(POSTWAR WELFARE STATE to THATCHER and REAGAN – continued)
POSTWAR WELFARE STATE to THATCHER and REAGAN (4 of 7)
Dwight D. Eisenhower, a Republican, succeeded Truman as president in January 1953, and elections had given control of both houses of Congress to the Republicans, but by small margins. Eisenhower's economic policy focused on stability and balancing the budget while maintaining Roosevelt's New Deal legislation, including social security. A belief in individual responsibility continued to dominate the attitudes of Americans rather than the spirit of "we're all in this together" that had influenced politics and economic policy in Britain, Sweden, Japan and other countries. Responding to prosperity, many Americans were blaming those in need for the condition they were in. Many who were anti-welfare wanted to keep taxes low, and they were looking to private charity to help the needy. Under Eisenhower and the Republican Congress there was to be no government organized health insurance, housing or anything else that had been advocated in vain by President Truman in 1949.
Eisenhower's interest in balancing the budget and paying down the national debt led to his refusal to apply the tax cuts that many across the nation wanted. And there was the issue of economic stability. Under Eisenhower's eight years in office the economy chugged along with an average annual growth rate of 2.4 percent – less than the 4 percent average growth rate during the Truman years.
Under Eisenhower there was a large governmental economic stimulus in the form of legislation establishing the National System of Interstate and Defense Highways. Construction began on new highways that linked the nation. It was modeled on Germany's highways, which Eisenhower had experienced during his tour of duty in Europe. Ninety percent of the construction was to be paid for by federal tax dollars and ten percent by the states.
Also stimulating the economy were tax dollars spent on the military – inspired to a large degree by the Cold War. The Eisenhower years were marked by low unemployment and low inflation. And the national debt declined further. When Truman left office the gross federal debt was down to around 71.4 percent of GDP; when Eisenhower left office it was down to 60.4 percent.
Meanwhile, among conservatives in the US, an anti-government, anti-tax movement was gaining strength. Its rising star of Senator Barry Gold water. He was hostile toward Republican support for the Roosevelt administration's New Deal. Gold water had called the Eisenhower administration "a dime store New Deal." He was vociferous in expressing support for "Freedom." This he described as getting government off the backs of citizens, including business people, and defeating Communism.
Eisenhower was followed in January 1961 by a Democrat, John F. Kennedy, who launched what he called the New Frontier. The Democrats had a good majority in the Senate, having only one seat there in the November 1960 elections. In the House they had lost 21 seats but held on to a majority of 281 to 153. But some Democrats were conservative. A Republican coalition with conservative Southern Democrats blocked Kennedy's proposed federal aid for school construction, teacher salaries and scholarships. Kennedy's legislation for hospitalization and nursing care for the elderly, known as Medicare, was defeated, and was his plan for a Department of Urban Affairs to address housing and crime in the nation's cities. But the Housing Act of 1961 passed, which provided $5 billion for urban renewal and new housing construction. In 1961 the minimum wage was raised to $1.25 an hour. And reduced Social Security benefits were provided for those who wished to retire at 62 rather than 65.
Vice President Johnson became president following Kennedy's assassination in November 1963. He was a Southern Democrat who had been a supporter of Franklin Roosevelt. With some support from his fellow Southerners, he launched what he called The Great Society. In 1964 the Civil Rights Act was passed, which forbade discrimination in employment in the private as well as public sector, and it forbade segregation in housing. The conservative Senator Barry Goldwater voted against the bill, explaining that "You can't legislate morality" and complaining that the bill was in violation of individual liberty.
In November 1964 Goldwater and Lyndon Johnson ran against each other, and Goldwater won only his home state, Arizona and the deep deep South – not including Florida or Texas. The Democrats picked up 2 seats in the Senate, for a total of 68 to 32 for the Republicans, and in the House of Representatives the Democrats gained 36 seats for a total of 295 against 140 for the Republicans.
In 1965 the Voting Rights Act assured minorities the right to vote. And, overcoming opposition from the American Medical Association and complaints of socialized medicine, there was the Social Security Act of 1965 – called Medicare. Federal funding was provided for many of the medical costs of older Americans. And there was Medicaid for welfare recipients of all ages. Most Republicans voted against these provisions.
Johnson's Civil Rights Act of 1968 banned housing discrimination and extended constitutional protections to Native Americans on reservations. During the Johnson presidency the average annual growth rate for the economy was 4.1 percent. Unemployment during both the Kennedy and Johnson administrations hovered around 4 percent. And by the end of the Johnson presidency the National Debt was down to around 40 percent from the 60.4 percent that President Kennedy had inherited.
In the November 1968 election, Eisenhower's vice president, Richard Nixon, defeated an anti-war candidate, George McGovern, and the Republicans again gained a few seats in the House and Senate. During the Johnson administration a problem with inflation had been brewing – to be inherited, like the war in Vietnam, by President Nixon when he took office in January. High Inflation had accompanied the American Revolutionary War, the Civil War, World War II, the Korean War and now the war in Vietnam. In its war in Vietnam the US had been following a policy of both guns and butter.
Between November 1968 and May 1970 the Dow-Jones Industrial Average plunged 36 percent. By the end of 1970 unemployment was up to 6.6 percent. President Nixon believed in the same fiscal responsibility that Eisenhower had pursued during his administration. He supported the government's social programs left by the Roosevelt and Johnson administrations but wanted them managed better.
