 peak (when it ran nearly a trillion dollars a year, after adjustment for inflation). After that point, the immediate problems of the Cold War could be considered more relevant to defense planning.
3 Budget 2004, Table 1.3, pp. 25-26.
4 Budget 2004, Table 7.1, pp. 116-117.
5 In all, the defense bill came to a quarter of U.S. GDP for the years 1941-6.
6 The enlargement of the size of the government and its debt is even more dramatic if the war is seen as part of a larger crisis, beginning with the Great Depression of 1929. Total government spending went from 9.1 percent of GDP in 1929 to 14.7 percent in 1940, mostly as a result of the Federal government's share of GDP quadrupling from 1.6 percent in 1929 (prior to that time, state and local government were much larger) to 6.8 percent of it in 1940. Gross Federal debt also came close to quadrupling between 1929 and 1940 (from 16 to 52 percent of GDP, even after the economy, between 1936 and 1940, grew 20 percent above its 1929 level), before the war began. Combined with the quadrupling of the debt again in the war years, this resulted in the U.S. carrying fifteen times as much debt in 1946 as it had in 1929. (During the period as a whole, the economy expanded by a factor of two.)
7 Officially, the U.S. Federal deficit in 2006 was $248 billion, roughly two percent of GDP. However, when corporate-style accounting was brought to bear on the problem, the figure was in the area $1.3 trillion, closer to a staggering 9-10 percent. Dennis Cauchon, "Taxpayers on the Hook for $59 trillion," USA Today, May 28, 2007. Accessed at This is also without considering the likely overstatement of U.S. GDP as a result of inflated growth estimates, particularly during the last decade; and perhaps, other economic changes not adequately registered by GDP, like deindustrialization, the depreciation of infrastructure, and the enlargement of private debt. See Kevin Phillips, Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism (New York: Viking, 2008), pp. 85-88. According to the think tank Redefining Progress, which developed the Genuine Progress Indicator (GPI) as an alternative, U.S. per capita GPI has stayed roughly flat for the last three decades. See Dr. John Talberth, Clifford Cobb and Noah Slattery, The Genuine Progress Indicator 2006: A Tool for Sustainable Development (Oakland, CA: Redefining Progress, 2007). Accessed at
8 Christopher Hood, "The Tax State in the Information Age," in T.V. Paul, John A. Hall and G. John Ikenberry, eds., The Nation-State in Question (Princeton, N.J.: Princeton University, 2003), p. 217.
9 An interesting account of this can be found in Paul Kennedy, The Contradiction Between British Strategic Planning and Economic Requirements in the Era of the two World Wars (Washington D.C.: International Security Studies Program, Wilson Center, 1979). The essentials of his analysis can also be found in the latter chapters of his book The Rise and Fall of British Naval Mastery (London: Macmillan, 1983).

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