Lecture Notes 2-19

Domestic Trends and Policies (1945-1960) ? Large amounts of white families prospered tremendously from government policy ? It is one of the longest, strongest growths of American economy Humane and Family-Oriented Capitalism ? One of the primary legacies of the Depression and WWII, was a federal government committed to managing capitalism; to make it less volatile and more humane in it's outcomes ? Government should be focused on whether capitalism is human, not the corrupt capitalism that resulted in the depression, had labor strikes, children in mines, women on the job ? New capitalism would be harmonious with civic minds, it was no longer about the bottom line, but about the good of everyone ? Implicit in this project was the expansion of the American Middle Class Full Employment Act of 1946 1. An economy as close to "full" employment as possible 2. Low inflation (money supply increases at the rate of productivity increases) ? Federal Reserve in charge to make sure inflation remains low so interest rates on saving is worthwhile ? We have to produce more, with the same amounts of input, meaning we have to be smarter, and more efficient ? The American economy cannot sustain growth every year 3. Sustained, stable economic growth (measured both total GDP and productivity) ? Growth requires 2 sides: production (supply side) and a demand side (people available to buy that stuff) 4. Promote sustained consumer demand 5. Positive balance of payments (the foreign trade component) ? This was an age before Europe and Asia were competitive ? This was America's moment, we were developed and we had the best products in the world ? Europe and Asia eventually catch up and it becomes difficult to balance The Emerging Role of the "Policy Expert" ? Full Employment Act of 1946 established the President's council of economic advisors ? Mandated that an annual report on the state of the economy be produced ? Emblematic of growing faith in the wise advice of scientific and social scientific experts in the formulation of public policy ? We come to know and respect the opinions of the "experts" Expanding and Protecting the Middle Class ? The goal of these economic initiatives was not simply to avoid depression and inflation but to expand America's middle class-in overall numbers, in share of income earned and wealth accumulated ? This was an important goal not only for it's intrinsic merits but also for the necessity of reducing political conflict Redistribution vs. Growth: An American Without Class Conflict ? There are two ways to carry out this mission: 1. Redistribution: take from the rich and give to the (relatively) poor-Social Security, progressive income tax, federal housing and education subsidies, other direct government redistribution plans, etc. 2. Growth: expand the entire "pie" so that everyone is doing better. "All boats rise on the incoming tide" The "Perfect" Government Intervention: The GI Bill ? The Servicemen's Readjustment Act of 1944 1. Subsidize loans for housing, farms and small business start-ups 2. Education loans and grants 3. Employment protection and preference 4. Free health care ? We didn't want unemployed soldiers begging in the streets again, like what happened with WWI vets during the depression ? You have men in prime age coming home, with only 1 skill: killing, so what do you do? You educate them, subsidize their housing, give them employment protection and give them health care ? This started the expansion of public universities Home Loan Subsidy Program ? Every man his own castle-the American quest for home ownership ? Houses would be built by the private sector and financed by private lending institutions ? Federally guaranteed loans: ? US government would insure against default ? Difference between insured interest rate and the market rate would be covered by the federal government A Major Subsidy to Suburbanization ? From 1944 to 1952, Veterans Association backed early 2.4 million home loans for WWII veterans ? ... The Federal home Loans Program: The Downside ? Built-in bias favoring new construction at the periphery of cities rather than central city rehabilitation ? "Red Lining" of neighborhoods biased the program against minorities, older neighborhoods and industrial cities ? Neighborhoods with minorities are red lined, there is no government subsidizing ? Neighborhoods close to industry, Milwaukee, Chicago, Pittsburgh the "rust belt" no new construction in these areas, so people moved to the suburbs, which favored new cities not based around industry ? Not only a negative bias toward certain areas within cities but also regional bias favoring development in the South and the Southwest, particularly Florida and California ? This program was wonderful, a lot of Americans got a better life, nice neighborhoods for kids, no crime, but it had a downside, a whole mass of people were left out, it was about moving the white people to the suburbs and keeping the minorities out and "where they belonged"