Japan will rise up in a better shape

Remember how Keynesian Larry Summers said that the earthquake/tsunami in Japan was bad because so many people were killed but that it had the silver lining of stimulating the Japanese economy?

Now we see that industrial production in Japan fell a record 15.3% in March. That’s some boom….

However it is worty to remind that the situation in Japan is not really comparable to America during World War II as no American cities or power plants were damaged during the war. So even if we accept for the sake of the argument that the war ended the depression, it would not validate the view that destruction of cities are good for the economy.

The comparison one could make is with Japan as well as Germany in 1945, as most of their cities were destroyed to varying extent by American-allied bombings. And while Japan and Germany (especially the Western part) did recover, there is no reason to believe that the bombings had speeded up the recovery. Indeed, the recovery had likely come sooner if the Japanese and Germans had their productive capacity intact.

As for the belief that the war was good for the American economy, I again recommend Robert Higgs’ writings on the subject.

In short, Higgs points out that the disappearance of unemployment was fake:

Ten million drafted, and others signed up because they didn’t want to get drafted into the infantry; so buildup hinged on coercion of workers. What if today we arrested that many people and put them into prison? We’d have to build the prisons and feed them; the jailed people could work. Gets rid of unemployment, but it’s fake.

Higgs also points out that it is very difficult to really estimate the value of military production because the „prices” used were more or less arbitrary estimates. The price controls used likely also meant the private sector production that remained saw deteriorating quality not captured by price indexes as one way to respond to price controls is to cut costs in ways that often reduce quality since it is only the price and not the quality that is controlled.

Moreover,  civilian GDP ( GDP minus military spending) fell sharply even accepting the official price indexes

What World War II really showed was then that the government can initiate a massive military build up at the expense of real prosperity. That doesn’t imply that spending binges from the government in general helps the economy, especially not if it is associated with the destruction of productive capacity.