When I talk about my work for Mercatus on the post-World War II economic boom, one of the responses I often get is that a major reason is the fact that European economies were devastated and, therefore, the U.S. economy faced a huge demand for exports and very few competitors.
It turns out that that is a non-factor. Recall that the war ended in 1945. Here are the U.S. data. X, the second column, is U.S. exports in billions of $. GNP, the third column, is U.S. GNP in billions of $. The 4th column is U.S. exports (X) as a percent of U.S. GNP:
| Year | X | GNP | X/GNP |
|---|---|---|---|
| 1945 | 0.8 | 213.6 | 0.37 |
| 1946 | 0.8 | 210.7 | 0.38 |
| 1947 | 1.3 | 234.3 | 0.55 |
| 1948 | 1.1 | 259.4 | 0.42 |
| Source: Economic Report of the President, January 1965, Tables B-80 (for exports) and B-1 (for GNP). | |||
With exports well under 1% of GNP, they can’t have been an important source of the post-war boom.
When you think about it, that makes a fair amount of sense. You don’t export a lot to people who are so poor that they would have trouble paying for the exports.
Apology: I can’t figure out how to have a clean table where the numbers are under the column label. [I formatted the table for you, David.–Econlib Ed.]
UPDATE: “david” points out below that I made a serious mistake in reading the table on exports. He’s right. These are monthly data, not annual. So multiply each number by 12. Then you get exports on the order of 4 to 6.5 percent of GNP. Probably still not enough to explain the boom, but my slam-dunk point is no longer slam-dunk. Thanks, david.
READER COMMENTS
Daniel Kuehn
Aug 24 2012 at 6:35pm
Do you know how the Marshall Plan was counted? That might be interesting to look at.
David R. Henderson
Aug 24 2012 at 6:39pm
@Daniel Kuehn,
Good question. No I don’t but I agree that one should look at it.
Joshua Wojnilower
Aug 24 2012 at 6:58pm
David,
Good insight. I think the inability of Europe to support massive imports is often missed in the equation. The boom was clearly driven by domestic factors, which should not be surprising given that both demand and supply had been repressed during the inter-war years.
Daniel Kuehn
Aug 24 2012 at 7:02pm
re: “Good insight. I think the inability of Europe to support massive imports is often missed in the equation.”
Well – current imports.
Europe was liberated and Bretton Woods paved the way for normalization of post-war trade. It still made sense to invest to provide for future exports, particularly when you look at how low investment was during the war. I think David has that series in his paper. With investment that low during the war at a time when the economy was nevertheless operating at full capacity, its no wonder there was a lot to invest in afterwards!
Samuelson was a Cassandra on all this. It’s very important to keep him in context.
allen
Aug 24 2012 at 7:32pm
I think a better explanation is that the various bureaucracies enacted under Roosevelt were devastated by the exigencies of WWII and didn’t really start to recover until well into the fifties.
Richard O. Hammer
Aug 24 2012 at 10:52pm
If your editing interface allows you to insert HTML, you could insert an HTML table, which has pretty straightforward syntax.
Shayne Cook
Aug 25 2012 at 7:17am
Dr. Henderson:
“It turns out that [huge demand for exports and very few competitors] is a non-factor.”
I rather suspect there was a great deal more to the wealth production of the post-war U.S. economy than is captured in GNP/GDP data.
david
Aug 25 2012 at 9:06am
You’ve made a mistake in reading the tables. Table B-80, from which you draw export data, gives average monthly data, whereas Table B-1 gives annual data, so you are accidentally giving figures that are 1/12 of their actual amount.
david
Aug 25 2012 at 9:10am
Atop that, given Daniel Kuehn’s remark regarding Marshall, I am a little wary of B-80, since it gives merchandise exports alone. Whether or not this includes export of military goods and services is hard to tell; at the time France and Britain were spending substantially to defend colonial holdings.
Daniel Kuehn
Aug 25 2012 at 10:06am
As you know, I have an interest in this whole argument too, so I reposted your point on my blog.
A frequent commenter shared this article on exports and the post-war boom, which you might be interested in: http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=8287713&fulltextType=RA&fileId=S0022050711001598
I haven’t read it, but he suggests it finds that they were important.
He’s working on his dissertation right now on housing and the post-war boom, and he suggests that it’s also important to differentiate between private investment generally and residential investment (presumably attributable to federal policy to a large degree).
Jim Glass
Aug 26 2012 at 4:50am
From FRED, here’s a chart of exports and GDP. The naked eye tells us: exports, not so much.
The data can be downloaded from there too, and says the same thing. It shows that exports indeed more than doubled from 1945 to 1947, going from $32.5 billion to $80 billion (2005 dollars).
That’s up $47.5 billion. But in the same period GDP declined by $236.1 billion, from $2,010.7 to $1,774.6
So the export boom didn’t stop GDP from declining by more than 11%. And after that 1947 peak exports declined, and didn’t get back up over the $80 billion number again until a decade later, 1957.
So it sure doesn’t look like the boom during those years was driven by exports.
David R. Henderson
Aug 26 2012 at 12:09pm
@Jim Glass,
If you want to see why I doubt that the apparent fall in GDP was a real fall, see my Mercatus study that I linked to in the post.
michaelm
Aug 26 2012 at 12:53pm
I always thought the post-war boom was driven by low IMPORT prices, rather than high export revenue. That is, with the US as the only substantial industrial producer a lot of industrial input producers around the world had essentially one market to sell into, leading input prices to be lower than they might otherwise have been, benefiting the end consumer.
Jaros
Aug 26 2012 at 1:12pm
The argumant that exports to devasted countries made the US rich is illogical. Poor countries have less money to buy import’s, poor countries in Africa don’t drive economic growth in the U.S.
Jim Glass
Aug 26 2012 at 4:53pm
@Jim Glass, If you want to see why I doubt that the apparent fall in GDP was a real fall, see my Mercatus study that I linked to in the post.
I’ve no problem with that. The point is that the data at FRED agree with what you said, exports didn’t drive the boom.
Matt R.
Aug 27 2012 at 2:17pm
Here is another FRED graph
If you are talking about the immediate recovery after the war then there is probably a good story to tell with exports rising by almost 5% of GDP in the immediate aftermath of the war.
However, if you are talking about the whole 1946 to 1973 period then it does not really look like that strong of story. We don’t have the pre-1929 data so it is a bit tough to really tell.
Comments are closed.