Barron’s - USA (2020-09-28)

(Antfer) #1

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



  1. 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

Free download pdf