Many of his experiences as a professional soldier were, however, relevant to his tasks in the White House. He had learned how important it was to operate within the given political context and to draw upon the best professional expertise available in that setting.7 He had learned from painful personal experience how easy it was to get into economic trouble and how important it was to avoid getting trapped in that way. Ike knew that he would have to build an effective team and provide them and the nation with an appropriate vision of America’s past, present, and future. In the realm of economic policy, he was not entirely prepared to do all that in 1953. As president, he was in effect sent back to school, and his performance would provide a good test of his ability to learn on the job and give effective leadership to his administration.
A Collage of Economic Ideas
While lacking formal training or knowledge of the economy, his mind was filled—as most of ours are—with random economic ideas.8 Many of these traces of thought were rooted in his personal experiences. Some of the ideas had been gathered long ago as he was growing up in Abilene, Kansas, when he was far more interested in football than finance. His family, as we have seen in previous chapters, was poor and money was always tight. Life near the railroad tracks was not easy, and Ike and his brothers were familiar with hand-me-down clothing. It may sound quaint or even humorous to you, but my sense is that it was not easy or fun when one of the younger brothers had to wear a pair of secondhand women’s shoes to school. All of that was distant by 1953, but Ike’s early life left him sensitive to the impact the economy could have on those Americans whose incomes were low and relatively fixed. There were many Americans who had shared these experiences in the 1930s.
His own career and those of his brothers convinced Eisenhower that even the poorest Americans could better their income and status if they got an education and worked hard. The best road to progress and upward mobility for white Kansans of that era was through the professions. Ike’s father had worked hard, but, lacking the right kind of education and career, he was stuck for much of his life in the American nightmare, a detour on the highway of American dreams. David could barely support his family and certainly could not help his sons pay to attend a college or university. Later, long after Ike left Abilene, David completed his degree through a mail-order school and at last made it into a white-collar job. But finishing his education was an afterthought to a long career spent performing the kind of labor that garnered little respect and even less income in an advanced, urban society.
Ike’s older brother Edgar had charted a far better course at the University of Michigan and in the legal profession. He had quickly achieved the material success and status that had eluded their father. Edgar was not the only brother in the Eisenhower household who had successfully scaled the capitalist ladder. To one degree or another, along one path or another, all of the brothers had pushed their way up in a society that seemed happy to reward the right mixture of intelligence, self-discipline, and ambition.
After young Dwight had launched his military career, he had also learned something about the perils of debt. Like much of the working class and many middle-class Americans, Eisenhower periodically wanted to buy more than he could afford.9 He had suffered an embarrassing episode when he did not have enough cash to buy the uniforms he needed to serve in his first post. Later, his career was endangered when he misled the army about expenses for a son who was not then living with him. He emerged from these experiences with a visceral opposition to debt. In that sense, he resembled the average American in the 1950s, but he was an anomaly in a Republican Party that included many businessmen and women who built their fortunes by using debt successfully.
Postgraduate Training in Economic Policy
To help Ike translate his core ideas into specific economic policies, his team of shadow supporters for the presidency had begun introducing him to the major economic issues facing the United States. They had started this informal course of postgraduate training long before he actually announced his decision to run for office. Some of the economic grooming had been informal: it popped up in the conversations he had when he was playing bridge with businessman Ellis D. Slater or New York Herald Tribune publisher William E. Robinson. It arose in his frequent dealings at Columbia University with business leaders such as Thomas Watson of IBM.10 The more formal phase of his economic education was initially handled by George A. Sloan, a director at the United States Steel Corporation. Sloan’s approach was gentle. It began at a dinner with Ike, Mamie, and Mr. and Mrs. Sloan in 1950.11 Then Sloan visited Ike in Paris and tried to nudge him toward a run at the presidency.
Sloan also reported on the possibility of a major economic downturn, provoking the following response from the general: “When people are out of work, bewildered, and see their families enduring privation, they instinctively turn to the greatest temporal force of which they know—the government—for relief. In doing so, it is easy enough to forget that all powers of government must always be carefully and intelligently limited or it is certain to become the master of the people who have set it up. In other words, catastrophes of the kind we are now describing become the occasion for weaving into governmental organization, procedures, and functions a net in which is caught an increasing portion of the individual political and economic liberty which is the basic characteristic of our system.”12
Would Eisenhower allow the people to sink or swim? No. “These things could be thought about in advance—they could be studied and the intellectual climate so developed that, in time of emergency, the individual would get all the help he needed but without permanent damage to the essentials of representative government.”13 Obviously, the Great Depression of the 1930s and the New Deal programs prior to World War II were front and center in Ike’s mind.
