September 28, 2020 BARRON’S 33
THE ECONOMY
Roughly 85% of humanity’s energy needs are met
by coal, oil, and natural gas.A big green-energy
push need not hurt most people’s living standards.
An Energy Overhaul
Doesn’t Have to Hurt
M
ost of the
world’s biggest
economies
want to cut
carbon emis-
sions sharply
to near zero in
the next two to three decades, an am-
bitious goal that would likely require
an all-out effort to remake the way hu-
manity generates and consumes energy.
This transition may be challenging, but
it doesn’t have to make us poorer.
In fact, the mammoth shift of re-
sources needed to transform the
world’s energy systems could end up
lifting overall productivity, boosting
wages, and ultimately supporting
more consumption, according to a
new paper from economists J.W. Ma-
son and Andrew Bossie that draws on
America’s economic experience in
World War II.
The conventional wisdom is that
societies can fight total wars only by
diverting resources from the civilian
economy. Similarly, many people are
reluctant to transition away from fos-
sil fuel energy, despite the risks asso-
ciated with greenhouse gas emissions,
because they fear it will lead to lower
living standards.
Yet while this conventional wisdom
explains what happened to most of the
belligerents during WWII, America’s
experience suggests that the purported
trade-off between civilian and military
production can be avoided by boosting
total output. As Mason and Bossie note,
“The vast majority of military produc-
tion during the war did not come at
the expense of civilian production.”
The Federal Reserve’s data on in-
dustrial production show that’s ex-
actly what happened. Manufacturing,
mining, and utilities production rose
by 42% between December 1941 and
the wartime peak of August 1944.
After an initial drop, industrial pro-
duction of consumer goods rebounded,
and quickly returned to the prewar
peak. Even at the wartime low of June
1942, U.S. consumer-goods production
was still higher than it was at any
point in history beforeNovember
- That’s especially impressive
considering that civilian manufactur-
ing of motor vehicles essentially
stopped, as plants switched to making
tanks, trucks, and Jeeps full time.
America’s ability to produce was
such that total consumer spending on
goods and services was 3% higher at
the peak of the war effort in 1944 than
it was in 1941, even after accounting for
inflation and rationing. Americans
were buying more clothes and shoes,
jewelry, luggage, and medicines. They
were going out more, whether to see
movies or eat at restaurants. They were
more likely to go to college or a voca-
tional school. And they were eating
more desirable foods: The average
American consumed 9% more beef in
1944 than in 1941, 27% more pork, 39%
more chicken, 26% more liquid milk,
10% more ice cream, and 18% more
eggs. Mass mobilization imposed mini-
mal costs on the civilian population.
How was this possible?
According to Mason and Bossie,
there were two complementary forces
at play. First, there were millions of
Americans willing and able to work
who didn’t have a job before the war.
Between 1941 and 1944, almost 14 mil-
lion jobs were added. Despite wartime
wage controls, the massive increase in
labor demand caused real incomes to
soar. That extra spending power, rather
than shortages of civilian goods, was
why the government tried to prevent
inflation by resorting to rationing and
why it encouraged workers to buy war
bonds instead of goods and services.
About five million new workers
were drawn from the ranks of the
unemployed, including those partici-
pating in government make-work pro-
grams such as the Works Progress
Administration. Almost one million
left jobs on farms for factories and the
military. But an additional eight mil-
lion, of whom roughly half were men
and half were women, came from the
ranks of those who were thought to
have been “out of the labor force.”
That could happen again if Amer-
ica mobilized a national effort to re-
make the energy system.
Consider that, before the pandemic
dramatically increased the number of
jobless Americans, there were about
six million officially unemployed, plus
about five million Americans who
weren’t officially counted as being in
the labor force but who wanted a job,
and 4.5 million Americans working
part time who would have preferred to
work full time. Moreover, only half of
the jobs added between January 2015
and the eve of the pandemic came
from the ranks of the officially unem-
ployed, while the other half came from
people who hadn’t been in the official
labor force.
The other factor that fueled Amer-
ica’s WWII boom was a massive in-
crease in productivity. That had sev-
eral causes: the movement of workers
from lower-value jobs on farms and
construction sites to factories that
made tanks and airplanes, the deploy-
ment of industrial machinery, innova-
tions such as synthetic rubber to re-
place imports from Asia, coordination
of production by planners with expe-
rience in the business community, and
on-the-job learning by workers re-
sponding to high demand for air-
planes, tanks, and warships.
Could that happen again? Mason
says yes. “Manufacturing shows in-
creasing returns pretty much across
the board” as companies respond to
higher demand by improving efficiency,
he said in an interview with Barron’s.
That means it would be “surprising...if
massive investment in anything reason-
ably capital-intensive didn’t lead to
faster productivity growth.”
Changing humanity’s energy gener-
ation and consumption in the next few
decades may not require WWII-style
mobilization, but it could provide a
similar impetus, since roughly 85% of
our energy needs are currently satis-
fied by coal, oil, and natural gas. And
as America’s wartime mobilization
experience proves, a big green-energy
push need not come at the expense of
most people’s living standards.B
By Matthew C.
Klein
Guns and Ice Cream
The U.S. economy sacrificed relatively little during WWII despite massive increases in military spending.
Source: Bureau of Economic Analysis; Barron’s calculations
1939 ’40 ’41 ’42 ’43 ’44 ’45 ’46 ’47 ’48 ’49 ’50
$150 bil
100
50
0
Components of U.S. gross domestic product, constant 1939 USD (billions)
Inventories
Net trade
Military spending
Residential
construction
Business investment
Civilian government
Civilian services
Civilian goods excluding
motor vehicles, parts
and gasoline
Motor vehicles
and gasoline
55