During the Nixon administration there was an increase in the printing of dollars, and dollars were being sent overseas at a higher than usual rate to pay for the effort at preventing what was seen as a Communist takeover in Vietnam. What Americans had been unwilling to pay to the government in the form of higher taxes, they were now paying in the form a declining dollar. Nixon faced a balance of payments and trade deficit. World currency rested on 1945 international agreement that rested on both gold and the US dollar, and West Germany was the first country that left that agreement, saying it was unwilling to deflate its currency in order to prop up the dollar. In December, 1971, ten nations met in the US and agreed to abandon the agreement – known as the Bretton Woods system. Nixon felt obliged to abandon the gold standard and let the value of the US dollar fall. He announced that the US will no longer convert dollars to gold at a fixed value. And to fight inflation he imposed a 90-day freeze on wages, prices and rents.
Things were going to cost more for Americans, and one such item was oil. The Yom Kippur war in the Mideast in October 1973, impacted the US economy as it did the British economy. The price of oil quadrupled in 1974. The US had gone into recession beginning in November, 1973. OPEC (Organization of the Petroleum Exporting Countries) has been blamed for the rise in oil prices, but there were other inflation pressures, and there was discouraged buying. Nixon's wage-price controls to fight inflation didn't help. These kept prices and wages high, and businesses responded by laying off workers.
Nixon resigned in August 1974 in response to the Watergate Scandal. His vice president, Gerald Ford, took office when inflation was running at an annual rate of 7 percent. Believing in ad-like slogans and events moved by attitude, Ford called on people to wear WIN buttons (Win Against Inflation). But this amounted to little more than a publicity gimmick. Some disbelievers turned their buttons upside down –: NIM. This stood for No Immediate Miracles, or Nonstop Inflation Merry-go-round, or Need Immediate Money.
From the third-quarter of 1974 to the first-quarter of 1975 there was negative economic growth – in other words, recession. Unemployment reached 9 percent in May 1975. When Ford left office inflation was down to 5.8% and the official unemployment figure at 7.7%. The national debt was down around 34% of GDP.
The Democrat Jimmy Carter had defeated Ford in the elections of November 1976. In 1977, Carter convinced to establish a Department of Energy whose goal was energy conservation. By 1978 inflation was still high by US standards – up around 7 percent. Carter was concerned but not particularly focused on the inflation problem. In 1978 he signed into law a bill that allowed greater competition in the airline industry by phasing out particular federal regulations. In 1979, Carter deregulated the contry's beer industry by making it legal to sell malt, hops, and yeast to home brewers. Also in 1979, Carter backed a government bailout of the Chrysler Corporation. None of this helped him with the economy as a whole.
In July 1979, Carter gave a prime-time televised address. He told the nation that it faced "a crisis of confidence" regarding government doing what was right for the nation and people's doubt "in a better future for their own children." He said that the "true problems" of our Nation ran much deeper than gasoline lines or energy shortages, deeper even than inflation or recession. The nation, he said, had lost a "unity of purpose." He complained that many Americans viewed the federal government as a stagnant bloated bureaucracy. He complained that " We can't go on consuming 40 percent more energy than we produce." He said that "Congress must enact the windfall profits tax without delay." He asked for funds to develop alternative fuel sources including coal, biofuels and solar power. He called on the Democratic-led Congress to approve a "solar bank" that, he said, would eventually supply 20 percent of the nation's energy needs.
Initially, polls showed that most people responded favorably to Carter's speech. Then Carter demanded the resignations of several Cabinet members. And editorialists described Carter as telling the American people that they were at fault. Carter's approval ratings fell.
In August, 1979. Carter named Paul Volcker as Chairman of the Federal Reserve banking system. Volcker described "a sliding dollar undercutting our own anti-inflationary effort, generating uncertainty at home and abroad [and] hurting growth." He said that you cannot "just inflate yourself out of a recession."
Inflation in 1979 reached 11.3 percent. In 1980, a presidential election year, inflation reached 13.5 percent with unemployment still high at around 5.8 percent. In early 1980, Carter was asked at a press conference what he planned to do about inflation. He replied, “It would be misleading for me to tell any of you that there is a solution to it.”
Americans were being held captive in the US embassy in Teheran. The Iraq-Iran war was being waged, and the price of crude oil on the world market was soaring. It had been $20 per barrel in 1973 to around $50 when Carter took office. In late 1979 it peaked at $107.35.
in 1980 the price for crude oil began a slow decline. It would be around $80 a barrel when Carter left office in January 1981. The economy between April and June had the sharpest one-quarter drop in national output on record, and unemployment rose to more than 7.5 percent in May. The economy recovered in the third quarter but with little impact on inflation or unemployment. Volcker had not had enough time for his high interest rates to dry out the inflation. That would have to wait for his term as chairman during the administration of Ronald Reagan.
Carter had used the Misery Index (unemployment + inflation) in running for president against Gerald Ford. Carter put Ford misery index at 13.5. Running against Carter for the presidency, Reagan pointed to a misery figure for Carter at 20. In a debate with Carter one week before the election, Reagan asked people whether they were better off than they were four years before. Reagan trounced Carter with 50.7 percent of the vote to Carter's 41 percent.
Copyright © 1998-2018 by Frank E. Smitha. All rights reserved.