"The Case Against Direct Emulation of Nazism"
This seems like a silly case to need to make, but Tyler Cowen steps up to the plate with an argument that Adolf Hitler’s fiscal policies did not serve the public interest. Shocking, I know. The conclusion:
In other words, Nazi fiscal policy boosted measured gdp rather than driving a recovery with higher real standards of living.
He wants us to draw the broader conclusion that this should make us skeptical about the ability of spending-side fiscal stimulus to improve living standards. But the puzzle can be solved in this brief excerpt included in his post from a Robert J. Gordon paper:
Tooze confirms previous findings that relatively little of the expansion in public expenditures took the form of public works like the autobahns, while over 80 percent consisted of spending for rearmament. Abelshauser (1998, p. 169) calls this “military Keynesianism on a large scale.”
But of course I don’t think anyone ever thought that armaments expenditures increases living standards. When a country produces more HDTVs, more people have HDTVs and living standards go up. When a country produces more tanks and military explosives, none of the tanks or military explosives go into private hands (we hope!) so living standards are unchanged. But producing HDTVs doesn’t increase your ability to conquer France, whereas tanks and explosives are useful for conquering France. Hitler’s policy objective was to prepare for conquering France. And his policies worked quite well (though Ernest May reminds us not to neglect the importance of French intelligence failures), they just served Nazi objectives. But I don’t see why Hitler couldn’t have spent the money on something else.
If we use fiscal policy to raise measured GDP primarily through building tanks, we’ll have higher GDP and more tanks. But if we use fiscal policy to raise measured GDP primarily through repairing existing roads and building new mass transit and high-speed rail lines, then we’ll have higher GDP, better roads, and more mass transit and HSR systems. It seems to me that living standards would therefore be higher.
Cowen’s post does illustrate a point that often goes missing in American discussions, namely the fact that our habit of spending a much bigger share of GDP on the Pentagon than do our rich democracy peers has a substantial negative impact on American living standards. If that money were either spend on public sector programs that people could use, or invested by the private sector in creating goods and services that people want, most people would be better off. We’re used to thinking of ourselves as the most prosperous people on the planet, but between our massive expenditures on military hardware and medical waste and the highly inegalitarian distribution of our income, that’s increasingly not the case.