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Thesis statement

World War II caused devastating effects on the macroeconomics of the United States America.

Abstract

Although several people may associate the world war with a positive effect on the economic development of the U.S., The world war two had a significant negative impact on the economy of the U.S. to an extent, these effects are felt even to this day. This course work paper tries to examine the impact of World War II on the economy of the United States. This paper mainly focuses only on the impact of world war and does not discuss any political, moral, or any other justification of the conflicts (Levit, 2010). The article tries to examine the macroeconomic effects of the world war on the economy of the USA. The paper mainly focuses on the impact of the war on country GDP, public debts and taxation levels, inflation levels as well as income distribution.

Introduction

World war two was termed as one of the worst recorded military conflicts of all time. This war lasted for about six years, where more than 30 countries were involved in this war. According to the historian, this war claimed the lives of more than seventy million individuals, which at the time represented more about 4% of the whole world population. Apart from causing these massive deaths, the war had dare consequences on the economic meltdown of the nations involved. In the case of the United States, which was still under the influence of the great depression of 1929, which had led to the growth of the unemployment rate to a tune of 25%. The market crash also led to a decline in the Americans standard of living dropped down by about 60% less than when the 1929 great depression hit (Mills, 2000). With the emergence of World War II, this condition went from worst to worst, where several individuals were required to produce more food as well as weapons for those that were taking part in the war. Although several people believe that this war had a positive significant overall growth in the economy through public participation and opinion, this war had a considerable effect on the U.S. economy, which results are felt up to now.

Effects of world war two the country GDP

To fully understand the role of World War II played in can be analyzed through analyzing the GDP of the country as from the year 1929 and post the way. During World War II, a lot of resources were committed to supporting them, and this had a significant effect on the structure of the U.S. economy. From the data of the Bureau of economic analysis, it is clear that during the year 1941 to 1945, the U.S. economy witnessed a significant reduction in the increase of economic growth throughout the history of the U.S (Morison, 2001). This was contributed by the rise in government spending, especially when funding the war and reduction in government spending, which lead to reduced consumption rates as when compared to the period before the war. Although the government, since its establishment, has accumulated some debt, the U.S. witnessed unprecedented levels of public debt like no other in the history of the country since its founding. Among the factors that affect public debt includes government spending, levels of economic growth, as well as revenue collections. Public debt is usually measured as a percentage of Gross domestic product to show a comparison between the two. During this period, the country witnessed high levels of debt that exceeded its economy and reached levels that had never been seen before. The increase in public debt was contributed by massive military spending during the war, where the debt reached 120% of the country's GDP. About 37% of the country's GDP was used to fund the military operations. After the end of World War II, the public debt started to decline each year after the other for three decades showing clearly that the war had a direct effect on government spending. The debt began to rise again in the 1980s. To fund the war operation, the government had to borrow from the public and private sectors, which increase the public debt.

Effect of war ii on investment in the U.S.

An increase in government spending is directly linked to low investment. Although during the World War II period the U.S. witnessed growth, it was mainly through an increase in government spending and not investment. The period witnessed a massive decline in government investment as when compared to the period before the war. The government spent more on funding the troop operation, and this reduced investment levels. In the year 1941, it is approximated that the government spent about 41% of the GDP, where the amount of spending increased to about 79% in the next three years. This lead to a decline in investment from 11% to about 3% of the total GDP in the war period. Apart from affecting investment, consumption was also affected where it falls to about 46% from 67% when compared to the period before the war. Expenditures from the private sectors were also affected as no private sector who want to invest in a country where there is a lot of government spending on war and increase in public debt, which had a negative effect on the economy (Morison, 2001). An individual was also required to conserve food while producing much food as the food was becoming scarce, and importing was affected by the war, meaning it was not easy to import food from other states, especially those that were on the war. This discouraged investment from the individual as they worked toward producing more food and not investing. Individual opted to do more saving rather than investing.

Effects of World War II on inflation

Inflation refers to the overall increase in the prices of goods and services for a period of time. It means more is spent on products and service since there is more in the economy, which are chasing limited good and services. Because the U.S. economy was still struggling with the effects of the great depression that was witnessed in the year 1929, the price of goods and services had gone high, meaning that inflation was high. With the eruption of World War II, episodes of increased inflation were reduced as much of the money was spent to fund the war rather than to invest. The government had to get money from the public and thus reducing the amount of income from the audience. This led to a reduction in the prices of goods and services and thus leading to a decrease in inflation (Mills, 2000).

Income distribution

When it comes to income distribution world war, two contributed to enhancing income distribution. Which is one of the few positive contributions of World War II. World War II contributed to a trend that ended with the Vietnam war. Through the distribution of income, and advanced consumer economy was created. With the World War II, there was better income distribution of income where income distribution of the upper decile income decline from 45% which was experienced in the year between 1920-1940 declined to 32.5%> income distribution stayed stable at 33% until the year 1970 and late rose to 45% by the year 2007 (Harrison, 2000). This clearly shows the effect World War II had on income distribution and concentration in the U.S. Market movement was report to fall as from the mid-1941. It continued to fall, especially after Pearl Harbor was bombed.

Financing the war

Wars involving government lead to an increase in government expenditure, which is mainly achieved through increased taxation, government borrowing, reduced military spending, as well as money creation. Although the U.S. government has been involved in many wars, World War II was the most expensive war it the government has ever undertaken in its history. The war led to a massive increase in public debt and, consequently, a reduction in government spending. The rise in debt was primarily financed through government borrowing, which shows the growth of the public debts to high levels (Hastings, Jukes, Hart, & Hart, 2004).

Conclusion

Like other forms of government spending, military spending can act as an essential demand course in the economy down as it can lead to the emergence of new technologies, lead to the formation of new industries, create employment as well as new sources of demand. During World War II, big government spending leads to an increase in employment as well as rebuilding confidence; there was a massive reduction in investment and consumption due to structural changes that exited in the market economy. World War II had adverse effects on macroeconomic effect, which are directly attributed to high government spending on military spending. In paying for the war, the government either uses taxation borrowing or through inflation. Increased government expenditure has led to taxpayers burdening while the private sector investment and consumption have been constrained. Other effects of the war include the increased budget deficit, Increase in inflation levels as well as high taxes. The above figure, therefore, shows that World War II had an overall macroeconomic negative effect (Mills, 2000).

References

Mills, J. (2000). Post-World War II. Managing the World Economy, 97-126. doi:10.1057/9780333977842_5

Morison, S. E. (2001). History of United States Naval Operations in World War II: The Battle of the Atlantic, September 1939-May 1943. Champaign, IL: University of Illinois Press.