Negative Effects on the U.S. Economy Caused by World War 2
Negative Effects of World War 2
Contents
Although popular opinion holds that the United States economy significantly benefitted from World War 2, there were several adverse effects on the economy that occurred during and after the war. The United States was engaged in the war between 1941 (after the bombing of Pearl Harbor) through 1945 (after the surrender of the Japanese). During the war, almost all nations on the planet were affected in one way or another in both positive and negative ways. For American society, the war caused significant changes in almost all aspects of life, including political, social, and economic conditions.
- decrease in consumer spending
- increase in taxes
- increase in government debt
- disruption in international trade
- drop in the value of the U.S. dollar
Impact of Economic Reforms on the US during WW II
Despite progressive Democrats having a controlling interest in the United States government during WW2, most social and economic reforms were suspended to increase defense spending dramatically. At the same time, almost all anti-trust legislation was practically ignored to help further the war efforts by the United States. Most factories would go on to make the standard work day longer to help boost production. This was despite existing labor laws that were supposed to prevent this from happening.
Also, due to the draft, most of the nation experienced severe labor shortages due to men being called to serve in the armed forces. As a result, many child labor laws started to be ignored or relaxed, and many women also entered the workforce. During World War II, the number of teens entering the American workforce increased from just one million to three million. Of these numbers, approximately one-third were high school dropouts.
Reduction of New Deal Funding
Another negative impact on the United States economy during WW2 was the reduction in funding to a number of the New Deal agencies. These included the Works Progress Administration (WPA), the Civilian Conservation Corps (CCC), and the National Youth Administration (NYA). All these organizations have been implemented to help fight discrimination in the job market and help disadvantaged groups throughout the country.
Increase in the United States Federal Deficit
Another significant impact on the U.S. economy during WW2 was the substantial increase in United States Federal debt. The United States federal deficit increased from $3.9 billion in 1939 to $45.8 billion in 1943 to $47.6 billion in 1944 and 1945. These deficits were financed primarily by selling war bonds to the American public, contributing to a significant increase in the national debt.
| Year | Federal Deficit (in billions of dollars) |
|---|---|
| 1937 | 2.5 |
| 1938 | 1.8 |
| 1939 | 3.9 |
| 1940 | 2.9 |
| 1941 | 4.9 |
| 1942 | 20.4 |
| 1943 | 54.6 |
| 1944 | 47.6 |
| 1945 | 47.6 |
| 1946 | 15.9 |
| 1947 | 4.4 |
| 1948 | 12.4 |
| 1949 | 3.2 |
According to the Congressional Research Service, the national debt increased from $49 billion in 1941 to $259 billion in 1945. This represented a significant burden for the U.S. government and the American people and had important economic and political implications in the postwar period.
Increase in American Poverty
Although the number of jobs increased during World War 2, wages were kept artificially low in this same timeframe. As a result, 25 percent of all American workers made 64 cents or less an hour. The low wage levels also resulted in more than 20 million Americans being required to be barely able to afford bare subsistence during the war. Combined with the simultaneous reduction in New Deal programs by the government, the ability of the poor to obtain assistance was dramatically decreased.
| Year | Poverty Rate | Average Hourly Wage |
|---|---|---|
| 1937 | 34% | $0.54 |
| 1939 | 34% | $0.56 |
| 1940 | 40% | $0.55 |
| 1941 | 39% | $0.59 |
| 1942 | 33% | $0.65 |
| 1943 | 22% | $0.68 |
| 1944 | 25% | $0.68 |
| 1945 | 20% | $0.72 |
| 1946 | 32% | $0.85 |
| 1947 | 32% | $0.88 |
| 1948 | 32% | $0.88 |
| 1949 | 32% | $0.75 |
Rise of the American Corporation
Throughout World War 2, the United States government spent much money on government contracts to further the war efforts. More than 65 percent of these contracts would be awarded to the 100 largest corporations in the country. As a result, competing small businesses found themselves unable to make enough money to remain open. The slacking of anti-trust legislation enforcement would further compound the problem and allow large companies to thrive.
The rise of the American corporation after World War II was a significant economic trend in the United States. Here are some key points to consider:
- The war years led to significant government investment in new technologies and industries, which created opportunities for businesses to expand and innovate.
- After the war, the United States experienced sustained economic growth, with rising consumer demand for goods and services.
- The growth of the American corporation was driven by several factors, including new technologies, increased access to capital, and a favorable regulatory environment.
- Many of the most successful corporations of this period were focused on consumer goods, such as automobiles, household appliances, and electronics.
- The rise of the corporation led to significant changes in the American economy, including the growth of large-scale manufacturing and a shift towards a service-based economy.
- Some critics argue that the growth of the corporation also led to increased income inequality and a concentration of power in the hands of a few large companies.
Introduction of the United States Personal Income Tax
Starting in 1940, the United States adopted the federal personal income tax. This year was the first that the tax was applied to all Americans in the workforce. It would also see the beginning of deducting taxes from payroll checks to help support government spending on the efforts in WW2.
