Excerpts from What Really Ended the Great Depression by Stephen Moore:
However, I’ve been deluged with the same question from readers: Ok, what did end the Great Depression? Again, the history books get this chapter of history wrong. Most history books tell us that it was government spending on steroids to mobilize for World War II after the Japanese attacks on Pearl Harbor on Dec. 7, 1941.
In the 1940s, government spending did indeed surge. The federal share of gross domestic product (GDP) rose from less than 12 percent in 1941 to more than 40 percent in 1943-45. In other words, almost half of everything that was produced in the nation was to fight the war. Domestic spending on many FDR New Deal programs in education, training and social services dropped more than 90 percent.
The real issue is what caused the economy to surge after the war was over.
Here’s what happened. Government spending collapsed from 41 percent of GDP in 1945 to 24 percent in 1946 to less than 15 percent by 1947. And there was no “new” New Deal. This was by far the biggest cut in government spending in U.S. history. Tax rates were cut and wartime price controls were lifted. There was a very short, eight-month recession, but then the private economy surged.
Here are the numbers on the private economy. Personal consumption grew by 6.2 percent in 1945 and 12.4 percent in 1946 even as government spending crashed. At the same time, private investment spending grew by 28.6 percent and 139.6 percent.
The less the feds spent, the more people spent and invested. Keynesianism was turned on its head. Milton Friedman’s free markets were validated.
In sum, it wasn’t government spending, but the shrinkage of government that finally ended the Great Depression. That’s what should be in every history book — but isn’t.
Yeah, there was a lot of government spending during World War Two. Just like there is a lot of government spending now, okay, fine, sure.
Yeah, the government spending fell like crazy in the transition to a peacetime economy. Just like Stephen Moore wants government spending to fall like crazy now.
Stephen Moore would have us believe that the fall of government spending is what really ended the Great Depression. Stephen Moore is an ass. Do you want to know what happened, that prepared the economy for a generation of vigorous growth? It's very simple. Let me show you: