The Politics of Employmentrnby Richard Vedder and Lowell GallawayrnJ; ” obs Issue Dominates Defense Cuts Debates,” the LosrnAngeles ‘iimes proelaimed in a recent artiele. The storyrninformed us that the end of the Cold War has brought aboutrnlavoffs for many workers in the defense industry. This, inrnturn, has led members of Congress to wonder if the reductionsrnin niihtarv spending associated with the end of the Cold Warrnshould be reconsidered.rnVariations on the same theme have been a subject of discussionrnin many communities around the nation. “Cold War’srnEnd Deastating to Defense Jobs” was a headline in the AflantarnJournal. In Boston, the Globe reported “Study CitesrnDefense Cuts’ Harm to Northeast.” All across the country,rnconcerned citizens are alarmed that reductions in the nation’srndefense budget will create significant unemployment and aggrarnate the sluggishness in economic conditions that has characterizedrnrecent years. In a study for the Congress, the U. S.rnOffice of Technology Assessment estimated that the defenserncutbacks mav well cost the nation 250,000 jobs a year until thernvear 2001. All told, some 2.5 million jobs could be lost. Thernchairman of the Senate Armed Services Committee, SamrnNunn (D-Georgia) opined that the defense reductions arern”going to have certainly a detrimental effect on jobs in America.”rnGeorge Bush, in proposing a multibillion-doUar job trainingrnprogram, stressed the importance of retraining defense-relatedrnworkers.rnIs the concern justified? Should we slow down our reductionsrnin defense to deal with the inevitable unemploymentrnproblem? Should we initiate, as Senator Nunn, George Bush,rnBill Clinton, and others suggested, new training programs designedrnto help unemployed workers from defense industries?rnHistor suggests that the correct answers to these questions isrnRichard Vedder and Lowell Gallaway teach economics atrnOhio University, where they are associated with thernGontemporary History Institute.rna resounding “no.”rnBy far the most dramatic shift of resources from war tornpeace came at the end of Wodd War II. Two things about thernpostwar demobilization make it particularh instructive. First,rnit was b far the largest conversion of resources from war tornpeace in the nation’s history. Second, it happened rapidly. InrnJune 1945, some 12,130,000 Americans served in the ArmedrnForces of the United States, neady 9 percent of the country’srnpopulation (the equivalent today would be 22 million persons).rnExactly one year later, this number had shrunk almostrn75 percent to just over three million. Adding the nearlyrn900,000 civilians released from the federal payroll, total federalrnemployment fell by precisely ten million—in 12 months. Andrnthat docs not count hundreds of thousands of others who lostrntheir jobs working in privately owned defense plants.rnLike today, economists and others were worried that thernend of the war would bring about massive unemployment.rnThe dean of American Keynesian economists, Alvin Hansen,rnwriting in 1943, said, “W^hen the war is over, the governmentrncannot just disband the Army, close down munitions factories,rnstop building ships, and remove all economic controls.” Yetrnthat is exactly what it did, with no major ill effects. In 1945, asrnthe war was ending, prominent Keynesian economist RobertrnNathan predicted six million unemployed by the spring ofrn1946, implying an approximate 10 percent unemplovmentrnrate. He was optimistic compared with some. Veteran Departmentrnof Labor economist Isador Lubin predicted that asrnmany as nine million would be out of work—roughly a 14rnpercent unemployment rate. Virtually no economist forecastrnpostwar prosperity. The forecasters, almost all newly convertedrndisciples to the thinking of English economist JohnrnMaynard Keynes, figured that the decline in “aggregate demand”rnassociated with a drastic reduction in federal spendingrnwould send the nation into an economic tailspin.rnAs we document in our new book Out of Work: Unemploy-rnFEBRUARY 1993/25rnrnrn