Chapter One
The Golden Age

Emerging from the War

This book will end by looking forward, but it will open by looking back. Specifically, we will look back to the era after World War II and examine how economic policy making changed over that time so that we have a fuller understanding of how we got to this point, when (most of) the Democratic Party has embraced a much more economically populist agenda. What made that happen? This book offers four different answers to this question, all to be discussed in coming chapters, and each answer zooming the historical lens out a bit more broadly than before. In the short term, the main answer is the pandemic—­a crisis that created the conditions that made a greater level of government intervention in the economy possible. In the slightly longer short term, say the last fifteen or so years, it’s changes in economic thinking and in political activism and in the often-­overlooked but important foundation world that opened up the space for ideas that challenged the reigning conventional wisdom. In the longer term still, I examine the economic ideas and principles that were incubated in the 1940s and that came to dominate policy making in the 1970s, because all that new thinking and activism of the last fifteen years represented a reaction to them. And finally, my fourth answer to the above question lies in the fact that those ideas, the ones that came to prominence in the 1970s, were themselves a reaction to the reigning ideas of the earlier era, which takes us back to the end of World War II. We could do this forever, I suppose, but and there’s a good argument for going back to the New Deal, but I choose the late 1940s because that was the time when our modern world and economy were, in many important senses, born. Before 1945, as the labor historian Joshua B. Freeman has written, the United States “was much more a conglomeration of regions with distinctive forms of economic activity, politics, and culture” than it would become.

So this returns us to what is often called the golden age of capitalism—­that postwar period when the middle class exploded, wages grew steadily, American homes added comforts that would have been inconceivable in the Depression era, and everything just seemed to work. As we’ll see, everything didn’t work for everyone. Black people, other people of color (who didn’t exist in the United States in large numbers yet), and women were largely cut out of the action, a historical error that any new golden age must take pains to correct. And even beyond that, there were problems aplenty, as there always are: intense labor strife, deep ideological divides over communism and anticommunism fueled by demagogues like Joe McCarthy, violent battles for civil rights, bitter division over the war in Vietnam.

But economically speaking, it was a comparative golden age. And this is the first important point that needs to be made today about this period. It was an age of shared prosperity compared with today, and it was such because our economic values were better. Coming out of depression and war—­two experiences shared by the whole population that demanded sacrifice and made people think about not just their own well-­being but that of their neighbors—­the United States of the 1940s and 1950s had morally superior economic values to the United States of, say, the 1980s.

But let’s put morality to the side for now and establish that the period was materially better. Robert Skidelsky, the economic historian and biographer of John Maynard Keynes, wrote in his short post–­Great Meltdown volume, Keynes: The Return of the Master, of the two broad postwar periods that he refers to as the Bretton Woods era and the period of the so-­called Washington Consensus. Bretton Woods refers to the Bretton Woods Conference of July 1944, when representatives of the Western democracies met at a resort in New Hampshire to set up a system of global economic cooperation to take hold once the war was won. Bretton Woods established the International Monetary Fund and provided for a system of fixed exchange rates; in addition, the Bretton Woods system encouraged government intervention in the economy to promote full employment as a chief goal. Thus, the Bretton Woods system was, Skidelsky writes, broadly Keynesian. The “Washington Consensus” was a phrase coined by the British economist John Williamson in 1989, referring originally to a set of policy ideas that Washington sought to impose on developing economies. These ideas included lower tax rates, deregulation, privatization, and kindred notions; given that, the term came to refer to neoliberal market fundamentalism more generally. The Bretton Woods system lasted, according to Skidelsky, from 1951 to 1973, when the first OPEC oil crisis caused a number of economic shocks. After a transition period, the Washington Consensus era ran from 1980 to the time of Skidelsky’s writing (the book was published in 2009).

Skidelsky compared global and Western economic performance during the two periods using a variety of metrics. He begins with real global GDP growth, which ran at 4.8 percent during the Bretton Woods period, and 3.2 percent during the Washington Consensus period (and remember, the neoliberals say that it’s all about growth!). He also notes the existence of five global recessions since 1980, and none during the Bretton Woods era (and one large one in that mid-­1970s interregnum). Likewise, global unemployment grew in the Washington Consensus period; Skidelsky tracks the unemployment rate in the five major industrial democracies, and all rose during the latter period (most dramatically in the U.K. and Germany; in the United States, the increase was from 4.8 percent to 6.1 percent, which isn’t as sharp as the U.K.’s 1.6 percent to 7.4 percent but still means a few million more people out of work). Inequality was, not surprisingly, “stable in the Bretton Woods age, but it rose sharply in the Washington Consensus years from 1982 and all the way into the new millennium.” World growth volatility—­changes in the growth rate of real GDP over time—­was characterized by large spikes in the mid-­1970s and early 1980s, but overall was about the same in the two periods. Only on inflation did the Washington Consensus period produce better results, but the numbers weren’t as different as many might expect—­3.9 percent in the Bretton Woods period to 3.2 percent in the Washington Consensus period. Likewise, four economists taking a longer historical view found that the average annual growth rate for the advanced democracies in the 1950 to 1973 period was 4.9 percent, compared with 2.2 percent for 1820 to 1870, 2.5 for 1870 to 1913, 1.9 percent for 1913 to 1950, and 2.5 percent for 1973 to 1979 (when their study ended). They note also that the growth was broadly shared—­that wages grew steadily on pace with productivity, a key measure indicating that gains weren’t just concentrated at the top as they have been in more recent decades. So the economy really was better for middle-­class families than before or since.

