The Krugmans of the world are fond of pointing out that the public debt reached 120% of GNP by the end of WW2, so the paltry trillion-dollar deficits of our age are nothing to worry about. Lately Robert Reich has joined the chorus. I was rather disappointed as I’ve always seen him as one of the more intellectually honest pundits on either side of the political spectrum.

Here’s what I felt compelled to post on his blog today:

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Sure, the U.S. had ran huge public deficits during WW2 … but at the same time the private savings rate was off the charts. Net private saving peaked at $45.6 billion in 1943, bigger than the federal and all state government deficits combined!

Of course savings were high … defense plants paid good money (courtesy of the public deficit), war bonds were “patriotic,” and rationing meant there was little to buy anyway.

When the war ended and the militarized economy switched to producing consumer goods, people started spending. Net private savings plunged. I wonder if we’ve ever reached those WW2 levels again as a percentage of GNP. Certainly it took until 1961 to reach wartime levels in terms of raw numbers ($49.3 billion).

Where are the vast sums in private savings that will make up for government deficits and fund our recovery now?