Photographer: Hulton Archive/Getty Images

World War II Economy Is a Master Class in How to Fight Climate Change

Deficit spending, moonshot technology projects, and cost-plus contracts may help

Imagine a future where scorching weather depletes the planet's natural resources, droughts bring famine and rising sea levels flood coastal cities. For a model in how to grapple with the enormity of these climate-induced scarcities, look to our grandparents' generation.

That's the premise of a new National Bureau of Economic Research working paper from Hugh Rockoff, a Rutgers University economics professor who draws parallels between the effects of global warming and the supply shortages during World War II.

So what should U.S. policy makers do today to pursue similar policies that led to victory in 1945? Massive government spending on infrastructure and technology.

To win WWII, the U.S. economy had to be re-tooled to churn out airplanes and tanks alongside (or, in lieu) of washing machines and cars, while at the same time developing new technologies, such as the atomic bomb. Government spending — often in the form of cost-plus contracts to the risk-averse private companies operating the factories and mines — peaked at nearly 43 percent of U.S. gross domestic product in 1943 and 1944.

The Manhattan Project — which developed the first atomic weapons during WWII — alone cost around $157 billion in today's dollars, according to one of Rockoff's estimates. Tackling climate change will involve similarly ambitious projects, perhaps large-scale solar power installations or resettling whole communities away from environmentally-vulnerable areas. Were the government to seek a WWII-scale role in remaking a more ecologically-robust economy, it could more than double 2015 spending as a share of the economy before hitting WWII levels.

Job creation is another factor. The huge wartime construction and production drive meant there was plenty of work to go around — along with military conscription — so the number of unemployed Americans dwindled to practically zero. A war on climate change would require people who can build a clean energy grid and develop new technologies to cope with the increasingly volatile weather.

WWII also serves as an example of how regulations were used to direct economic activity. Government could prioritize certain types of production, or at the very least artificially pump up the price of goods and services required to offset climate change, as well as set housing and rent controls in areas where people are moving to fill eco-friendly jobs.

To be sure, America's WWII effort lasted four years, whereas managing global warming is a struggle with no end in sight so any economic plan has to be sustainable in the long term. But Rockoff does look beyond all the doom and gloom surrounding the climate debate to encourage out-of-the-box thinking in how environmental challenges can be met.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE