Postwar Prosperity, 1946–1973 (Overview)

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The economic acceleration sparked by the war production of World War II (193945) ended the Great Depression (19291939) and brought prosperity to the United States. But the war's end brought fear of economic stagnation. Many people remembered the downturn following World War I (191418) and they were concerned that it might happen again. At first such fears seemed justified, but then Americans went on a buying spree. They used their wartime savings to purchase products such as refrigerators and automobiles that had not been available during the war. This caused inflation because prices rose when supply did not keep up with demand. Also, during the war the inflation increased faster than the wage increases. The unions had been talked into limiting their wartime wage increases to 15 percent per year, considerably less than the actual inflation rate. The government contributed to the problem by removing all wartime price controls in late 1946.

Workers responded to the uncertain economic conditions by going on strike to demand higher wages. In late 1945 and 1946 more than five million workers in major industries were involved in more than 5,000 work stoppages. Most of these strikes were settled to the benefit of the workers who received wage increases; the inflationary trend continued well into the Fifties.

Meanwhile, the Truman administration (194553) proposed major government spending programs including an increased minimum wage, price supports for farmers, and support for small businesses. There was also a proposal for a very controversial measure called the Full Employment Bill, which called for the government to guarantee jobs to all workers whenever unemployment rose above a certain level.

President Truman's (194553) program met with vigorous opposition from conservatives who called it "creeping socialism." However, some of these proposals, including a modified version of the Employment Act, passed Congress before the end of 1946. Truman proposed a more sweeping program, which came to be known as the "Fair Deal." This included farm supports and other government measures to strengthen growth as well as expansion of Social Security, public housing, national medical insurance, aid to education, and civil rights legislation for blacks. Some of these proposals became law even though there was considerable opposition.

Meanwhile, U.S. farmers experienced many changes after World War II just as they had after World War I. Farming became more mechanized and scientific than ever and output increased at a faster rate than ever. Overproduction once again became a problem. After major increases during the war, prices leveled off and generally showed no gains until the 1970s. At the same time costs increased. The result was that only large commercial farms could be profitably operated. They began to increase in number while the smaller "family farm" declined.

Dwight D. Eisenhower (195361), a Republican, succeeded Truman as president in 1953. Generally, he opposed new, large government spending programs, but he favored one project that was profoundly significant: the Interstate Highway System. This was a thirteenyear, $26 billion program to assist the states to build an interstate highway system according to a national plan. This program generated a number of spinoffs. The construction industry boomed; gas stations and motels profited; the trucking industry flourished; the railroad industry declined; and the American people became more devoted to the automobile than ever.

Otherwise, Eisenhower kept public spending down and the national economy grew slowly. Moreover, the administration did little to stimulate the economy during recessions. Twice, in 1954 and again in 1957, there were economic downturns, but Eisenhower did nothing. Even when the unemployment rate reached 7.5 percent in 1958, he opposed both tax cuts and increased spending.

Meanwhile, there were numerous social problems associated with the economy. The population grew rapidlythe increase was largely attributable to the "Baby Boom." After the war people tended to marry younger and have larger families. Between 1948 and 1955 the number of children born each year increased by 50 percent, the greatest increase ever. This was a direct result of the prosperity of that period. Jobs were plentiful; incomes were rising; and credit was easily available.

The conditions of that period also exerted a significant effect on the status of women. During the war there was an increase in the number of women in the workforce as they came out of their homes to replace the men who went into the service. Immediately after the war many women left their jobs as the men returned, but in the 1950s the trend reversed again and by 1960, 33 percent of the women of working age had jobs. Most of these jobs were part-time; the pay was low; and the female workers were often over 35 years of age, having gone to work after their children entered school.

During the period of postwar prosperity many people fled the city for the suburbs. They believed that here they would find peace and avoid urban problems such as crime and social tensions. In fact, they frequently traded one set of problems for another. In the suburbs they often found as much congestion as they had hoped to leave behind. In addition, people often went deep into debt for new homes and cars, and they found the long commute to work a burden they had not anticipated.

Despite the flight to the suburbs, the urban population grew dramatically during the late 1940s and 1950s and many of those who flocked to the cities after World War II were black and poor. They came seeking jobs and a better life, but they were often disappointed. They were met with overcrowding, discrimination, and, not infrequently, violence. Still they came. Seventy-seven percent of the African American population lived in the South in 1940. By 1960 nearly 50 percent lived in the North and most of them in cities. They continued to move because, in spite of problems, many actually improved their standard of living. Between 1941 and 1952 the median annual income of African Americans increased from $1,614 to $2,338. Moreover, those employed in unskilled jobs dropped from 80 percent to 63 percent between 1940 and 1950.