It should be said that none of this growth and prosperity was inevitable. Early during World War II, as it became clear, in the United States and the U.K. in particular, that the Allies were likely to win the war eventually, economic and political minds turned toward the postwar economy. They did so with considerable trepidation. To appreciate this, we have to imagine the wartime economy, barely comprehensible to us today in our age of unquenchable consumerism. This was a time when millions of people were doing without. Meat, sugar, rubber, gasoline, and many other goods were rationed. Governments issued pamphlets to housewives instructing them on how to squeeze everything they could out of the groceries they were allowed to buy. There was a Home Front Pledge that even Eleanor Roosevelt took: “I will pay no more than top legal prices. I will accept no rationed goods without giving up ration points.” As the end of the war approached, some critics observed that the upper classes were growing a bit weary of all this. The historian Isser Woloch wrote that in the summer of 1944, in his regular newspaper column, George Orwell noted that certain cars on the British rail system were once again being designated first-­class, a distinction that had disappeared after the war’s onset, and that some gated private parks in London, “which had been opened to the public when the government requisitioned their iron railings for scrap metal in 1940,” were once again being closed off.

There was deep fear among policy makers in both the United States and the U.K. that the economy would tank when the war ended. The wartime economy put everyone to work, including women, who had previously mostly stayed at home; the transition to a peacetime economy would surely reduce employment and lead to some serious dislocations and a period of labor strife. Inflation fears were rampant, too, because wartime laws on price stabilization across a host of sectors were due to be lifted.

Wartime planners like the New Dealer Chester Bowles, who as the war drew to a close headed the Office of Price Administration (where a young Richard Nixon worked for a time), saw all this coming and wanted to avoid these shocks. But they were also driven by larger, historic motivations in both the United States and Britain: that these nations, the world’s two most durable democracies, must not simply revert to the way things were before; that they were going to emerge from the war, first, in a new position of economic and political supremacy vis-­à-­vis the rest of the world and, second, with something of a duty to deliver on the mighty ideals they had invoked in fighting Hitler and would continue to invoke against Stalin during the Cold War.

This meant, in short, that new degrees of social provision would be necessary and that government would have to drive this activity because the private sector on its own would not. In the U.K., this thinking was most famously made manifest in the Beveridge Report. On June 10, 1941, the War Cabinet commissioned Sir William Beveridge, an economist who had served in a range of government posts, to conduct “a survey of the existing national schemes of social insurance and allied services, including workmen’s compensation and to make recommendations.” In November 1942, he issued his report, which he packaged as an assault on the “five giants” that plagued the lives of the greater proportion of the British population: want, disease, ignorance, squalor, and idleness. The two that you couldn’t get away with today, ignorance and idleness, were seen in the report as reflecting not moral failings of the people but rather the failure of society to properly educate people and provide them with sufficient motivational opportunities. The report’s recommendations were sweeping, especially so in a country that had not embraced government expansion in the 1930s in quite the way Roosevelt’s America had. By 1945, the Labour Party released its manifesto for that year’s campaign, called Let Us Face the Future. While a bit vague on the particulars on matters like housing and health care, the manifesto nevertheless committed the party to expansive measures (“the best health services should be available free for all”).

Something similar was happening in the United States. It was happening without quite the same level of commitment, because the American Democratic Party was more ambivalent about such matters than the British Labour Party, and because the American president was ideologically elusive; yes, despite all that Franklin Roosevelt accomplished and all the change he oversaw, he was in some ways a cautious politician, unwilling to confront his party’s segregationists, backpedaling toward deficit reduction after his 1936 reelection. But he was being pushed on this matter of the postwar economy by his advisers, and none more so than Chester Bowles. Around Thanksgiving 1943, as Roosevelt was preparing to leave for the Tehran Conference with Churchill and Stalin, at which the Western powers committed to opening up a second front against Nazi Germany, Bowles sent Roosevelt a memo. He urged the president to return from Tehran with the message that the soldiers were asking him about what kind of country they would be returning home to—­one still stunted by unemployment and poverty, or one committed to a new dynamism. It had to be the latter. And so Bowles advised FDR to return from Iran and give a speech that might go as follows:

Therefore, I propose a second Bill of Rights in the field of economics: the right to a home of your own, the right of a farmer to a piece of land, the right of the businessman to be free from monopoly competition, the right to a doctor when you’re sick, the right to a peaceful old age with adequate social security, a right to a decent education.

