The Post War Prosperity: 1948-1967

The two decades following WWII and the wartime decommission are often referred to as the golden era of American Capitalism. During this period, inflation, unemployment and budget deficits remained at historical lows while economic growth averaged over 4% per year. The government, by historical standards, was increasingly involved in many aspects of economic planning, albeit at a level considerably below government involvement in Europe or the Marxist economies of the Soviet Union and the Warsaw Pact.

In 1953, Truman was succeeded by President Eisenhower who espoused a policy of dynamic conservatism. In terms of domestic policy, he continued the New Deal programs that he inherited and expanded Social Security, which he consolidated into a new cabinet-level agency: the Department of Health, Education and Welfare. The economy experienced a recession in 1953–1954, early in Eisenhower’s first term. While he deployed traditional Republican rhetoric, Eisenhower supported an activist contra-cyclical economic approach that helped to establish Keynesianism (popularized during the Depression) as a bipartisan economic policy, including public works programs, easing credit and reducing taxes.

Towards the end of the Eisenhower Administration, the economy suffered two recessions in three years. Despite low inflation and interest rates, GDP had grown by an average of only 2.2% during the Eisenhower presidency and had declined by 1% during Eisenhower’s last twelve months in office. Still in recession when Kennedy took office, the economy accelerated early in his presidency. In response, Kennedy passed the largest tax cut in history in 1961, thus ending a period of tight fiscal policies while the Federal Reserve loosened monetary policy to keep interest rates low and encourage growth of the economy. The economy emerged from the recession and GDP expanded by an average of 5.5% from early 1961 to late 1963, while inflation remained steady at around 1% and unemployment began to ease. This rate of growth in GDP and industry continued until 1966.

Following the assassination of President Kennedy, Lyndon B. Johnson was sworn in to office. One of his first initiatives was the Revenue Act of 1964, which reduced individual income tax rates including a lowering of the top personal rate from 91 percent to 70 percent and a lowering of the top corporate rate from 52 percent to 48 percent. In addition, Johnson introduced “The Great Society” program and the “War on Poverty” which included aid to education, Medicare, urban renewal, beautification, conservation, development of depressed regions, a wide-scale fight against poverty, control and prevention of crime and removal of obstacles to the right to vote, all with government involvement and funding. Simultaneous with the dramatic increase in domestic spending, was Johnson’s escalation of the increasingly unpopular Vietnam War. By 1968, federal spending had risen to 20.6% of GDP from 17.2% of GDP three years earlier, while the budget deficit, virtually non-existent in 1965, had risen to almost 3% of GDP.

During the post-war years, the CEPPI indicator records nearly twenty years of low inflation, unemployment, modest deficits and rapid growth with only one exception, the recession year 1958. On average, the economy performed at an Excellent level between 1948 and 1967.