Eisenhower and the Cold War Economy

Epilogue: The Eisenhower Legacy

The Eisenhower Legacy As Eisenhower’s time in office approached its end, he began to reflect on his legacy. On the economic front, there were several achievements of which he was proud. Two decades after President Herbert Hoover left the White House in the midst of the worst economic collapse in American history, Eisenhower had demonstrated that a Republican president could manage economic policy in both recession and boom. During his term the country enjoyed modest economic growth that averaged 2.4 percent. This was a rate lower than that achieved in the Truman and Kennedy-Johnson years, but it was attained with very modest increases in inflation, which decelerated markedly in the late 1950s and early 1960s. During 1953–61, the consumer price index increased from 114.4 to 127.4 (in 1947–49 it had been 100), essentially 13 percent over an eight-year period.1 Particularly pleasing to Eisenhower was the administration’s success in reducing national security spending (including foreign military assistance and nuclear procurement). At the end of Eisenhower’s second term, it was lower than during his first year in office; in real (inflation-adjusted) terms it had declined dramatically. National security spending accounted for about 60 percent of the federal budget in 1960, but that was a significantly lower level than the more than 70 percent proposed by Truman when Eisenhower took office in 1953.2 Other positive results satisfied the president. By controlling spending and producing three balanced budgets, Eisenhower made it easier for the White House and the Federal Reserve to work together in coordinating policy. Similarly , informal methods of communication with the White House preserved the independence of the Fed while allowing for policy coordination, if not always e p i l o g u e 226 e p i l o g u e complete agreement. In addition, the administration’s record of fiscal restraint gained the support of foreign leaders, making it easier for the United States to address its balance of payments problems, which intensified in 1959 and 1960.3 But Eisenhower did not dwell on these immediate achievements alone. When he was in a philosophical mood, cabinet meetings afforded the president an opportunity to reflect on the broader meanings of his experience. One occasion in particular, on November 27, 1959, stands out. In large part this session was memorable because of the extensive handwritten notes—in addition to the of- ficial version produced by the staff secretary—taken by economic adviser Don Paarlberg. His notes capture well the tone and tenor of the president’s thinking about his legacy. At the meeting, Eisenhower returned to the big goals first discussed in 1953, themes that in one form or another the president returned to time and again during his administration.4 To Eisenhower, the Cold War struggle with the Soviet Union was not primarily about preserving territory. It was a matter instead—as he said on many occasions—of protecting and fostering a way of life. Paarlberg recorded Eisenhower posing two large questions about the problems that the United States had to confront in preserving a free polity and market-based economic institutions during the deepening Cold War: “Can free government, faced by the threat of a singly-controlled economy [i.e., the USSR’s], continue to exist? [And] can free government overcome the many demands made by special interests and the indulgence of selfish motives?” His immediate answer, not surprisingly, focused on the need to keep the economy healthy and to keep the dollar strong. It was important that the government “pay its bills and that the debt . . . be reduced.” Its approach should also be a model of “Spartan simplicity.”5 His discussion highlighted the issues of macroeconomic policy that had taken so much of his attention: controlling spending and inflation, balancing the budget, and paying down the deficit. He believed firmly that long-term debt and deficits distorted capital markets, as government limited—“crowded out” was a common term at the time—private access to capital. In doing so, private enterprise encountered higher costs in getting capital for new businesses or expansion of existing enterprises. But he also turned to a fundamental point about the threat of big government . Growing government spending, he said, inevitably concentrated greater power in the hands of the executive branch. Congress, buffeted by the entreaties of special interests and the short-term considerations of...