David R. Henderson  

Hummel on Government Military Pay Policy

My 2003 Bet... Macroeconomic Costs of Credent...
Unlike in previous wars, Congress did not wait for World War II's termination to dispense generous social welfare to veterans. An American legion sponsored Serviceman's Readjustment Act, popularly known as the GI Bill of Rights, sailed through Congress in 1944, receiving unanimous approval in the Senate. Rather than providing a bonus, which veterans could spend the way they pleased, as had been done in the past, the act provided the kind of liberal unemployment, medical, educational, and credit benefits that Roosevelt would have liked to see go to all citizens, but for the fiscal realism of Congress. Even if viewed as restitution for victims of conscription, the GI Bill of Rights rested on shaky logic. After Congress voted for involuntary military servitude, presumably under the theory that paying for a voluntary military of adequate size would be too expensive, it then turned around and voted for lavish benefits, under the theory that no expense should be spared to compensate veterans. (italics mine)
This is from Jeff Hummel, War is the Health of the State: The Impact of Military Defense on the History of the United States, unpublished ms. currently being revised for publication. I especially like the last line. When you consider how young people's discount rates fall with age, taxing them heavily while they're really young and then compensating them when they're five years older is even more perverse than it might at first appear. Consider also that those who were taxed most heavily--paying with their lives during WWII--did not get any GI Bill benefits.

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CATEGORIES: Labor Market

COMMENTS (5 to date)
FC writes:

That's what military life insurance is for.

I've often wondered what the market-clearing wage of a soldier would have been during WWII. Probably not too much higher than the actual wage.

Jeremy, Alabama writes:

I'm surprised Hummel did not mention Hayek's point, that if rewards/compensation are not paid in money, then congress chooses both the quantity and the nature of the compensation. What if a returning GI wanted to skip the fancy education and immediately start a business?

David R. Henderson writes:

Good question. Of course, the big unknown is "what is the demand curve?" I don't think the U.S. government could have had its maximum of 12 million people in uniform at the wage it paid, but there was a lot of wasted manpower. I think it could have had, say, 7 million in uniform. Canada's government fought the war from September 10, 1939 on and used the draft to get troops to the front only in 1944. Before that, the draft was used only for home-based troops.
@Jeremy, Alabama,
I think Jeff didn't think he needed to make that point explicit. And it's more than Hayek's point. It's a well-known finding in standard economics.

Warren Gibson writes:

Early on, getting public support for the war was perhaps a bit dicey, and its ultimate cost as well as the outcome were unknown. There would not likely have been sufficient public support for payment of market wages. After the war was over, people felt a lot of sympathy for the sufferings of the troops as well as gratitude that the war had been won.

Lo Statuz writes:

Is there empirical evidence that discount rates fall with age? Are there any good explanations of why this happens?

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