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Research

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
Appendix G: Reserves and Interbank Deposits

WWII Contract Spending and the Great Compression
We find that the share of state level income captured by the top 1% of income earners falls by 1.73pp in response WWII contract spending. We also find a postwar permanent decline in top 1% income shares of 0.85pp attributable to wartime spending. This is half the measured decline in inequality during the war and one fifth of the average postwar decline. We argue that institutional changes in the 1930/40s across government, labor and business were amplified by wartime spending shocks. To illustrate and explain these changes, our historical narrative contrasts the post-WWI strike wave with the post-WWII strike.”
Appendix A: Outliers and Subperiod Analysis

Revising the Revisionist Version of Reconversion
In this essay I revisit a debate about the nature of the post-WWII reconvesion process. I argue that supply-side explanations for the success of reconversion ignore important aspects of the data when arguing that lower labor costs and business optimism drove reconversion. However, I argue that the critique of the traditional explanations for the success of reconversion are useful. I also argue that the debate about the multiplier effect of WWII spending obscures the true institutional underpinnings of the reconversion success.

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.