How we paid for the War on Terror
Reducing his analysis to MMT, as some here are doing, suggests that you don&#x27;t know about Tooze&#x27;s area of study. His magnum opus, probably one of the greatest books in modern economic history, looked at precisely these questions of govt spending being taken to the limit (in Nazi Germany).<p>But, a bit like those who specialise in Japanese economic history, I feel like it is pretty misleading to base your argument for MMT on purely wartime measures: not only is the level of govt spending changing but the allocation of resources is changing...that is very different to a non-wartime economy where there aren&#x27;t huge supply changes.<p>After WW2, there was huge economic dislocation and inflation. But it seems very churlish to look at WW2 and say: there are no limits to spending. When: most economies in the world effectively shut down, trade shut down, there was massive destruction of supply, massive financial repression...financial repression in the US, by far the economy that was least negatively impacted, didn&#x27;t end in truth until the mid-60s. The UK economy didn&#x27;t recover in full until the 90s.<p>Crowding out does occur. It isn&#x27;t unusual. There is ample evidence of it occurring. It is dangerous to point out too that &quot;there is no limit&quot; and then fail to mention that your only sources for this claim are dictatorships or countries at war...there is a reason for this (it is often politically unpalatable to take control over production such that crowding out is prevented).<p>The reason why there was no crowding out, to be blunt, is that these wars weren&#x27;t very expensive. They provide no evidence to support the claim that: that we are nowhere close to the real limit on spending. Almost every industry right now has shortages, and the economy isn&#x27;t close to full capacity because the labour participation rate is low? Rakakakakaka.<p>I like Tooze but this is very weak stuff (it is worth pointing out though, that the last part of the previous paragraph is essentially the Fed&#x27;s position...so we will likely find out who is right).<p>It is also interesting that he didn&#x27;t mention the 1920s more either...this is the ultimate &quot;proof&quot; that austerity makes no sense. But it is also worth pointing out that after WW1, lots of countries had the same issues after WW2. There were huge price changes in 1920 that basically felled the UK economy until the 90s (WW2 and US actions after were just the final nail in the coffin), it is quite foolish to suppose that the UK economy would have just magically recovered if the govt started spending...it was a supply-side issue, not a problem with demand (the US was the counter-point to this, the US started the decade with a relatively blank slate and this decade turned the US into a financial power competing with the UK...the UK was legacy, stuck with all the old industries that were shrinking, and struggled to retool after the war ended)...but yeah, usually every economic narrative that takes the Keynesian approach will mention 1920s UK...it is a classic (although misleading) example.