New Deal - World War II and The End of The Great Depression

World War II and The End of The Great Depression

The Depression ended when the U.S. entered World War II in December 1941. Under the special circumstances of war mobilization, massive war spending doubled the GNP (Gross National Product). Military Keynesianism brought full employment. Federal contracts were cost-plus. Instead of competitive bidding to get lower prices, the government gave out contracts that promised to pay all the expenses plus a modest profit. Factories hired everyone they could find regardless of their lack of skills; they simplified work tasks and trained the workers, with the federal government paying all the costs. Millions of farmers left marginal operations, students quit school, and housewives joined the labor force.

The emphasis was for war supplies as soon as possible, regardless of cost and inefficiencies. Industry quickly absorbed the slack in the labor force, and the tables turned such that employers needed to actively and aggressively recruit workers. As the military grew, new labor sources were needed to replace the 12 million men serving in the military. Propaganda campaigns pleading for people to work in the war factories. The barriers for married women, the old, the unskilled—and (in the North and West) the barriers for racial minorities—were lowered.

In 1929, federal expenditures accounted for only 3% of GNP. Between 1933 and 1939, federal expenditure tripled, but the national debt as percent of GNP hardly changed. However, spending on the New Deal was far smaller than spending on the war effort, which passed 40% of GNP in 1944. The war economy grew so fast after deemphasizing free enterprise and imposing strict controls on prices and wages, as a result of government/business cooperation, with government subsidizing business, directly and indirectly.

Despite conservative domination of Congress during the early 1940s, a number of progressive measures supported by business in the name of efficiency and safety were legislated. The Coal Mines Inspection and Investigation Act of 1941 significantly reduced fatality rates in the coal-mining industry, while the Servicemen's Dependents Allowance Act of 1942 provided family allowances for dependents of enlisted men of the Army, Navy, Marine Corps, and the Coast Guard, while emergency grants to States were authorized that same year for programs for day care for children of working mothers. In 1944, pensions were authorized for all physically or mentally helpless children of deceased veterans regardless of the age of the child at the date the claim was filed or at the time of the veteran's death, provided the child was disabled at the age of sixteen and that the disability continued to the date of the claim. The Public Health Service Act, which was passed that same year, expanded Federal-State public health programs, and increased the annual amount for grants for public health services.

The New Dealers wanted benefits for everyone according to need. The conservatives however proposed benefits based on national service, and their approach won out. The "G.I. Bill" was a landmark piece of legislation, the Servicemen's Readjustment Act of 1944. It provided 16 million returning veterans with benefits such as housing, educational, and unemployment assistance, and played a major role in the postwar expansion of the American middle class.

A major result of the full employment at high wages was a sharp, long lasting decrease in the level of income inequality (Great Compression). The gap between rich and poor narrowed dramatically in the area of nutrition, because food rationing and price controls provided a reasonably priced diet to everyone. White collar workers did not typically receive overtime thus the gap between white collar and blue collar income narrowed. Large families that had been poor during the 1930s had four or more wage earners, and these families shot to the top one-third income bracket. Overtime provided large paychecks in war industries, and average living standards rose steadily, with real wages rising by 44% in the four years of war, while the percentage of families with an annual income of less than $2,000 fell from 75% to 25% of the population.