The Age of Eisenhower
Page 35
Eisenhower dismissed this kind of criticism. He shared Graham’s belief that government could at best only ameliorate social problems, not fix them, and that God and gumption formed the true essence of the American experience. In his State of the Union address in January 1954, he said government alone could not make people industrious or enterprising. It was up to them to work hard for their future prosperity. Similarly, he said, Americans know how to balance God against greed. “Though blessed with more material goods than any people in history,” Americans “have always reserved their first allegiance to the kingdom of the spirit, which is the true source of that freedom we value above all material things.” He told the annual meeting of the U.S. Chamber of Commerce in May 1955 that America became great by mixing religious faith with the spirit of free enterprise. Yes, government occasionally had a role to play in softening the blows of modern life, but what made America great was its combination of deep religious faith and individualism. With God, prosperity, and individual freedom at work on America’s side, “we cannot lose; we simply cannot lose.”13
III
Thus Eisenhower believed it possible to balance prayer and prosperity, doxology and dollars, godliness and good times. Viewed from a later age, such pairings might appear cynical and hypocritical. But Eisenhower believed in balance, in finding the right calibration between moral purpose and creature comforts. He did not see prosperity as immoral; rather he saw it as a reward for hard work and sacrifice. A blessed nation had earned a bountiful harvest.
Eisenhower could sustain this belief because, to a surprising degree, many Americans shared in the prosperity of the 1950s. Unlike the boom times of the Gilded Age or the dot-com bubble of the 1990s, the prosperity of the 1950s ran both deep and broad. The bane of American society in the 21st century—drastic economic inequality—did not afflict the nation to the same degree during the roaring ’50s. Incomes grew at roughly the same pace for all groups, and those at the very top of the economic pyramid paid far more taxes than the wealthy do today. Instead of enriching only a few fat cats, 1950s-era prosperity helped create and nourish what is now a vanishing species: the American middle class. Here lies the source of much later nostalgia for the Age of Eisenhower. The 1950s was the decade in which many citizens appeared to have realized that elusive goal, the American Dream.
Numbers can help tell this story. At the start of the Age of Eisenhower, in 1950, Americans were already making two to three times the hourly wage they had earned in 1935, so they began the decade in an atmosphere of optimism. In 1948–53 unemployment was negligible, averaging just 4 percent. In manufacturing, hourly wages rose from 58 cents an hour in 1935 to $1.59 in 1950. The average American family income was $4,237 in 1950, a dramatic improvement from the depression-wracked 1930s, but of course prices had shot up as well: in 1950 a pound of butter cost twice what it had 15 years earlier, and the price of meat had tripled. Average family expenditures in 1950 ran to $3,800, so while Americans in 1950 had more money in their pockets, they spent most of it on the high cost of living.
But if economic trends looked promising in 1950, few could have predicted just how prosperous the coming decade would be. The gross national product nearly doubled in the decade, from $285 billion to $500 billion. Average family income in 1960 stood at $6,691, a 58 percent increase from the then-record levels of 1950. Wages rose sharply across the decade in key industries. In manufacturing, mining, construction, transportation, and finance, hourly wages increased well over a dollar an hour—in some cases up 60 percent in just a decade. These numbers were especially important because in the 1950s America was still a nation of factories: in 39 percent of American households, the head of the family was employed in manufacturing of some kind. Overall, manufacturing provided about a third of all employment in the U.S. economy in the 1950s—a postwar high. (Today it is less than 9 percent and falling.)
Despite rising wages and near-full employment, prices rose only moderately across the decade—far less than during the 1940s. Stable prices created a sense of predictability, allowing Americans to think ahead about how to spend their extra cash. Homeownership spiked: more Americans owned their own homes in 1960 than in 1950 (53 percent compared to 48 percent). The newest appliance in those homes was the television, which was present in 87 percent of American households by 1960. As the suburbs expanded, Americans bought more cars. In 1950, 59 percent of families owned a car, but by 1960, 73 percent did. And most of those cars were made in America by one of three companies: General Motors, Ford, or Chrysler. And of course Americans had more babies than ever, creating a significant postwar “baby boom.”
