I am curious about the economics of how America developed supreme military capabilities in the years leading up to WW2. In my understanding, the ramifications of the Great Depression were severely felt throughout the 1930's. Furthermore, politics at the time was influenced by isolationism, which would have made it difficult to siphon significant funds toward militarisation.
And yet, the US seem to have had the largest financial reserve dedicated to military spending, judging by the Lend-Lease Act, as will as foreign aid for the re-development of Europe after the war.
Was there a large armaments project taking place in the 30's parallel to other efforts at economic re-building? If so, did this register in public opinion? And how did it come about in the first place?
By 1932, GDP in America had fallen to -13%. And while unemployment peaked in 1933 at just under 25%, the slide in inflation began to turn around. Hoover had passed the Revenue Act of 1932 that increased taxes across the board. The top income rate rose from 25% to 64%. Corporate tax rates increased slightly and the estate tax doubled. Taxes were also placed on items such as guns, soft drinks, coal, communication dispatches as well as the first gasoline tax.
This preceded FDR's New Deal which passed in 1933 and by 1934, unemployment slowly began to drop and GDP rose and stabilized. In 1934, GDP growth jumped 10.8% and aside from a minor drop of 3.3% in 1938, it steadily rose every year after 1934. By 1936, unemployment was down to 17% and in 1940 had dropped to 14.6%. In 1941 as the country shifted into war preparation, it dropped below 10% for the first time since 1930.
Most of this growth in the 1930s is attributed to New Deal and Second New Deal programs such as the Civilian Conservation Corp, the WPA, and the TVA. With the Lend-Lease Act and as the United States began preparing for war, economic growth became self sustaining. As defense spending increased, more people went to work which led to more federal revenue for more defense spending. In 1939, the United States budget was $9 billion. By the end of the war, it had increased to over $90 billion. War bonds also played a role in this as well. By 1943 with the war well under way, unemployment was down to 1.2%, GDP was growing double digits every year and inflation was stable at around 2%.