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Setting a Consistent Course 1953–1956 Eisenhower came to office determined to put a clear stamp on economic policy, one that would distinguish his Republican administration from that of his Democratic predecessors. Truman’s fiscal 1954 (July 1953–June 1954) budget proposal called for spending an extraordinary $78.6 billion. About 70 percent of that figure was made up of spending on defense, which included expenditures for the military, as well as nuclear programs, mutual security programs of assistance (foreign aid), and intelligence. Nothing else would be possible, Eisenhower believed , without reigning in those expenditures. Eisenhower’s concerns went beyond spending on the Korean War. His experience late in the 1940s as army chief of staff, informal head of the Joint Chiefs of Staff, and NATO supreme allied commander demonstrated the urgency of dealing with defense spending. What was an appropriate level of spending to meet the needs of Cold War strategy? Answering that question first required a firm idea of Cold War objectives. Eisenhower ’s postwar experience had convinced him that the Truman administration had failed to align objectives and strategy with the government’s available resources . Bringing about that alignment was Eisenhower’s primary goal. The president never lost sight of that issue during his eight years in office. In one form or another, balancing strategic needs against government financial capabilities dominated his thinking. Indeed, those concerns were crucial to understanding his warnings about a military-industrial complex in his farewell address delivered three days before leaving office in January 1961. But balancing strategy and spending was at the center of his efforts, especially in the first years of his time in office. He took the commanding role in the review of military c h a p t e r 1 24 m a c r o - l e v e l e c o n o m i c p o l i c i e s spending and Cold War strategy in 1953. The result was the so-called New Look, an approach to the central issue of American foreign policy that was driven by economic as much as military and diplomatic considerations. In addition to concern over Truman’s final budget was the pressing need to address the new official responsibilities Congress mandated under the Employment Act of 1946. Its preamble stated, “It is the continuing policy and responsibility of the Federal Government to use all practicable means . . . to promote maximum employment, production, and purchasing power” (P.L. 79–304). This legislation institutionalized the government’s accountability for the country’s economic performance. Truman’s Council of Economic Advisers, however, had not worked well. It provided the president contradictory advice and under its second chairman it became involved in political controversy. Eisenhower’s challenge was to avoid the mistakes of the previous administration . He had to establish a workable economic advisory body within the White House to adhere to the new congressional mandates while remaining true to his traditional conservative principles of balanced budgets, low taxes, reduced public debt, and minimal inflation. The president also had to work out a new relationship with the Federal Reserve, and especially its chairman. An agreement reached in 1951 with the Treasury had granted the Fed greater independence from the White House and essentially restored the Fed’s ability to independently regulate monetary policy. Between 1941 and 1951 the Fed had suspended such activities, pursuant to an agreement with Treasury, so as to reduce the cost of government borrowing during and after World War II. Within months of taking office, the president’s team of economic advisers was in place, but a workable relationship with the Fed chairman took a longer period of time. In any event, the president’s system of getting economic advice was soon tested by a short recession during his first year in office. Most observers at the time, if not all, credited the administration with a successful response to the recession, one important consequence of which was that Eisenhower and his closest advisers realized that there were long-standing inflationary tendencies at work in the economy; they were apparent even in the downturn in the business cycle. Eisenhower, especially during the late 1940s, had come to see inflation as one of the most serious problems of the time. He was concerned about the potential destructiveness of increasing prices on government programs , ordinary citizens, and business. [18.191.240.243] Project MUSE (2024-04...

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