These numbers make it plain: Americans in the 1950s enjoyed a higher standard of living than any previous generation in the nation’s history. They earned more money, owned their own homes, drove their own cars, and bought nonessential consumer goods. And contrary to popular belief, not only men benefited: female participation in the workforce rose during the 1950s, from 34 to 38 percent. Compared to the world they had been born into—a world of economic depression and war, rationing of scarce goods, social and class conflict, and anxiety about the future—American adults by the mid-1950s saw their lives as unusually prosperous, stable, and secure. Simply put, for more families than ever, life in America was good, and getting better.14
IV
Does Eisenhower deserve the credit for this prosperity? Not entirely. America benefited in the 1950s from many positive trends that owed nothing to Ike: a growing population, and a better educated one; pent-up demand among consumers after 15 years of hardship; cheap oil and energy; innovations in technology and science; and the creation of a vast market of consumer goods, stimulated by the rapid expansion of the advertising industry. The global picture was also favorable: Germany and Japan, which would challenge American economic dominance after the 1970s, still faced formidable domestic reconstruction problems. And the world economy still ran on dollars, supporting America’s ability to export its wares around the world. The country enjoyed a healthy trade surplus throughout the decade. In such circumstances perhaps any president would look good.
Yet Eisenhower’s policies did matter. In seeking a balanced budget, developing tax policy, expanding social welfare benefits, and guiding government investment in infrastructure, Eisenhower made significant choices that reflected his philosophy of government. This he described succinctly: “a liberal attitude toward the welfare of people and a conservative approach to the use of their money.”15
This language was keenly political and designed to generate a national consensus. Eisenhower knew that Republicans carried the heavy weight of recent failure: the previous Republican administration had been Herbert Hoover’s, and on his watch the nation tumbled into a severe Depression. Eisenhower called the Hoover experience the “skeleton in the Republican closet.” Hoover had failed to act vigorously to address the desperate economic conditions the nation faced. Austerity had only worsened the Depression, and the lessons of the 1930s indicated that government had to be active and creative. Eisenhower wanted to find the right policies that would allow a proper role for government intervention in the economy while encouraging individual initiative. As he explained in 1954, “Government must play a vital role in maintaining economic growth and stability. But I believe that our development, since the early days of the Republic, has been based on the fact that we left a great share of our national income to be used by a provident people with a will to venture.”16
His principal obsession, from which all other policies flowed, was the balanced budget. Pursuit of this goal demanded thrift, sacrifice, and discipline—characteristics he equated with virtuous government. A budget deficit represented weakness, both moral and political. And deficits, he believed, produced inflation, which he thought of as simple theft: the stealing of the value of hard-earned savings. Eisenhower inherited a $10 billion deficit from Truman and set his two toughest budget-slashers, Joseph Dodge and George Humphrey, to work on cutting government spending. They cut $4.5 b
illion out of Truman’s last budget, and then, during the first two years of Ike’s administration, they slashed still more; they managed to get overall spending down from $74 billion in 1953 to $67 billion in 1954 and $64 billion in 1955. In January 1955 Eisenhower proposed to Congress a balanced budget for fiscal year 1956 (July 1955 to June 1956)—an astonishing turnaround in the nation’s fiscal fortunes. Much of this cutting was made possible by the end of the Korean War—which Eisenhower had helped bring about—and by the consequent cuts in government personnel, both military and civilian. This rapid fall-off of government spending, however, tipped the economy into recession in 1954, as economic growth briefly paused and unemployment rose to 5 percent. No matter. Eisenhower believed a balanced budget would eventually provide conditions for a rapid recovery of growth.
