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43 2 Economists Come to Washington America is a prosperous nation. We grow more prosperous each year, and our present affluence is an outgrowth from the lower standard prevailing in past generations. Paul Samuelson, Economics: An Introductory Analysis Despite Galbraith’s popularity among liberal intellectuals and Friedman’s devoted following among neoclassical free-marketeers, it was the “scientific -technological elite,” or the “new class” described by Eisenhower and Galbraith, who carried the day. Just as Tom Wolfe called 1980s investment bankers “masters of the universe,” economists during the postwar decades became America’s masters of abundance. As Samuelson noted, the once “dismal profession” had acquired a decidedly “cheery face,” thanks to its promise to deliver ever more prosperity, and “economists relished their newfound prominence and basked in the glory of public adulation.” To policymakers and the public alike, economists were wizards who could prevent depressions, ensure an ever-upward progression in living standards, and forecast good times ahead. For many economists, the hubris was palpable. U.S. political leaders were entranced by the idea that economics could solve the nation’s problems, enable it to stand tall in the world, and deliver the long-sought dream of abundance for all Americans. The faith that economists could guide America to a better quality of life began during the war, gained steam during the Truman administration, and reached its zenith in the Kennedy and early Johnson years. As World War II drew to a close, Americans wondered whether their country would falter or continue the war’s dizzying economic growth. Similarly, policymakers, business, and workers differed over whether to ramp up New Deal policies to manage an economy of scarcity and instability , or return to more laissez-faire days of minimal government. In late 1944 and much of 1945, during the last months of Franklin Roosevelt’s life and the heady days of wartime victory, liberal New Dealers—who feared unemployment yet expectantly hoped for an “economy of abundance ”—had the upper hand. For them, the critical postwar question was C hA PT ER T W O 44 how to sustain the war’s hypercharged economy of full employment, prevent a Depression, and usher in an era of broadly shared prosperity. Into this mix, Keynes’s new economic ideas worked like a tonic. “Employment depends on demand,” Alvin Hansen wrote authoritatively in early 1945. “All economists are agreed upon this. Reduce government expenditures by $75 billion and unless other expenditures are substituted, demand will fall and unemployment will rise accordingly.”1 Starting from the premise that full employment was postwar America’s number one goal, President Roosevelt, Vice President Henry Wallace, and many legislators argued between 1943 and 1945 that the only way to sustain a full employment economy of 55–60 million jobs was to increase the production that had doubled GNP to almost $200 billion during the war. Expecting government spending to shrink as war contracts were terminated , the way to maintain high demand for production was to vastly increase consumer demand. But to generate and sustain high levels of consumption required job security and increasing purchasing power for workers through rising wages and low inflation. The war taught that “our postwar problem” would not be production but rather “the maintenance and distribution of purchasing power,” as businessman Marshall Field said. The Depression and war also taught that private enterprise alone could not assure these goals. Business and labor must cooperate, and government was needed to prime the economic pump with “compensatory spending” on investment, public works, research, and social security and other income transfers. As early as 1943, FDR said that Americans should expect full employment. During the 1944 campaign, both parties called for full employment, and Republican candidate Governor Thomas Dewey (R-N.Y.) pledged that “full employment shall be a first objective of national policy.” If there are not sufficient jobs, he said, “government can and must create job opportunities.” Senators James Murray (D-Mont.), Harley Kilgore (D-W.Va.), and Harry Truman (D-Mo.) drafted a postwar economic reconversion bill in 1944 calling for full employment.2 Polls found that up to three-fourths of Americans expected a postwar Depression and thought that government should ensure jobs. On V-J Day, a front-page New York Times article declared: “Five Million Expected to Lose Arms Jobs.” Some economists feared that declining incomes were inevitable, as wartime production ground to a halt, and workers withdrew from the labor force, lost overtime pay, or moved into lower-paying...

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