Economic Development and the Middle Class by Duncan Fuller

Class: U.S. Politics in the Long-Term

Major: Writing & Politics, Class of 2014

After the Second World War, the United States moved past the stagnation of the Great Depression with renewed political and economic strength. For some economists the recovery could be attributed to the New Deal programs and war-time spending. However, a debate on the true effect of government participation in the markets infiltrated public debate. A number of economists envisioned free markets, a move in the opposite direction. These classical economists challenged the authority of a theory published in the midst of the Depression by John Keynes. Keynes wrote on how the government must respond to the behavior of the market with regulation and investment in order to maintain the health of the markets. To boost aggregate demand, governments should increase spending according to Keynesian policymakers. This would be the dominant theory for managing the economy until the 1970s until Milton Friedman and neoclassical economists suggested less taxes and less regulation would curb mounting inflation. Although each theory prescribes a radically different approach to stimulating economic growth, what is applied is a product of the political culture, a synthesis of these two theories. But, in the words of Robert Skidelsky, “the practices of bankers, regulators, and governments, however egregious, can be traced back to the ideas of economists and philosophers.”[1] During the economic development following World War II, American economic beliefs swing from Keynes to Friedman in the late twentieth century.

Having grown up in the Great Depression, the “Civic Generation” understood the cruel nature of the markets. But when they returned from serving in World War II, they returned to a rapidly improving economy. To reduce the negative effects of demobilization, the G.I. Bill was signed into law in 1944. It aimed to provide veterans with economic opportunities when they returned to the United States. Beneficiaries could receive financial assistance for vocational training, to start a business, or to continue their education. At least half of the “civic generation” would benefit in some way from the G.I. bill. In her book, Soldiers to Citizens, Suzanne Mettler writes how it, “bore less resemblance to New deal legislation – which intended to target citizen workers – than to older American tradition of social provision geared for citizen soldiers.”[2] Unlike most New Deal policies, the G.I. Bill was promoted by conservatives, specifically the American Legion, as a response to the limited attention paid by the Roosevelt administration to the returning veterans.

Rather than the beneficiaries of social programs, WWII veterans saw themselves as having earned their livelihood. This is an important distinction to make according to Mettler: “Whether these resources are distributed in the form of dollar payments or as goods and services such as food, education, or health care, they have implications for the beneficiaries’ material well-being and life opportunities.”[3] Mettler argues that the provisions of the bill would enable the “Civic Generation” to become the committed and democratic citizens they are celebrated to be. On the other hand, even as the G.I. Bill was signed into law, the belief that social programs encourage civic participation was in contention. Considering how the effects, “may influence citizens’ psychological predisposition or inclination to civic engagement, and thus in turn affect the extent to which citizens later participate in civic or political activities,”[4] it’s clear that despite whatever the G.I. Bill accomplished, its beneficiaries would eventually reject Keynes’ theory. Regardless of the national government’s role in mitigating the aftermath of the Great Depression, the civic generation would champion individuality and self-determination.

Beneficiaries of the G.I. Bill returned the United States just as a major shift in the economy was taking place. Urban development virtually reversed in the 1950’s, beginning a trend that would last up through the 90’s. As the industrial cities of the northeast decelerated, capitalists began to profit off of the commerce, agriculture, and natural resources in the Sunbelt states. With the proliferation of the automobile, the American landscape began to decentralize from the northeastern industrial cities into the new territory. Middle-class families fled the cities as housing and employment opportunities dwindled. As families moved away from the cities, suburbanization appears. In his book When America Became Suburban, Robert A. Beauregard writes about how, “the inhabitants of the first suburbs of the early nineteenth century were mainly an affluent class of businesspeople and their families; they could afford country estates and used ferry services and early horse-drawn-streetcar lines and railroads to travel to and from the city.”[5] After the affluence settled in, the middle-class quickly followed. Socioeconomic homogeneity would influence the consumption of suburban families. Beauregard points to TV dinners as an example of this lifestyle; “labor saving benefit for the housewife with an opportunity for the family to watch television together.”[6] Because of the glamorous luxuries of suburban lifestyle, many more families left the cities. Underlying the migration is an inherently American ideal; freedom. The suburbs represented freedom from the legal constraints of the city, simplified democracy, and the American dream.

Suburbs would come to represent the post-World War II American identity. Through the 50’s and 60’s, incomes continued to rise and consumer goods multiplied. Shaped by this self-perception, suburbs took on a political identity. Suburban families could attest to the success of capitalism and united around their confidence in the markets. Images of suburban life were used as weapons in the Cold War, demonstrations of American prosperity and the superiority of capitalism. But as inflation grew worse in the 1970’s, an increasingly conservative and business oriented middle-class would diagnose the defect of economic policy as the Keynesian theory itself. No longer was government activism the solution, it was apparently the problem. Robert Skidelsky explains how Keynesian principles slowly unraveled in his book Keynes: The Return of the Master due to the perceived failures of policymakers. Although they had offered salvation during the Great Depression, the practical value of reducing employment was rapidly diminishing. Unemployment and inflation seemed inextricably balanced against each other. Milton Friedman, neoliberal economist and professor at the Chicago School of Economics, argued that unemployment would rest at a socially acceptable level without the government’s help. A reduction in government spending, he suggested, would slow inflation. Friedman and his students spearheaded a new camp of economic theory called neo-liberalism. Rational individuals, neo-liberals argue, are better informed in making investments. They accuse the government of, “crowding out better-informed private investment without reducing unemployment in the long run.”[7] Ronald Reagan and Margaret Thatcher led respective cultural revolutions against government spending and campaigned for reducing regulation of the market. The neoliberal revolution would appeal to the suburban middle class and the “Civic Generation.” With their memories of the Great Depression fading, the average American demanded a solution to rising inflation and prices of oil.

Dominant economic theories reflect the prevailing cultural identity, shaped and enforced by the suburban, middle class lifestyle in America. In the 1970’s neoliberal theories challenged the enduring subscription of American policymakers to Keynesian economic management. Suburbanization and the growth of the middle class strengthened these theories when they entered the public discussion. Skildelsky observes that the dominant economic theory is strictly an input in the debate. What results is not the product of a single theory, but whatever policymakers believe will best influence salient economic issues. Skildelsky writes, “Just as Keynes succeeded politically because unemployment was the problem of the 1930s, Friedman succeeded politically because inflation was the problem of the 1970s.”[8] According to the the generation of World War II veterans, now the most influential people in the United States, government interference in the markets is the problem.

Endnotes

[1] Robert Skidelsky, Keynes, Keynes: The Return of the Master, 28

[2] Suzanne Mettler, Soldiers to Citizens: The G.I. Bill and the Making of  the Greatest Generation, 18

[3] Suzanne Mettler 12

[4] Suzanne Mettler 13

[5] Robert A. Beauregard, When American Became Suburban, 32

[6] Robert A. Beauregard, When American Became Suburban, 128

[7] Robert Skidelsky, Keynes: The Return of the Master, 99

[8] Robert Skidelsky, Keynes: The Return of the Master, 105

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