Roosevelt did not exactly respond with enthusiasm. He shared the memo with another aide and asked, “What the hell do I do about this?” But he did come around. The next January, in his State of the Union address, Roosevelt unveiled his proposal for an “Economic Bill of Rights”: the rights to work, food, clothing, and leisure; freedom from monopolies and unfair competition; additional rights to housing, education, medical care, and Social Security. Bowles and other New Dealers were hopeful that Roosevelt would make this the theme of his reelection campaign. He didn’t; he ran largely as a wartime president, and he mentioned the Economic Bill of Rights only one other time, in a speech in Chicago in late October that was broadcast nationally on radio. But it was enough. The Democratic Party was committed now to postwar Keynesianism in a way it had not been before Bowles’s intervention and Roosevelt’s speech.

What Made the Golden Age Golden?

The golden age, it must be said, got off to a rather leaden start. It didn’t help the national morale that as Hitler was locked in his bunker, two and a half weeks shy of putting a bullet in his mouth, Roosevelt died, handing leadership of the nation to a vice president the people (outside Missouri) barely knew. Harry Truman, who today regularly ranks as one of our great presidents, inspired little confidence in April 1945. And as far as the economy was concerned, many of the postwar fears of the New Deal men were quickly realized. Inflation surged. The price of steel rose almost immediately after the war. Likewise, the price of meat—­so strictly rationed during the war—­spiked in 1946 as price controls expired over President Truman’s veto. The controls were reimposed, but the supply of meat disappeared “as the big meatpacking companies held back supplies and cattlemen kept their steers in feed lots awaiting higher prices before they would send them to slaughter.”

The immediate postwar period also saw an enormous amount of labor strife. Organized labor, then very powerful and quite left wing, reined in its militancy during the war, with unions in many sectors accepting wage freezes (that’s how health insurance became attached to employment in the United States; it was a nonwage benefit management could offer workers) and agreeing not to strike (although there were literally thousands of wildcat strikes, sometimes pitting workers against not only bosses but their own leaders). Then, after the war, labor unrest exploded, and 1946 saw more strikes than any year in American history. A mere three days after V-­J Day, the United Auto Workers (UAW) requested a 30 percent pay increase; this was at a time when wages in most sectors were going down, in part because of the oversupply of labor, what with several million men returning home from the war. Electrical workers followed, then oil workers and coal miners and lumber workers and longshoremen and more. All told, in 1946, about 4.6 million workers were involved in strikes. This was in a workforce of around 60 million people.

Over the next couple of years, inflation abated and labor unrest quieted (not entirely voluntarily—­the Republicans took over Congress in January 1947 and passed just one big bill, the anti-­union Taft-­Hartley Act, which made it much harder for unions to organize and to strike; Truman vetoed it, but Congress, with more than half of all Democrats joining the Republicans, overrode his veto comfortably). A recession hit in November 1948—­well-­timed from the perspective of Truman, who’d just pulled off his upset victory over Thomas Dewey. Pent-­up wartime consumer demand had been over-­satisfied, as department store sales crashed by 22 percent. Unemployment began to rise because, with all those returning veterans, there were far more people than jobs. The downturn wasn’t severe, but it lasted nearly a full year. Everything was sorted out by 1950, though, and it was off to the races. From 1950 to 1973, the gross domestic product averaged 4.06 percent. For a little perspective on that, we’ve had just two years above 4 percent in the entire twenty-­first century—­its first year, 2000, when GDP was 4.1 percent, and 2021’s rate of 5.7 percent.

What made the golden age golden? Economists point to such factors as “an unprecedented growth rate of labor productivity along with a similarly high rate of capital accumulation.” Conservatives would put it all down to a newly dynamic private sector—­innovators like Abraham Levitt and his sons William and Alfred, who built the American suburbs, and the engineers at GE who started bringing more good things to life in postwar America than ever before, and more than dazzled consumers could believe. The explosion in international trade was important; the World Trade Center that ceased to exist on September 11, 2001, opened in the early 1970s but was being planned by the Port of New York Authority (as it was then known) as far back as 1946. Increased military spending to fight the Cold War and the Korean War—­and to sustain this new national-­security state on a permanent basis—­was a huge factor. Indeed, “military Keynesianism,” a concept that first came into vogue in the United States during World War II, was firmly established as national policy by the time of Truman’s National Security Council directive NSC-­68, which advocated a massive expansion of the U.S. military budget. By 1953, writes the historian Jonathan Levy, “total federal government expenditures accounted for nearly a quarter of GDP—­nearly two-­thirds of which was military spending.”

