Austerity or Prosperity?

When you ask Keynesians for empirical evidence of how government spending creates prosperity, their best and most frequently cited answer is how World War II ended the Depression–a massive, increase in deficit-financed government spending. But as Robert Higgs has pointed out, the sharp decrease in unemployment that resulted was not due to the magic of some Keynesian multiplier but rather from conscription—forcing Americans into the Army. Higgs also argues that the increase in GDP is distorted by the challenge of measuring the value of government output–does the price of a tank commissioned under government contract represent value the way the price of a car does?—and price controls–some things were cheap but they were not freely available.

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