Always keen to balance the budget, Ike felt little urgency in cutting personal income taxes. Tax rates in the United States, which had been low before 1940, shot up during World War II. Despite some reduction in 1946 and 1948, tax rates went back up during the Korean War and stayed high throughout the 1950s. In the Eisenhower years marginal tax rates for the lowest brackets floated at between 20 and 26 percent; unlike today, working people on the bottom rungs of the economic ladder paid income taxes, in addition to social security payroll taxes. But rates were progressive: the moderately well-off paid much more. A head of household who earned $20,000 in 1953—the equivalent of $175,000 today—faced a marginal tax rate of 52 percent. As for the very wealthy, they were soaked. The top marginal rate was 91 percent in 1953, though very few Americans made enough money (over $200,000) to qualify for that heavy burden. Conservatives decried these high rates and expected that when a Republican president took office, he would slash them. This is what Ike had promised in the 1952 campaign.
But despite intense pressure from his treasury secretary, George Humphrey, as well as the Old Guard in his own party, Eisenhower insisted that taxes not be cut until government expenditures had been tamed. The president abjured what later became known as supply-side economics—the theory that tax cuts would work as a stimulant to business and would pay for themselves by generating economic dynamism. No, he insisted that taxes be trimmed only as a reward for cutting spending. He managed to get Congress to agree to extend a Korean War measure, the excess profits tax, for the duration of 1953. This extension was in effect a tax increase and signaled Eisenhower’s position that deficits were a greater worry than taxes. In his 1954 budget proposal, he asked Congress to sustain the corporate tax rate, then set at the remarkably high rate of 52 percent and to keep in place excise taxes on liquor, tobacco, automobiles, and gasoline. These measures, he said, would help balance the budget and stimulate confidence and economic growth.
When, in the spring of 1954, Democrats in Congress called for significant tax cuts, Eisenhower took his case to the public. In a television address he sympathized with his audience. “I know how burdensome your taxes have been,” he said, but Americans also wanted certain important improvements, like an expansion of social security, unemployment insurance, more public housing, better health care, and more schools. “These things cost money,” and that money would come from taxes. His administration proposed reforms to the tax code that would allow certain classes of lower-income people to get a break, but he opposed across-the-board tax cuts as likely to lead to deficits and inflation. “The good American,” he suggested, “doesn’t ask for favored position or treatment. Naturally he wants all fellow citizens to pay their fair share of the taxes, just as he has to do, and he wants every cent collected to be spent wisely and economically. But every real American is proud to carry his share of that national burden.” In a classic statement of Eisenhower’s values, he rejected the idea that some people should get special tax breaks. “I simply do not believe for one second that anyone privileged to live in this country wants someone else to pay his own fair and just share of the cost of his Government.”17
Yet the president did agree to a variety of new tax policies in the Internal Revenue Act, a major piece of legislation he signed in August 1954 that shaped tax policy for the next 30 years. Rather than focus simply on cutting marginal tax rates, the administration, treasury, and congressional staffs worked during 1953 to craft a new tax code that opened up a variety of favorable tax breaks. The new rules allowed for a greater range of deductions and exemptions dealing with dependent children, medical expenses, child care expenses, and the exclusion of various forms of government assistance from taxation. More favorable rules for the taxing of dividend income were also included, and rules that favored small business. Rather than offer across-the-board tax cuts, Eisenhower kept income tax rates high while giving away a certain amount of revenue through tax loopholes.
Ike resented that some critics called his tax proposal “a rich man’s law.” He saw it as a thoughtful combination of targeted tax reduction and economic stimulation. He simply did not want to slash revenues and add to the debt. “Every dollar spent by the government,” he wrote to a friend, “must be paid in taxes—now or by our children.” Although his party supported the bill in Congress and managed to get it past Democratic objections, the lingering effect of the bill hurt Eisenhower’s reputation among his own right wing as a man who was prepared to roll back the New Deal. It also left him open to the charge—effectively made by John Kennedy in 1960—that his administration had done nothing to cut taxes.18
The impression that Eisenhower had repudiated his campaign tax pledges made conservatives anxious; so too did his warm embrace of the signature New Deal program, the Old Age and Survivors Insurance Program, better known as social security. Since 1935 this scheme had allowed workers and their employers to pay into a retirement fund, to be paid out in installments after a certain number of years of work. As a candidate Eisenhower had denounced what he called the creeping socialism of the New Deal and declared that if Americans wanted “security” they could go to jail and have their meals and housing provided for free. But once in office he adopted a far more generous, and indeed progressive outlook on the provision of social security benefits for working Americans.
