The Gifted Generation: When Government Was Good

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CHAPTER 1

Moving

Peace. Such a lovely and loving word. After fifteen years of depression and war the word augured possibility and hope. Returning servicemen had no time for lengthy explanations of what they sought. As one responded to a reporter, he simply wanted to "make up for lost time." Time taken from getting married and starting a family. Time taken from education. Time taken from getting ahead at the office or on the farm. A sailor just off his transport in Seattle blurted to a reporter's question about his plans, "Raise babies and keep house!" Their dreams were simple, but their very simplicity indicated the dislocations that had affected their lives.

Concerns tempered the euphoria of peace. With over 15 million returning veterans and 10 million civilian employees of defense industries soon out of work, would the country lapse into an economic depression? Would inflation rob returning vets and their families of prosperity? Would reconversion stretch out to thwart a swift return to a normal civilian life? Would shortages of food, housing, and durable goods turn anticipation into despair? Would international tensions resume quickly as the Soviet Union replaced Nazi Germany as a threat to the security of America and its allies?

The national mood during the first year after the war was an odd cross between somber and hopeful. One exasperated writer complained that the United States was "too full of worries ... We worry about politics and about Congress and about the conduct of the government ... We worry about foreign affairs. We worry about prices. And we worry a lot about production and about labor."

The government had spent the United States into prosperity during World War II. Defense industries, infrastructure projects such as roads, airports, and water and sewer systems, poured billions into the pockets of workers and corporations. As early as 1943, economists worried about "economic chaos" after the war ended. Reconverting war plants to peacetime needs, the layoff of millions of workers as defense industries wound down, and the simultaneous influx of millions of returning soldiers into the job market presaged a reversion to difficult economic times.

Peace and prosperity energized the conservative coalition. Labor troubles were a certainty as unions sought to build upon their wartime gains and management tried to restore some of its former power when labor surpluses existed. Conservatives hoped to curtail labor's might. The stupendous national debt incurred by the war would likely result in higher taxes. Expected bonuses for veterans would make paring down that debt more difficult. The federal government would probably need to launch major infrastructure projects to absorb the unemployed. And shortages would send inflation skyrocketing at a time of projected high unemployment. Deficits, tax hikes, and inflation were an unholy trinity for conservatives. A major cut in federal spending, conservatives believed, would remedy all three dangers. In late 1944, writer Bernard DeVoto observed "a fear of the coming of peace" due to the economic uncertainty. Conservatives, however, viewed peace as an opportunity to take back their government. They had succeeded in stalling New Deal initiatives between 1937 and 1941, threatening the modest economic recovery. Now, they sought a broader reversal.

The Cold War, emerging so soon after the defeat of the Axis powers, scarcely gave Americans time to celebrate their hard-won victories. And now, at the dawn of the nuclear age, the perils of conflict multiplied. The Communist insurgency in China contributed to national jitters. For a generation of Americans, many of whom had lived through the prosperous 1920s only to witness a near-total economic collapse and then a bloody war, neither peace nor prosperity were sure things. A group of MIT professors scolded cities for their lack of preparedness in the event of nuclear war and presented a plan that is laughable only in retrospect.

The economy proved more resilient than the pundits. As early as February 1946, experts expressed surprise that the physical reconversion of war plants seemed to be going well and quickly, unemployment was far less than government economists had predicted, and income and retail sales had risen. The threat of inflation lingered as did persistent shortages, and both the Truman administration and Congress miscalculated on price controls. But there were hopeful signs these issues were manageable once production satisfied consumer demand. And consumers had cash. High wages and full employment during the war had put money into the pockets of millions of Americans, though there was precious little they could buy. With peace, the dam burst. As one editor put it in 1946, "Never before has the average man been so ready and able to buy things."

During the Christmas shopping season of 1946, Macy's department store in New York City set an all-time daily sales record on December 5 of nearly $1.5 million, a record broken two weeks later. A headline trumpeted, "Shoppers Overrun New York Stores in History's Biggest Buying Spree." By early 1947, as production ratcheted up, the threat of inflation moderated. W. S. Woytinsky, an economist for the 20th Century Fund, attributed some of the good economic news to government policy, particularly the G.I. Bill, which pumped money into the housing market and new businesses, as well as seed funds for educating former soldiers, who could improve their incomes with a college degree. In October 1948, Life magazine's editor crowed, "Production stands on its greatest peacetime pinnacle, a height no other nation in all the years of the world has ever scaled."