Levy posits that the golden age was harmonized by a “fiscal triangle” that consisted of the federal government, the private for-­profit sector, and the nonprofit sector. The private sector, of course, drove the economy and was still dominated at that point by the production of actual goods (as opposed to services; the United States transitioned to being a service economy from the late 1960s through the 1980s). The nonprofit sector at the time was growing by leaps and bounds. Nonprofit philanthropy had received favorable tax treatment for decades, but the big moment came when Congress passed the law establishing tax-­exempt so-­called ­501­(c)­(3) organizations in 1954. The government was also growing and becoming more professionalized. Truman signed a law creating the Council of Economic Advisers to give presidents objective and professional economic advice (although they often lose arguments to the political people). The second CEA chair was Leon Keyserling, a liberal Keynesian who had studied at Columbia under FDR’s adviser Rexford Tugwell. No one called the government the enemy in those days. The government, the private sector, and the nonprofit sector worked together, wrote Levy, to become “the dominant political-­economic coordinating mechanism of Cold War liberalism. Its task was the production, distribution, and redistribution of industrial income.”

That last noun is crucial. Redistribution on a vast scale was accepted more or less across the political spectrum, except by a few cranks—­some Texas oilmen, a dean at Notre Dame named Clarence Manion, assorted capitalists like Walter Knott of Knott’s Berry Farm fame—­who had no political power at the time. The top marginal tax rate was 94 percent during the war; it was lowered to 91 percent for 1946. “Marginal rate” means that rich people paid these rates only on dollars earned above $200,000, an amount of money that almost no one not named Rockefeller made. (A small sign of how our values have changed: in 2021, that $200,000 would equate to about $2.8 million, which is made by roughly 300 Major League Baseball players, as well as something approaching 5.5 million other people.) However, taxation at lower levels of income was still quite high. For example, on dollars earned above $90,000 ($1.2 million today), filers paid 87 percent. On dollars earned above $50,000 ($697,000), they paid 75 percent. On dollars earned above a relatively modest $16,000 ($223,000), 50 percent of each of those dollars went to Uncle Sam. Even the lowest rate then, 20 percent, was twice today’s 10 percent. And compared with today’s seven tax brackets, there were a staggering twenty-­four in 1950. At all levels, if you made more, you paid more.

Of course, then as now, the tax code was festooned with deductions and ways to avoid paying the posted rate. Still, those are rates that would be impossible to replicate today; antitax forces would literally start a war. Rates that high would also be bad policy today, in a world where capital is so mobile. (If they made me emperor, I’d probably impose a top marginal rate of about 55 or 60 percent on some quite-­high dollar figure, like $5 million.) But those tax rates did one salutary thing: they brought in a ton of revenue. Despite what the supply-­siders say—­and we’ll dig into this in more detail in a later chapter—­the history on this point is as straightforward as it can be: higher tax rates produce more revenue. There was money for the government to spend, and it spent it. Yes, on building up the military, but also on things like rebuilding Europe and Japan: the Marshall Plan cost around $15 billion, or $180 billion in today’s dollars. The Federal-­Aid Highway Act of 1956, which built the Interstate Highway System (on the basis of a military-­emergency rationale), cost more than $100 billion over ten years. That would equate to about $1 trillion in today’s dollars.

Corporate tax rates were higher, too. The statutory corporate tax rate in the 1950s was 50 percent. The effective rate jumped around but was typically in the 30 to 40 percent range. The maximization of profit that became holy writ in corporate America later in the century wasn’t part of the equation then. Shareholders in publicly held companies had a right to expect a reasonable return on their investment, but only that—­a reasonable return. Such was the ethos of the time. There was a business group, the Committee for Economic Development (CED), that was started during the war by executives from the Studebaker auto company and Eastman Kodak to plan reconversion to a peacetime economy. The CED got corporate America behind the Marshall Plan, and it enlisted private-­sector CEOs and university presidents to describe the social role of business. An economist named Howard Bowen published a book in 1953 called Social Responsibilities of the Businessman. Interestingly, it was one of a series of books on Christian ethics produced by the Federal Council of the Churches of Christ in America. This paragraph sums up the book’s, and to some extent the era’s, ethos:

The unrivaled freedom of economic decision-­making for millions of private businessmen, which characterizes our free enterprise system, can be justified not if it is good merely for the owners and managers of enterprises, but only if it is good for our entire society. We can support freedom and private control of enterprise only if it is conducive to the general welfare by advancing progress, promoting a high standard of living, contributing to economic