Although at that time he was preoccupied with the situation in Europe, Eisenhower said he was grateful for Sloan’s report “on the American scene.” He asked for additional “interesting condensed reports.” There was little chance that Sloan would not respond positively to that request, as he was now deeply engaged in the process of easing Ike into the presidential campaign. Further reports followed from those Eisenhower referred to as “my friends.”14 They were, of course, much more than that. They pressured Eisenhower to speak more specifically to “the issues,” rather than the principles the general was expounding.15 On matters of national security in the Cold War, Eisenhower had in mind both a general statement of strategy and specific measures to implement that strategy.16 But he left his domestic policy more abstract than Sloan and his colleagues felt would best serve the purposes of the fast-approaching political campaign. As it turned out, Ike was able to win both the nomination and the ensuing campaign without committing himself to a specific set of economic policies. That quickly changed, however, after he won his sweeping victory in the election and began to marshal his new administration.
Getting Up to Speed
In preparation for that momentous transition, the president-elect quickly put together a team. Because he lacked a solid background in domestic policy, Ike’s choices for his economic advisors were extremely important. His secretary of the treasury, George M. Humphrey, who came out of Ohio and the Taft wing of the Republican Party, brought good business sense to the table and a tendency to focus very tightly on taxes. Similar input with a similar tilt came from budget director, Joseph M. Dodge, and from Gabriel Hauge, who was the president’s special assistant for economic affairs. Economist Arthur F. Burns, the new head of the Council of Economic Advisors, played a different role. He put the president in touch with the work being done at the National Bureau of Economic Research and with the Keynesian economics that had swept into America following World War II. It was a measure of Eisenhower’s respect for Burns and also of the president’s weak background in economics that he allowed Burns to select the other two members of the council.17
Together, this team helped the president frame the specific policies set forth in his first State
of the Union message to Congress (February 2, 1953). The address was important because it placed before the legislature, the nation, and all those foreign observers attuned to developments in the United States an economic program that would guide the administration’s next four years. With some minor adjustments, Eisenhower would promote the same basic programs in his second term. Four central themes emerged. First was the need to achieve economic growth through greater efficiency in both the public and the private sectors. Second was the closely related need to promote innovation, the “creative initiative in our economy.” Along with the “economic health and strength” created by achieving the first two aims would come equality of opportunity. That would be buttressed by the “safeguards against the privations that too often come with unemployment, old age, illness, and accident”—that is, the economic security essential to life in “a complex industrial economy.”
Very soon, Eisenhower began to give specific form to this vision for America’s economic future. The generalizations characteristic of all political campaigns gave way to very detailed policy proposals. Economic growth, Eisenhower said, could be achieved in several very precise ways. For starters, they needed to get rid of price controls, reduce the government’s debt, and balance the budget.18 By stabilizing the economy, his administration would be able to promote the innovations that would flow from “the free play of our people’s genius for individual initiative.” The national effort to achieve efficiency would start with the federal government and ripple to the private sector: “We are concerned with the encouragement of competitive enterprise and individual initiative precisely because we know them to be our Nation’s abiding sources of strength.”19 This plan left Ike supporting the traditional antitrust policy and leaning hard against both those pressing to cut taxes quickly and those who wanted to continue spending as usual. On these bedrock issues, he had to be tough. On taxes, for instance, there was at first hardly any room for the kind of compromises his conciliatory approach to leadership normally favored.
This program, he was certain, would not interfere with his administration’s efforts to see that Americans would also have the economic security they needed and the equity they deserved. He thought that economic growth without a good measure of security could not be successful over the long term in a democracy. He was not a leveler—a reformer determined to eliminate inequality. Like most Americans, he assumed that equality of opportunity would suffice to bring to the top those deserving strivers who—like his siblings—had worked their way up from the other side, the poor side, of the railroad tracks.
Realities of Economic Growth
The first battleground was fiscal policy. He initially had immense power to shape the legislative decisions on taxes and spending. He knew it, and he used that power with his own closest advisors and with the Republicans who controlled Congress. He managed to hold taxes at the abnormally high level set for upper-income individuals and corporations during the Korean War crisis. Feeling pressure in his own party on the tax issue, he noted in his diary: “I believe that the American public wants security ahead of tax reduction and that while we can save prodigious sums in the Defense Department without materially hurting our security, we cannot safely, this year, knock out enough to warrant an immediate tax reduction.” He feared “another deficit of extraordinary size … [that] would be most inflationary in its effect.”20 The end of the war in Korea and the adoption of a new defense strategy enabled Ike to nail down his most important economic accomplishment: a balanced budget in 1956. He achieved that objective while dealing with numerous issues that he considered sideshows to the nation’s main economic features.
