Was post-WW2 American prosperity artificial?

[The world will shine with light in our nightmare]

I recently came across a take on Facebook about how the prosperity that Americans enjoyed - the low cost of living, the increased economic mobility, and particularly the good manufacturing jobs - happened as a result of a war-torn Europe whose manufacturing bases were depleted, thus making these countries dependent on America for their automobiles and other goods. Therefore, Detroit, Cleveland, Youngstown, and other working-class cities enjoyed something of an artificial boom, simply because there was little foreign competition available.

To what extent, if any, is this true?

[Beet]

That's not true at all. By 1950 the economic output of Europe was already greater than 1939.

[Benjamin Frank]

That's not true at all. By 1950 the economic output of Europe was already greater than 1939.

Even with that, it's still the case that until the mid 1950s Europe was mostly trading amongst itself and this allowed the United States to be the worlds largest exporting nation in the 1950s. It wasn't really until the mid 1950s that first Germany started to compete with the U.S in exports and only then in high end goods.

In 1950, the U.S economy produced about 50% of total world GDP.

There were other wealthy fairly large nations in 1950 that hadn't been directly impacted by World War II: Australia, Canada and serveral South American nations, most notably Venezuela, Argentina and Chile.

Edit: Correction, the Japanese did bombing raids in Northern Australia. My mistake.

I think that Facebook Post is certainly true, except that it probably wasn't the case for long that the United States sold a large number of cars to Europe.  However, Europe (and Japan...) also didn't sell any cars to the United States (until a few years later for the high end market) and the U.S consumer automobile industry greatly expanded post World War II.

Of course, it wasn't just World War II, the world economy had stalled before that because of the Great Depression.

For the United States, 1947/1948 was more or less like 'before we were so rudely interrupted' in 1929.

[Meclazine for Israel]

In basic terms, the war united Americans together and got them really producing as they were under threat.

Their industrial strength won the war (and two bombs).

Looking at the number of ships and planes built is just staggering.

As a corollary, the post war period had some very stressed hard working people suddenly rejoicing in the success and fruit's of their own labour.

2022 is just a sad backwater compared to 1948. Go down to any local burger joint or Fedex agency and you will gauge the general level of enthusiasm in today's workers.

They don't have any zazz.

[Agonized-Statism]

Artificial isn't the right word; more like unsustainable. US industrial workers definitely took a hit with German and Japanese export expansion in the 1970s and when companies started outsourcing manufacturing to low cost countries in the 1980s. That's just one part of the story, though: economic expansion was also driven worldwide by productivity growth from new technologies, infrastructure, and energy sources (oil, which was particularly low-cost at that time, and nuclear), institutional arrangements promoting stability and cooperation (Bretton Woods monetary system, Marshall Plan, Comecon, the European Communities), and military spending. This growth was distributed more evenly across classes thanks to welfare states and strong unions, as well as the persistence of wartime progressive taxation, inheritance taxes, and the maturation of war bonds.

Again, this was unsustainable. Yes, the United States' share of the world's economic output dropped from 35% in 1950 to 27% in 1969 with the recovery of Germany and Japan. Competition increased. To make matters worse, Hong Kong, Singapore, South Korea, and Taiwan attracted foreign investment with tax incentives, and the capitalists started offshoring manufacturing to increase profit (the unionized workforce at home was more expensive, and environmentalists were bothered for some reason by rivers so polluted they would ooze and burn). It was also becoming increasingly clear that nuclear power wasn't going to bring about another huge increase in productivity (anti-nuclear movement, oil lobby, fusion power never being developed). The interstate highway system was nearing completion, and that was that for the 1950s boon to wholesale and retail trade. Meanwhile, as Martin Luther King himself pointed out, automation and other production efficiency techniques were starting to reduce the full employment enjoyed in the post-war years. The 1973 oil crisis hastened this transition to a post-industrial economy. Finally, the birth rate began to decline after 1957, which was inevitably going to cause deficient demand. By the 1970s, people were pointing out that a Malthusian collapse would happen if the post-WWII expansion in population and living standards went on forever, fearing that oil, copper, aluminum, lead, zinc, tin, and gold would be used up by 2000. Obviously that was hyperbolic, but they had a point that growth couldn't be infinite. It's telling that 1950s and 1960s sci-fi handwaved the prospect of commodities shortages away with interstellar colonization and replicators. The Oil Shock, like our COVID-19 supply chain issues, was a taste of what would come down the line that caused a big change in thinking. For them, it was the end of the faith in science and progress both feeding and fed by this economic expansion.

[Statilius the Epicurean]

US became the world's largest manufacturer around the turn of the century, and its share of global manufacturing in 1953 was not significantly higher than before the Great Depression. So no, it was not an artefact of WW2.



The postwar boom was driven by the advantages US industry had over the rest of the world in wages, productivity and scale stretching back decades.

[Benjamin Frank]

US became the world's largest manufacturer around the turn of the century, and its share of global manufacturing in 1953 was not significantly higher than before the Great Depression. So no, it was not an artefact of WW2.



The postwar boom was driven by the advantages US industry had over the rest of the world in wages, productivity and scale stretching back decades.

I disagree.  This chart adjusted for purchasing power parity shows fairly different results:



https://www.visualcapitalist.com/2000-years-economic-history-one-chart/

According to this chart, the U.S went from around 25% of World GDP adjusted for PPP in 1928 to around 38% in 1950, a roughly 50% increase.

[Statilius the Epicurean]

According to this chart, the U.S went from around 25% of World GDP adjusted for PPP in 1928 to around 38% in 1950, a roughly 50% increase.

