And that had no effect on ending the depression? Okay. Some ideas are so stupid that only professors and other liberal elites can believe them.
The depression was over prior to the war
My emphasis in bold
The Depression and the War
What about World War II? Did it end the Great Depression? More generally, is war good for the economy? I answer both in the negative and borrow here from Ludwig von Mises: "War prosperity is like the prosperity that an earthquake or a plague brings."
As Higgs points out, because of the array of interventions in the wartime economy, war material was valued incorrectly and therefore the GDP data overstate economic conditions. Moreover, conscription and arms production gave a misleading employment picture. Instead, Higgs argues, the war was a period of capital consumption rather than capital accumulation. Tanks, bombs, and helicopters have limited uses outside of military applications. The labor that was used to produce them was not available to produce consumer goods and services; in fact, people went without consumer goods. The warships at the bottom of the world's oceans represented lost opportunities for real consumption and prosperity. Conflict is sometimes necessary, but we should recognize what wartime expenditures represent: destruction of life and resources. If a depression constitutes a widespread contraction in living standards, then the Great Depression cannot have ended during the war.
The illusion of wartime prosperity is rooted partly in how national income was calculated and partly in how the statistics were compiled. Gross Domestic Product, one measure of a country's output, is defined as the sum of consumption expenditure, investment expenditure, government expenditure, and net exports. A serious problem arises with government spending: How do we assess something not traded in markets? We can assess my computer, my shirt, and my pen because I voluntarily exchanged money for them. How do we assess government purchases? In the national-income accounting they are valued at cost, but at best this only tells us what those resources could have earned in alternative lines of production. The costs don't indicate the value of what the government has produced.
This problem was compounded by price controls during World War II — official prices simply did not reflect the true cost of the war. If we are going to have meaningful economic calculation, we need real market prices. Price controls and similar interventions introduce arbitrariness and uncertainty. Procurement at below-market prices is a way to mask the cost of any endeavor. Consider the draft, which forces people into military service at wages below what they would earn on the unhampered market. The amount spent on wages and board for conscripts is an underestimate of the real cost of maintaining the force.
Economists increasingly acknowledge that institutions — the rules, norms, and enforcement mechanisms that make up a society's structure of incentives — are important determinants of economic outcomes. Changing the rules changes people's incentives, and some of the long-run effects of the New Deal and World War II have encouraged people to use political means (expropriation and redistribution) rather than economic means (production and exchange) to gain wealth.
As an economist interested in institutions, I think that the relationship between the New Deal interventions and political incentives remains understudied. Higgs pointed out that part of the ideological and institutional legacy of the New Deal is apparent in the expanded powers exercised by the Bush administration. I anticipate further expansion under the Obama administration. The protectionism and interventionism of the last several years have created incentives to seek wealth by developing cushy relationships with government officials instead of developing products people want to buy at attractive prices.
The experience of the last several centuries and of the American economy during the Great Depression and wartime suggests that the kinds of plans people advocate during crises require knowledge that is not merely beyond political leaders' grasp but that can only be revealed by the competitive market process. As we move further into the 21st century, I can only hope that we take those lessons to heart.