Research

Economic Inquiry, Volume 60(2): pp. 954-974.  April 2022. 

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I use newly-digitized contract data on U.S. war production spending over 1940-1945 to produce the first panel-data analysis of the effects of U.S. fiscal policy in World War II. I find personal income multipliers of 0.34 over a two-year time horizon and 0.49 over a three-year time horizon.  Due to differences between personal income and GDP, personal income multipliers may substantially understate GDP multipliers, perhaps by as much as 50%.  I find employment multipliers of 0.0359 and 0.0626 over the same time horizons, corresponding to costs per job-year of $405,013 and $232,268 in 2015 dollars.  These estimated employment multipliers are quite small, and the corresponding estimates of cost-per-job-year quite large.  I also find evidence of negative scale effects: larger positive spending shocks are associated with systematically smaller multiplier estimates.  

Review of Economics and Statistics, forthcoming. 

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We study the role of war bonds and inflation in the presidential elections of the 1950s. During World War II, the federal government conducted aggressive campaigns to convince Americans to invest their savings in wartime savings bonds. Although they were nonnegotiable and protected from interest rate fluctuations, the real returns paid by the bonds were eroded by two major inflationary episodes after the war, in 1946-48 and 1950-51, contributing to a political backlash against the incumbent Democrats. In a difference-in-differences framework, we find that counties with higher war bond purchases shifted their votes towards the Republican party in the postwar elections, relative to the elections of the late 1930s and early 1940s. To address concerns related to the endogeneity of war bond purchases, we instrument for WWII bond subscriptions using participation rates from the World War I liberty loans, and find similar results. Our results indicate that the promotion of savings bonds made Americans more sensitive to the high inflation that prevailed after the war, contributing to Republicans’ victories in the 1950s.

Link to paper coming soon

Why has household saving been so high during the COVID-19 pandemic?  What are the likely consequences of this unusual increase in the stock of savings? The only comparable episode in the modern United States is World War II.  In this paper we quantify excess household saving during WWII and the COVID-19 pandemic and compare the contributions of various drivers of increased saving.  Excess saving totaled 16.8% of personal disposable income during WWII (1941--1945) and 6.8% of personal disposable income during COVID-19 (2020-2021).  WWII savings incentives, expansionary fiscal policy, and consumption restrictions explain about 48% of excess saving in WWII.  Expansionary fiscal policy and consumption restrictions also explain about 64% of excess saving during the COVID-19 pandemic.  WWII saving and related pent-up demand, together with a dramatic decline in uncertainty, played a significant role in fueling the post-WWII boom, suggesting that high pandemic saving may raise consumer demand over the next few years.  

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Government spending is in practice a long, complex process and not an event that occurs at a single point in time.  This implies that the timing of government spending depends on how it is measured.  I introduce an alternative measure of government spending, called budget authority, which uses authorizations to measure the government's commitment to spend. Budget authority is established annually as part of the congressional budget process, and is readily available from 1976 onward. I use historical budget publications to construct defense budget authority for 1938 to 1975, extending the available data backwards by several crucial decades.  Budget authority produces far more precise estimates of the fiscal multiplier, and it is better at predicting consumption responses to government spending.  I also find that the response of total government spending--the "G" component of GDP--to budget authority is biased downward due to timing differences between budget authority and NIPA defense spending.  A bounding exercise shows that when this bias is corrected, budget authority implies an aggregate fiscal multiplier of 1.3 to 2.0.  

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Household saving increased dramatically during World War II. By the end of the war, Americans had accumulated substantial liquid assets, largely in the form of war bonds and deposit holdings. This paper examines how wartime accumulation of liquid assets were used by households in the years immediately after World War II, when rationing was relaxed. I exploit geographic variation in wartime saving. Because saving may be endogenous, I use war spending as an instrument for wartime saving. I find that wartime asset accumulation helped fuel a boom in residential investment in the late 1940s. Wartime saving is strongly associated with increases in the housing stock in the immediate postwar years. A 10% increase in wartime saving is associated with a 3.6% to 7.6% increase in the number of housing units in a county between 1940 and 1950.