I think that chart is misleading. The only two data points for global GDP in Maddison are 1913 and 1940. You're trying to eyeball a smoothed line between those points to tell you about 1929. It's missing the 20s peak and trough in the Great Depression (e.g. depicts US share of global GDP as growing steadily through the 30s...)

[Benjamin Frank]

According to this chart, the U.S went from around 25% of World GDP adjusted for PPP in 1928 to around 38% in 1950, a roughly 50% increase.

I think that chart is misleading. The only two data points for global GDP in Maddison are 1913 and 1940. You're trying to eyeball a smoothed line between those points to tell you about 1929. It's missing the 20s peak and trough in the Great Depression.

Fine, the problem with using a source from 1982 is that services weren't properly measured in trade data back then. It wasn't until several years later that it was fully appreciated that the current account and the capital account have an inverse relationship mainly due to the poor measurement of trade in services.

This is one reason why there was such a concern with trying to 'balance' trade through the 1970s (of course, Bretton Woods and the Gold Standard was also a factor in that up to the early 1970s) with the (false) belief that trade (current account) deficits would lead to some great economic doom.

So, I think you have certainly identified a problem in the chart that I've presented, but I don't trust your source either.

[Statilius the Epicurean]

According to this chart, the U.S went from around 25% of World GDP adjusted for PPP in 1928 to around 38% in 1950, a roughly 50% increase.

I think that chart is misleading. The only two data points for global GDP in Maddison are 1913 and 1940. You're trying to eyeball a smoothed line between those points to tell you about 1929. It's missing the 20s peak and trough in the Great Depression.

Fine, the problem with using a source from 1982 is that services weren't properly measured in trade data back then. It wasn't until several years later that it was fully appreciated that the current account and the capital account have an inverse relationship mainly due to the poor measurement of trade in services.

This is one reason why there was such a concern with trying to 'balance' trade through the 1970s (of course, Bretton Woods and the Gold Standard was also a factor in that up to the early 1970s) with the (false) belief that trade (current account) deficits would lead to some great economic doom.

So, I think you have certainly identified a problem in the chart that I've presented, but I don't trust your source either.

Well I was responding to the thread question about whether the origin of good manufacturing jobs in the US was the destruction of competitors in WW2. And the answer there is no, US manufacturing was dominant globally (and had the highest wages in the world) for decades before WW2.

If the war helped, I would say it was mainly as a stimulus to get American industry over the lingering effects of the Great Depression.

[Benjamin Frank]

According to this chart, the U.S went from around 25% of World GDP adjusted for PPP in 1928 to around 38% in 1950, a roughly 50% increase.

I think that chart is misleading. The only two data points for global GDP in Maddison are 1913 and 1940. You're trying to eyeball a smoothed line between those points to tell you about 1929. It's missing the 20s peak and trough in the Great Depression.

Fine, the problem with using a source from 1982 is that services weren't properly measured in trade data back then. It wasn't until several years later that it was fully appreciated that the current account and the capital account have an inverse relationship mainly due to the poor measurement of trade in services.

This is one reason why there was such a concern with trying to 'balance' trade through the 1970s (of course, Bretton Woods and the Gold Standard was also a factor in that up to the early 1970s) with the (false) belief that trade (current account) deficits would lead to some great economic doom.

So, I think you have certainly identified a problem in the chart that I've presented, but I don't trust your source either.

Well I was responding to the thread question about whether the origin of good manufacturing jobs in the US was the destruction of competitors in WW2. And the answer there is no, US manufacturing was dominant globally (and had the highest wages in the world) for decades before WW2.

If the war helped, I would say it was mainly as a stimulus to get American industry over the lingering effects of the Great Depression.

Even though in the preamble to the original question, it mentioned 'goods manufacturing' the actual original question was: "...was there an artificial booom because there was little foreign competition available."

That would include both goods and services.

I think it's important to point out though that while U.S GDP has declined in relative terms, in absolute terms, U.S GDP has never been higher (except for maybe the last quarter.)  

Whenever the prosperity in the U.S of the 1950s is brought up, somebody always points out how much smaller houses were then and how much less 'stuff' people had.

https://www.cyburbia.org/forums/threads/why-were-homes-were-so-small-in-the-50s-and-60s.47516/

I was hoping to not be that person, but I feel forced into it.

I certainly don't think the average person felt poor then though.  The 'consumer society' was really just beginning. A lot of this has to do with reference points and 'keeping up with the Joneses.'  

*Reference dependence is one of the fundamental principles of prospect theory and behavioral economics more generally. In prospect theory (Kahneman & Tversky, 1979), people evaluate outcomes relative to a reference point, and then classify gains and losses (see also loss aversion, endowment effect).

[Statilius the Epicurean]

Even though in the preamble to the original question, it mentioned 'goods manufacturing' the actual original question was: "...was there an artificial booom because there was little foreign competition available."

That would include both goods and services.

Well services, especially in the mid-20th century, weren't very tradable compared to manufacturing. But if the idea is that e.g. Wall Street benefited from the damage to the Bank of England during the war, sure. Although it's not like the US advantage in services was artificial considering it went from strength to strength to the end of the century.

I think it's important to point out though that while U.S GDP has declined in relative terms, in absolute terms, U.S GDP has never been higher (except for maybe the last quarter.)  

Whenever the prosperity in the U.S of the 1950s is brought up, somebody always points out how much smaller houses were then and how much less 'stuff' people had.

Agreed.

That said, I think the nostalgia for the midcentury is that unskilled and semi-skilled workers had a much higher wage relative to the upper class of the time than today, and therefore carried higher status. We're social animals and measure our wellbeing by the people around us, not by an abstract material standard.

Edit: I see you said the same thing in your edit