Eager to sever any link to the heartless policies of the previous Republican administration, Eisenhower unambiguously embraced the principle of social security in his 1953 State of the Union address. “The individual citizen must have safeguards against personal disaster inflicted by forces beyond his control,” he insisted. Three weeks later he used a homely metaphor to reassure Americans: “It is a proper function of government to help build a sturdy floor over the pit of personal disaster, and to this objective we are all committed.” Eisenhower would be no Herbert Hoover.19
Among his first acts as president, in March 1953, was the consolidation of such programs under a newly created Department of Health, Education and Welfare. Billed as an efficiency move, it also elevated the executive in charge of administering social security to cabinet rank. Oveta Culp Hobby, a Texan who had run the Women’s Army Corps during the war, was tapped for the position. She then chaired a commission to recommend ways to extend social security to millions of workers who were not yet included. From its inception in 1935, the program had not been available to many self-employed professionals, including architects, dentists, accountants, lawyers, farm owners, farm workers, domestic workers, waiters and waitresses, fishermen, and religious ministers. Many government workers and public school teachers were not included either. This gap in coverage hurt the industrious small business owner; it also hurt the women and minorities who toiled in service industries and domestic work without a social safety net. Eisenhower proposed to widen the scope of the program in a move that would add 10 million working people to the social security rolls.
How did Ike square this extension of a welfare program with his conservative ideas about thrift and self-reliance? In typical fashion, he found a middle way. He rejected the argument that social security was some sort of government handout. In fact it was available only to people who had worked and who had made contrib
utions to the system. By asking workers and employers to set aside money for retirement, the government encouraged foresight and wise financial stewardship. Eisenhower believed that “retirement systems, by which individuals contribute to their own security according to their own respective abilities, have become an essential part of our economic and social life. These systems are but a reflection of the American heritage of sturdy self-reliance which has made our country strong and kept it free; the self-reliance without which we would have had no Pilgrim Fathers, no hardship-defying pioneers, and no eagerness today to push to ever widening horizons in every aspect of our national life.” In this way of thinking, receiving a benefit check in old age was a right citizens had earned through their industry and labor.20
In January 1954 he sent to Congress proposals for a wide array of welfare programs and enhancements, making the case in language that would have made his Republican predecessors Hoover and Coolidge choke on their breakfast oatmeal: “We must make greater and more successful efforts than we have made in the past to strengthen social security and improve the health of our citizens. In so doing, we build for the future, and we prove to the watching world that a free Nation can and will find the means, despite the tensions of these times, to progress toward a better society.”21
Congress embraced Eisenhower’s proposals for expanding social security and overwhelmingly approved his request. On September 1 Eisenhower signed the Social Security Amendments of 1954, expanding coverage and benefits to an additional 10 million people. Social security, once an embattled program and a symbol to conservatives of bloated federal spending, had become a permanent part of the American system. In a letter to his brother Edgar, a right-winger who had recently complained about the growth of federal programs, Ike explained this political reality: “It is true that I believe this country is following a dangerous trend when it permits too great a degree of centralization of governmental functions. I oppose this—in some instances the fight is a rather desperate one.” But, he added, “the Federal government cannot avoid or escape responsibilities which the mass of the people firmly believe should be undertaken by it.” Americans wanted the government to act as a safety net. “Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history.” A few “Texas oil millionaires” and the occasional hard-liner might still oppose social security. But, he said, in memorably blunt terms, “their number is negligible and they are stupid.”22