(POSTWAR WELFARE STATE to THATCHER and REAGAN – continued)
During World War II the Roosevelt administration took advantage of the skills of business executives in organizing production. It put them in charge of government agencies. Business Week described the war has having "placed a premium on business talents rather than on 'brain-trusters' and theoreticians."
The war effort took priority over economic benefits to the poor, and early in the war some of President Roosevelt's New Deal social programs were cut. In June 1942, Congress voted to eliminate funding for the Civilian Conservation Corps. The WPA, derisively called "We Poke Along" by some conservatives, had been the nation's largest employer before the war, and it was eliminated in late 1943. The government was employing young men to fight the war.
During the war the federal government was expanding the economy. Federal outlays reached over 50 percent of the nation's GDP (compared to the 18.4 percent that it would be in the year 2000). The average annual growth rate of the economy from 1940 through 1944 was 15.55 percent – while Britain's economy, more damaged by war, hardly grew. In billions of dollars, at 1990 prices, the US and Britain had the following GDP each year during the war:
1940: 943 316
1941: 1094 344
1942: 1225 353
1943: 1399 361
1944: 1499 346
President Roosevelt, meanwhile, was holding to his sympathy for wealth redistribution. In his 1944 State of the Union address he called for “steeply graduated taxes." He announced that, "Government should guarantee everyone a job, an education, and clothing, housing, medical care, and financial security against the risks of old age and sickness.”
With the war nearing its end, the Roosevelt administration and the Democrat Congress created a gigantic welfare program: the Servicemen's Readjustment Act of 1944, also known as the G.I. Bill. It was created to prevent a repetition of the Bonus March of 1932 and a relapse to economic depression at war's end.
There was in the US as in Britain at the end of the war a spirit of shared sacrifice and equality that lent support to Roosevelt's policies. Following Roosevelt's death in April 1945, President Truman stayed with it. In a message to Congress in September he outlined his program for the transition to a peace-time economy: Congress was to hold the line on prices and rents until fair competition could operate to prevent inflation; wages were to be held "in line" also to control inflation; but there was to be a higher minimum wage to increase purchasing power; and there were to be supplements to unemployment insurance. Truman spoke of the right of every family to a "decent" home, adequate medical care, the opportunity to achieve and enjoy good health, the right "to adequate protection from the economic fears of old age, sickness, accident, and unemployment" and a "right to a good education."
The year 1945 ended with the US economy in decline. There were shortages and, as in Britain, labor wanted more. Unions were demanding better pay and better working conditions. Labor unions represented 27 percent of the civilian labor force, up from 7 percent in 1934. Supporters of militant action on behalf of workers accused Big Business of having acquired excessive profits. In 1946 there were more than 5,000 strikes in the coal, electrical, steel and other industries. Labor was to a great extent the Democratic Party's constituency – the party in power. But Truman ordered strikers back to work. Striking railroad employees ignored him, and he ordered government forces to take over the railroads and the coal mines.
Also in 1946 there were meat shortages, and some consumers were blaming the Democrats. In campaigns for seats in Congress in 1946 the Republicans asked voters whether they had had enough – enough inflation, high taxes, enough price controls, enough coddling of unions, enough strikes and union entanglement with Communists. Republicans promised to cut income taxes – while Truman wanted enough taxes to balance the budget and pay off the national debt. Republican rhetoric had some effect. A Gallup Poll in October – a month before people were to vote – indicated that those preferring debt reduction to the lowering of taxes had dropped from 71 percent the month before to just 49 percent.
Unions had made some wage gains, but in the elections in November many of their candidates were defeated. The Republicans gained control over the House of Representatives, 246 to 188 seats, and they took control of the Senate, 51 to 45 seats, reversing the big election victories won by the Democrats in 1930 and 1932.
Truman had been in office only 19 months. His approval rating had sunk to 32 percent. The congressional election was seen by many as a referendum on president Truman, who was being touted as inept. A Republican slogan was "to err is Truman."
Prices did not rise as steeply in 1947 and '48 as they had in '46, but price increases – inflation – continued to be a concern, especially food prices. Still close to wartime thinking, Truman suggested a return to price controls, and Republicans went along and passed a bill with controls and rationing that Truman said were "pitifully inadequate." But he signed their bill.
In 1947, Truman held that income tax reductions were not needed for businesses to invest and expand. "There is no shortage of funds for this purpose in any wide sector of our economy," he explained. Truman vetoed Republican tax-reduction bills that he thought favored the rich. But, on the issue of labor unions, the 80th Congress mustered the two-thirds majority needed to override his veto of their Labor Management Labor Relations Act, also known as the Taft-Hartley Act. The bill was created, it said, "To promote the full flow of commerce, to prescribe the legitimate rights of both employees and employers in their relations affecting commerce." Organized Labor hated it because it outlawed their ability to maintain all union shops. The bill gave workers the right to choose whether to belong to a union or not and weakened labor's ability to organize.
While the nation was divided on taxation and other economic issues a growth in home building and suburbs was underway, and there was a big shift in education. Both were stimulated by billions in federal spending. The suburbs had been largely the domain of the wealthy, and academia had been peopled mostly by men from wealthy families. The change had come with the G.I. Bill, the Servicemen's Readjustment Act of 1944. The historian Stephen Ambrose writes:
The suburbs, starting with Levittown and others, were paid by GIs borrowing on their G.I. Bill at a very low interest rate. Thousands and thousands of small businesses were started in this country and are still there thanks to the loans from the G.I. Bill. It transformed our country. note56
The bill had been passed by a slim margin, and, said historian Michael Beschloss, "a lot – particularly Republicans – said let's not pass this thing ... They felt that it would encourage sloth; that people wound not try to get jobs. They thought this would extend the welfare state, rather than do the opposite."
The G.I. Bill became a model for liberals supporting government investing. It was to be claimed that "for every dollar invested in the GI's higher education the government and the economy received at least $6.90 in return." note57
In 1948, Truman campaigned hard for reelection. He called the Republican-controlled 80th Congress a "do-nothing" Congress, characterizing the Republicans as obstructionist and failing to produce substantive legislation. At any rate, the economy had been recovering from the recession of 1946-47, and some were to guess that voters were giving Truman credit for this – as well as credit for success against Stalin with the Berlin Airlift. And many Democrats were still associating the Democratic party with prosperity. One voter was quoted by a journalist, Sidney Label, as saying, "I own a nice home, have a new car and am much better off than my parents were. I've been a Democrat all my life. Why should I change?"
Truman surprised many by winning the election. And the Democrats won back the House of Representatives with a 93-seat majority and the Senate with a 12-seat majority. Truman and the new Congress initiated what Truman called his "Fair Deal." This led to federal spending to stimulate new home construction and urban renewal, and the expansion of public housing.
The new Congress passed the Social Security Act of 1950, which extended social security coverage to domestic labor, nonprofit workers and the self-employed.
The economy was booming not only with housing but also the buying of automobiles, paid for in part of course with borrowed money. During the Truman years the economy was to have an average annual growth rate of around 5 percent.
When Truman left office in January 1953 the national debt was at 71.4 percent of GDP, down from 117.5 percent when he took office in April 1945.
Copyright © 2010-2015 by Frank E. Smitha. All rights reserved.