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Working Papers

The WWII Banking Curse
It is generally assumed that the buildup of liquid assets during WWII played a large role in generating postwar economic activity. I look at the effect of military contract spending on one element of that savings buildup, bank balance sheets, for the period 1940-1955. I establish that, contrary to the usual narrative, wartime contract spending slowed down the growth of bank balance sheets during and after the war. State level bank balance sheets are 10.8 cents smaller per $1 of total military spending by 1949 and 5.8 cents smaller by 1955. This is driven by slower growth of deposits. Local lending also falls after the war, but this decrease is relatively small, and temporary. Bank earnings are unaffected. This suggests a disconnect between the slower growth of bank balance sheets and local economic activity. Historical evidence suggests that the slower growth of deposits is driven by a relative decline in demand for deposits by large corporations in war industries.
Appendix A: Subperiod Analysis
Appendix B: Bank Charters
Appendix C: Regression Tables
Appendix D: Federal Reserve Districts

Tax Shocks, Financial Channels and Changes in Output
In this paper, I revise prior explanations for the differing response of the U.S. economy to tax shocks in the 1952-1980 and 1980-2007 sub-periods. I find the Fed is more likely to accommodate tax shocks after 1980. Also, consumption smoothing likely does not explain the change between sub-periods; rather, the shifting effect of tax shocks is driven by the fact that tax policy targets low and middle income households before 1980 and high income households after 1980. This suggests the change between sub-periods reflects different fiscal policy choices, not a change in the response of the economy to revenue shocks.

The Role of Savings during the 1940s, From Wartime Boom to Reconversion.
In this essay I re-emphasize the importance of savings during World War II and the immediate postwar “reconversion” period. There has been a debate among economic historians about how households experienced the boom both during and after the war. I argue that it is in the unprecedented shock to savings–as much as any other component of national income–where most of the wartime and postwar boom manifested itself. A proper consideration of the accumulation of savings during the war itself points to a true “boom” feeling during the war. As well, this paper demonstrates that national product accounting conventions obscure the role of housing in the postwar boom and thus obscures the role of savings rates—which were not negative in the immediate postwar as one would expect. If one treats housing as a consumer durable good instead of an investment good, negative savings rates appear as early as 1947. This demonstrates that there was no need to “spend down” savings to satisfy pent-up demand, as previously accepted. Instead, the postwar housing boom meant that households acquired long term assets and liabilities that did not necessitate the immediate drawdown of the liquid assets accumulated during the war.