Another Econbrowser debate. Nothing to do with oil, or more precisely, another view of what a recovery from a depression might look like.
After World War II, the US suffered a fairly severe recession associated with demobilization. Nevertheless, many remember the period fondly as one of prosperity and promise. Why so?
As usual, we have a graph.
In the post-war years, personal income continued to rise at a good pace. Personal consumption rose even faster, as savings rates plummeted. No more war bonds, and no more rationing. There were things to buy, and money to buy it with.
Part of the package, however, was price liberalization, and inflation soared from 1946-1948. From the end of the war to 1948, price levels rose by a quarter. Thus, nominal increases in personal consumption were partially--and in 1947, totally--offset with rising prices.
But not the previous year. In 1946, personal consumption rose by 11% in inflation-adjusted terms, after having risen by 8% on average in the previous three years. In 1947, by contrast, personal consumption actually fell a bit in real terms--although it was up a solid 12% in nominal terms. Consumers could have been forgiven for not noticing.
Furthermore, the country was transformed. The US had emerged from the war victorious, as the leading power in the world. In the down year of 1947, real personal consumption was 1/3 higher than it had been just five years earlier, and US citizens had every reason to believe the country was entering a golden age, with rising incomes and a transforming society. The Great Depression, and the great war that followed, were both over. The future beckoned.