The median income of nonfarm families rose 66 percent between 1947 and 1957, the greatest decadal increase in American history. The broad affluence opened up experiences heretofore reserved for the wealthy, such as travel to Europe, which reached record numbers in 1949. As one writer noted, "Globetrotting is no longer the privilege of the well-to-do: the butchers and bakers and students and farmers now far outnumber and outspend the merchant chiefs." An increase in patronage of local orchestras, museums, and libraries, and the popularity of garden clubs and of reading the Great Books, also received notice in the press. Sports fans packed stands, especially in the baseball parks to watch Jackie Robinson of the Dodgers, Joe DiMaggio of the Yankees, Ted Williams of the Red Sox, and Stan "the Man" Musial of the St. Louis Cardinals. Americans were learning "that prosperity, once the primary needs of life are cared for, is only good as underpinning for the good life."

In 1950, Scientific American calculated that, even allowing for inflation, Americans spent 96 percent more on books than in 1940, 140 percent more for toys and sports equipment, 219 percent more for photo developing, 129 percent more for flowers and seeds, and 263 percent more for phonographs and records, musical instruments, radios, and television sets. Much of this increase reflected the baby boom and the movement to the suburbs, but also the widespread prosperity of the American population. In the 1920s the top 5 percent income earners accounted for 38 percent of the total national income; by 1950, they accounted for only 17 percent. Which meant that many more Americans could afford the durable goods such as automobiles, refrigerators, washing machines, air conditioners, and power mowers. Economists agreed that the government played an important role in raising "the purchasing power of the formerly poor." The result was not only the rapid expansion of a middle class, but also the enrichment of civic life. By helping people become more independent, government assisted strengthening the bonds of the nation.

Government spending lit the economic fires of the postwar era. Outlays for the G.I. Bill and higher education, and housing, mortgage, and tax subsidies, boosted consumer spending. Federal spending under the Truman administration dwarfed the outlays of the New Deal. In 1948, federal expenditures, which had reached as high as $95.2 billion in fiscal 1945, had shrunk to $36.5 billion, mostly from a decline in defense spending. But that latter figure far exceeded the $9.4 billion the New Deal spent in 1939.

By 1952, the last year of the Truman administration, the economic numbers confirmed the extended reach of the nation's prosperity. The gross national product was $16 billion more than at its peak during the war (1944). Unemployment stood at 2 percent, below the figure most economists would call full employment. In 1952 alone per capita income increased by 8 percent. America was building — houses, roads, utilities, and commercial and industrial buildings.

Prosperity spread more evenly across the land. The South, identified as the nation's "Number One economic problem" in a 1938 government report, had, within a decade, become a promising region for economic development. Building on wartime industries, such as the Bell bomber plant in Atlanta, that had raised the skill levels of workers and drawn farmers from unproductive agriculture into the cities, the New South appeared to be poised to make good on its publicity. Businesses expanded, such as Malcolm McLean's trucking company in Winston-Salem, which grew from one to one thousand trucks between the beginning of the war and 1949. Republic Steel's new plant at Gadsden, Alabama, rolled out steel pipe for natural gas lines in the burgeoning subdivisions of the region. Furniture plants in High Point, North Carolina, could barely keep up with orders to furnish new homes. Hopeful articles appeared that the South's prosperity would eventually ameliorate its troubled race relations.

The Pacific Northwest, long identified as a "colonial" economy dependent on lumber, fishing, and agriculture, underwent a transformation as the federal government harnessed the Columbia River's power to produce one third of the nation's hydroelectric power. The Grand Coulee and Bonneville dams added to the region's capacity. The Grand Coulee was the biggest project ever built, four times bigger than the Great Pyramids when it was completed in 1942. The Northwest received more government funds for industrial development during the war than any other region, the largest share of which — $347 million — went to the Hanford Engineering Works in central Washington State, where scientists produced plutonium from uranium for the first atomic bomb. Government subsidies poured into shipyards, aircraft factories, electrochemical plants, most of which declined after the war, but the Boeing company refitted to produce aircraft for the growing commercial air market. The diversity of the Northwest's economy reduced dependence on the lumber industry and enabled the federal government to place the Northwest's forests on a sustained-yield basis.

All of these developments resulted in what the National Bureau of Economic Research (NBER) called in 1951 "one of the greatest social revolutions in history." At the core of this revolution was the dramatic change in the distribution of income. By 1951, one half of the nation's families were classified by the NBER as middle-class. Fifty years earlier, that figure stood at 25 percent. Adjusting for inflation, the annual income of a factory worker went up six-fold during that half century, even after taxes. The transformation broadened people's horizons and allowed them to fulfill aspirations for education, jobs, homes, and leisure.