One of those dangerous sideshows was provided by the volatile senator Joseph McCarthy. Ike had been badly burned in the campaign when he sacrificed his friendship with George Marshall in order to avoid a public spat with McCarthy. Now the president adopted a passive strategy for dealing with McCarthy’s wild, inaccurate charges that communist spies had infiltrated major American institutions and were threatening the republic. McCarthy was a dangerous demagogue whose charges played on people’s fears about the Cold War struggle with the Soviet Union. Refusing to bring more attention to McCarthy, Ike worked quietly, covertly, and effectively to undermine the senator from Wisconsin. By taking this course, Ike left the American people without the kind of forceful public leadership they needed on this issue. Ultimately, however, Eisenhower’s strategy was successful and McCarthy was defeated in 1954, leaving the president an opportunity to concentrate on what he considered to be the vital issues before the nation.21
He had much to do on these other fronts. As if to punish the president for his fiscal accomplishments, the congressional elections in 1954 had left him burdened with a Democratic majority in the House of Representatives. That called for additional compromises, but Eisenhower proved adept at working with Congress, even with liberal Democrats who had a more expansive attitude toward debt than Ike did.22 The reward for those necessary compromises and for the grinding effort to reduce federal expenditures came with another balanced budget in 1957. Eisenhower would enjoy his third and last balanced budget in 1960, an accomplishment that was neither well understood nor appreciated during the presidential campaign that year, when Vice President Richard Nixon ran against John Kennedy.
To Eisenhower, however, these budgets were of vital importance: they helped to create the relatively stable economic environment that he believed was the essential context for promoting secular economic growth. They also gave the administration maneuvering room when it had to weather downturns in the business cycle, as it did during a brief recession in 1953–1954, again in 1957–1958 with a deeper and longer recession, and finally to a less challenging decline in 1960–1961.23
With the assistance of a Federal Reserve Board that accepted Ike’s emphasis on preventing inflation, the administration survived these recession challenges with its basic strategy intact. While Eisenhower formally respected the Fed’s autonomy, he worked closely with chairman William McChesney Martin to keep the government united and focused on controlling inflation first and then promoting balanced growth.24 The most serious challenge to this policy was in 1957–1958, when unemployment reached 7.6 percent despite a 3 percent rate of inflation. Still, the administration held the line. In peace, as in war, Eisenhower relentlessly sought the middle way through compromise and cooperation within his administration, within the government, and within the entire American society.
The president tried to promote efficiency in both the public and the private sectors. Without changing the statutory missions of the federal agencies, he called for and received reduced budgets.25 This negative approach to increasing productivity by simply cutting an agency’s budget was not likely to yield good results over the long term, but it was about all that a chief executive could do in the short term. In the private sector, his major initiative was a fundamental improvement in America’s transportation infrastructure. In 1956, Eisenhower signed the bill creating and funding a national highway system, which the president linked to national security. His personal experience with America’s poor highways in 1919 gave him ample reason to press hard for a federal investment in transportation efficiency that was more consistent with a liberal, New Deal ideology than with a Republican perspective on political economy.26
More consistently conservative was his effort to rein in the agricultural subsidy program. From his perspective, all that he was doing was bringing agricultural policy into line with the changes that had taken place in this sector of the economy during the years since the Great Depression. Agriculture from the late 1930s through World War II and into the 1950s had experienced revolutionary changes in productivity and organization. Innovations in breeding and mechanization were matched by economies of scale in corporate farming.27 Still, the political pressure to preserve the subsidy system created under the New Deal was intense, and after eight years of struggle, the expenditures on control were just as high as they had been in 1953. The intere
st groups and their friends in Congress won this fight—the worst defeat of Ike’s eight years in office.28
What was missing from Eisenhower’s initial approach to the economy was an aggressive effort to promote in business the kinds of innovations that were—with substantial, long-established local, state, and federal support—transforming agriculture. With regard to business, the central assumption of the first Eisenhower administration was that after the federal economic house was in order, private initiatives would take hold and produce the innovations that would prove the “stagnationists” wrong about America’s economic future. To some considerable extent, Eisenhower and his closest advisors were still deeply invested in and interested in the great firms that had given the United States a leading edge in the second industrial revolution. One of the major symbols of this mind-set was secretary of defense Charles “Engine Charlie” Wilson of General Motors. Wilson famously elided the differences between GM and the national economy: “What was good for our country,” he proclaimed, “was good for General Motors, and vice versa.”29
For the most part, Eisenhower initially agreed with this simple formulation. While the administration’s budgets included support for basic research at the National Science Foundation and the National Institutes of Health, agricultural research, and government purchases of advanced equipment (including, in particular, computers), the Eisenhower concept of political economy was at first more passive than active.30 There were of course “spillovers” from the national security program.31 Government purchases had for some years been an important form of support to the computer industry.32 But this was not a planned program to encourage innovation. Eisenhower’s strategy assumed that once the government had balanced the budget and had begun to create a business-friendly environment, the private sector would on its own generate the innovations that would sustain American growth. In 1954, Ike carefully analyzed the economic problems confronting him: they ranged from the farm problem and public electrical power to drought and disaster relief. The need to promote innovation through scientific and technological advances was not on the list.33 The president meant what he said when he championed “the free play of our people’s genius for individual initiative.”
Eisenhower Page 19