Economic growth slowed down somewhat in the late 1950s; John F. Kennedy (196163) used the sluggish economy as an issue during the campaign of 1960. Kennedy promised recovery and longterm growth and he gathered a distinguished group of economic advisers to help him produce results. These included John Kenneth Galbraith of Harvard and Walter Heller of the University of Minnesota. These men advocated what came to be known as the "New Economy." By this they meant that the federal government should use its power over expenditures and monetary policy to promote growth. They convinced Kennedy to push for massive expenditures on social welfare programs and a large tax cut. Kennedy also found himself under increasing pressure to do more in the civil rights arena. However, the conservatives in Congress blocked all such efforts. Thus, Kennedy had achieved little by the time of his death in November 1963.

Kennedy's program, and much more, was realized by his successor Lyndon Baines Johnson (196368). The events of the next five years had an enormous impact on the U.S. economy and society. First, Johnson moved to promote rapid economic growth. He precipitated an economic boom by reducing taxes through the Tax Act of 1964 and increasing federal spending (mostly on the war in Vietnam). Between 1960 and 1964 the gross national product (GNP) increased 24 percent and corporate profits rose by 37 percent. In 1965 the GNP climbed another seven percent; profits increased 20 percent; and unemployment fell to four percent. These "boom" conditions lasted until near the end of the decade of the Sixties. The GNP increased at a rate of around five percent per year; unemployment never exceeded four percent; and the median family income rose from $8,543 to $10,768.

Some economists cautioned that Johnson's policies could trigger inflation, but the President never deviated from his course. He continued to spend, especially on the war, throughout his tenure. Eventually the economists' predictions were borne out. By the end of the 1960s the nation was experiencing a runaway inflation.

Meanwhile, Johnson launched his grand plan for what he called the "Great Society." The idea was to "fix" all of society's problems by means of federal legislation. In the first year of his administration alone, Congress passed the Tax Act and a new and powerful Civil Rights Act. Congress also approved the Economic Opportunity Act that marked the beginning of Johnson's "war on poverty." This consisted of a series of programs designed to provide education, training, housing, and jobs for the less fortunate. It represented the greatest outpouring of liberal legislation in the nation's history.

After his smashing victory over Senator Barry Goldwater of Arizona in the election of 1964, Johnson shifted the Great Society and War on Poverty programs into high gear. Congress passed Medicare and Medicaid to provide health care for the elderly and the poor. There was legislation passed to provide federal aid to education at all levels. The Voting Rights Act of 1965 guaranteed blacks the right to vote in the South. In addition, federal money was appropriated for housing and urban development and two new Cabinet level departments were created. These were the Department of Housing and Urban Development (HUD) and the Department of Transportation (DOT).

War on Poverty legislation included the Job Corps to train young people who lacked marketable skills; WorkStudy, to supplement the income of college students; Head Start, to help preschool children from "disadvantaged" families; Volunteers in Service to Americans (VISTA), to send volunteers into impoverished areas; federally funded public works projects, and others. However, nothing was done to redistribute wealth, the distribution of which remained much as it had been since the turn of the century, that is, about 20 percent of the population owned about 80 percent of the wealth.

Lyndon Johnson was forced from office because of the public outcry against his failed policy in Vietnam. His successor, Richard M. Nixon (19691974), then had to deal with the major financial and economic difficulties that had been generated by Johnson's policies. He did so by curtailing the money supply. He hoped this would induce high interest rates and consequently business cutbacks.

Nixon's policies did not work. Inflation continued but business activity slowed down more rapidly than expected. This caused government revenues to decline and increased the size of the deficit. It also produced an increase in unemployment. The nation fell into recession.

By 1971 Nixon was ready to try a new, more drastic approach. He froze wages and prices for 90 days, ordered Congress to repeal certain excise taxes, and took the United States off the gold standard by suspending the traditional practice of converting dollars into gold. This had the effect of devaluing the dollar and making U.S. goods cheaper on the international market. Nixon also placed a 10 percent surtax on imports.

This policy worked. By early 1972 the recession was over and industrial production had increased by 5.3 percent over the previous year. Corporate income increased by an average of 11.7 percent over 1971. These changes helped Nixon to win re-election in 1972, but shortly after his triumph the United States faced another economic crisis of significant proportions.

In October, 1973, war broke out between Israel and her Arab enemies, notably Syria and Egypt. The United States supported and aided Israel. In retaliation the Arab states, led by Saudi Arabia, embargoed oil shipments. At that time Middle East imports accounted for about 11 per cent of America's total consumption. Prices shot up and there were shortages. The embargo ended in March 1974 and supplies returned to normal, but prices remained high. The American people now found themselves facing an "energy crisis."

There was a mistaken widespread belief that the price increase in petroleum and petroleum products was caused by the embargo. Price increases were fueled by increased demand that had been developing for several years. In any case, Americans now found themselves paying morea lot moreto drive their cars, heat their homes, and buy the goods produced by farms and industries that were driven by highpriced oil. The nation had entered a new era.

See also: Great Society, Inflation, Raymond Kroc, Richard Nixon, OPEC Oil Embargo, Suburbs (Rise of), Vietnam War


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