Management consultant Peter F. Drucker wrote in 1952 that the expansion of the middle class also resulted from a change in attitude by corporate executives. Earlier in the century, Drucker explained, American businessmen believed that regard for the social and economic well-being of workers and the nation were irrelevant to the corporate mission, a philosophy best summarized by President Calvin Coolidge's statement "The business of this country is business." Drucker believed that the corporation at midcentury would phrase its philosophy as "The business of this business is the country" — in other words, the commonwealth ideal of interdependence. Drucker believed that management was coming to understand that treating workers with dignity would lead to greater productivity.

The workforce itself was changing. Demand increased for positions requiring greater skills, training, and education. As Drucker noted, "An American youngster starting out on his career has at least two chances out of three that he will end up in a skilled, professional or executive job paying a middle-class wage or better, or as his own boss in his own business." This was the economy that the gifted generation would grow into.

The achievement of this broad prosperity occurred when the top income bracket in 1949 paid a marginal tax rate of 82 percent, a figure that would climb to 91 percent in the 1950s. Taxes on corporate profits were two times as large as they were in 2017. The tax on large estates rose to more than 70 percent. Not only did businesses operate under a relatively high tax burden, but they also confronted a labor force where one third of the workers were unionized and bargained with executives as equals. From the conservatives' perspective, that such a tax structure produced great prosperity seemed counterintuitive. But it merely confirmed Keynes's economic theories of how an activist state could generate wealth in a transforming economy and create spheres of mutual interest across disparate elements of the national economy. Corporations in the early 1950s, economist Paul Krugman observed, served "an array of 'stakeholders' as opposed to merely serving stockholders."

Frank W. Abrams, chairman of Standard Oil of New Jersey, articulated this notion of "stakeholder capitalism," a corporate form of the commonwealth ideal that balanced the interests of all members in the firm's family. "The job of management," Abrams explained, "is to maintain an equitable and working balance among the claims of the various directly affected interest groups," which he defined as "stockholders, employees, customers and the public at large." Other executives shared this view, such as Earl S. Willis at General Electric: "The employee who can plan his economic future with reasonable certainty is an employer's most productive asset." Both median family income and productivity nearly doubled between 1948 and 1973.

Labor unions pioneered the concept of "living" or "family" wages, and corporations bought into the philosophy, sometimes grudgingly. The relative weakness of foreign competition only partially accounted for the prosperity of the late 1940s and 1950s. Companies were responsible not only to their shareholders, but also to their employees. Henry Ford had discovered as far back as 1914 that higher wages had a palliative effect on turnover and absenteeism. When he began to pay an unprecedented wage of $5 a day, productivity and profits rose.

Any company at which a majority of workers voted to join a union in a federally supervised election had to sit down at the bargaining table and negotiate a contract that included clear rules and procedures and protected workers from arbitrary treatment by management. Union workers could rely on regular wage increases that allowed them to purchase cars, appliances, and homes. They also wielded political muscle to sustain regular increases in the minimum wage. Jack Metzgar, who grew up as a son of a steelworker, recalled, "If what we lived through in the 1950s was not liberation, then liberation never happens in real human lives."

In the postwar years, corporate leaders formed the Committee for Economic Development (CED), which helped to forge a consensus supporting strong unions, bigger government, and the welfare state. For example, the CED called for higher taxes to fund the Korean War effort. As corporate analyst Mark Mizruchi noted of the CED, "They believed that in order to maintain their privileges, they had to insure that ordinary Americans were having their needs met."

In 1955, Fortune magazine published an article on the lifestyles of that year's top executives compared with the opulent lives led by the barons of finance and industry early in the twentieth century. The typical executive in 1955 lived in a relatively modest suburban house, employed part-time help, and usually owned a small boat. Data supported this portrait. By 1955, the incomes of the top 0.01 percent of Americans were less than half of what they had been in the late 1920s, and their share of total income was down by 75 percent. In 1950, the income gap between the least paid and best paid workers diminished to its lowest point in the twentieth century. In the 1950s, the corporate CEO received twenty times as much as the firm's typical employee; by 2016, CEOs averaged more than two hundred times that of the average worker. Economists called it "the virtuous circle of growth": well-paid workers fueled consumer demand, which, in turn, generated business expansion and hiring, raising corporate profits to induce higher wages and more hiring. The American social structure changed its shape from a pyramid to a diamond. In 1929, 80 percent of American families earned less than $4,000 a year in 1950 dollars; by 1953, more than 58 percent had annual incomes ranging from $4,000 to $10,000. Factory workers saw their paychecks double between 1945 and 1970. That told only part of the story as companies also provided health insurance and generous pensions.

(Continues…)

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Excerpted from "The Gifted Generation"
by .
Copyright © 2017 David Goldfield.
Excerpted by permission of Bloomsbury Publishing Plc.
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