The Full Employment Bill of 1945 was intended to create a partially planned economy, in which the federal government would modify its own spending patterns each year in order to compensate for projected shortfalls or surpluses in U.S. employment. The bill was drastically changed, however, and the Employment Act of 1946 merely instituted a general policy of preventing depressions and high inflation levels whenever possible.
During the last months of World War II, people in the United States looked ahead anxiously to the nation’s postwar economy. Their gravest worry was the possibility of a catastrophic depression. When the war ended, the nation would face the immediate task of demobilizing eleven million members of the armed forces and converting from a wartime to a peacetime economy. As soon as possible, a war-weary nation hoped to scrap price controls and rationing, cut taxes, and turn industry back to the production of consumer goods, such as automobiles. Still, the memory lingered of the Great Depression of the 1930’s, with its mass unemployment, farm foreclosures, bank failures, and idle factories.
It was commonly recognized that the shift to a wartime economy, which had channeled billions of dollars into manufacturing and other sectors of the U.S. economy, had been largely responsible for the economic recovery after the Great Depression. Americans therefore recognized a possibility that the sudden end of wartime spending could plunge the nation back into depression. By early 1945, many economists were predicting that eight to ten million Americans would be unemployed when the returning troops were released from service. However, the levels of production, income, and employment reached during the war had given the United States a taste of a full-production economy. After the sacrifices of war, people were determined to settle for nothing less than the prosperity that they believed the economy was capable of generating. In 1944, the Democratic Party platform included a guarantee of full employment after the war; the Republicans made virtually the same promise.
On January 22, 1945, Senator James Edward Murray introduced a full-employment bill in Congress. The bill asserted that “all Americans able to work and seeking work have the right to useful, remunerative, regular, and full-time employment. . . .” Furthermore, it was the government’s responsibility “to provide such a volume of Federal investment and expenditure as may be needed to assure continuing full employment. . . .” The bill directed the president to present a forecast of aggregate demand for goods and services throughout the economy, compare it with the level needed for full employment, and recommend changes in federal spending to remedy any shortfall or excess.
Murray’s Full Employment Bill
The final law contained two main provisions. The first committed the government “to promote maximum employment, production, and purchasing power.” In practice, this strange wording came to be seen as a mandate to avoid significant depression or inflation. Second, two agencies were established to carry out the commitment. Congress set up the Council of Economic Advisors
The Employment Act was a statutory expression of what the United States had learned during the Great Depression and World War II. The act’s spiritual father was British economist John Maynard Keynes. In 1936, Keynes had published his landmark work The General Theory of Employment, Interest, and Money.
As evidence in support of Keynes’s theories, many people pointed to the rapidity with which the U.S. economy was restored to full employment when federal defense spending skyrocketed beginning in 1940. The ambitious provisions of the original Full Employment Bill assumed that government economists could accurately forecast undesirable declines or increases in aggregate demand and that government could easily offset these economic oscillations with fiscal measures, such as spending increases or tax-rate changes. Skepticism about both of those propositions lay behind the scaling down of the bill’s scope.
From the end of World War II through the end of the twentieth century, every president employed the philosophy and machinery of the Employment Act to keep the economy from falling into a dangerous boom-and-bust cycle. In the immediate postwar years, Truman faced a confusing economic situation that was just the reverse of what experts had predicted—shortages instead of surplus and inflation instead of depression and deflation. These problems became acute during the Korean War, and both the CEA and the JEC contributed significantly to research on managing the economy under renewed war conditions. Their influence helped persuade Congress to increase tax rates so the war would not lead to large federal deficits.
Experience soon demonstrated some problems inherent in the workings of the Employment Act. The first chairman, Edwin Nourse, visualized the CEA as a relatively nonpolitical body reflecting the technical expertise of professional economists. Realistically, however, the CEA had no clientele or constituency of its own, and therefore no real political power, except in relation to the president; therefore, CEA members have generally been chosen based on their conformity with the outlook of the president. This has meant that the likelihood that the CEA will shape the president’s economic views is not great. A second issue arises because the Federal Reserve System, which potentially has a large influence on demand management policies, is relatively independent of the president and therefore of the CEA.
In 1978, the Employment Act was significantly extended by the Full Employment and Balanced Growth Act
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citation-type="booksimple" xlink:type="simple">Bailey, Stephen K. Congress Makes a Law: The Story Behind the Employment Act of 1946. New York: Columbia University Press, 1965. Very few pieces of congressional legislation have been so meticulously documented. Captures the personalities and interest-group infighting, and discusses the role of economic analysis. -
citation-type="booksimple" xlink:type="simple">Canterbury, E. Ray. The President’s Council of Economic Advisors: A Study of Its Functions and Its Influence on the Chief Executive’s Decisions. New York: Exposition Press, 1961. Describes the council’s growing importance during the 1950’s and 1960’s. -
citation-type="booksimple" xlink:type="simple">De Long, J. Bradford. Keynesianism, Pennsylvania Avenue Style: Some Economic Consequences of the Employment Act of 1946. Cambridge, Mass.: National Bureau of Economic Research, 1996. Pamphlet evaluating the Employment Act and the theories of John Maynard Keynes that informed it. -
citation-type="booksimple" xlink:type="simple">Flash, Edward S. Economic Advice and Presidential Leadership: The Council of Economic Advisors. New York: Columbia University Press, 1965. A political scientist examines both the structure of the CEA within the government and the personal roles of Keyserling, Arthur Burns, and Heller. -
citation-type="booksimple" xlink:type="simple">Nourse, Edwin G. Economics in the Public Service: Administrative Aspects of the Employment Act. New York: Harcourt, Brace & World, 1953. The first chairman of the CEA explains the conflict between detached expertise and political partisanship and describes conflicts within the CEA between himself and Keyserling. -
citation-type="booksimple" xlink:type="simple">Stein, Herbert. The Fiscal Revolution in America. Chicago: University of Chicago Press, 1969. Stein, a member of the CEA under President Richard M. Nixon, effectively describes the impact of Keynesian ideas on the management of government financial policies. -
citation-type="booksimple" xlink:type="simple">Walton, Gary M., and Hugh Rockoff. History of the American Economy. 8th ed. Fort Worth, Tex.: Dryden Press, 1998. Massive, comprehensive study of American economic history includes sections on the postwar growth of the federal government and changes in U.S. labor and employment since 1946.
Inflation and Labor Unrest
Hayek Opposes Centralized Economic Planning
Eisenhower Warns of the Military-Industrial Complex
Congress Passes the Equal Pay Act
People with Mental Disabilities and Illnesses Assisted by Federal Act
Kennedy-Johnson Tax Cuts Stimulate the U.S. Economy
Affirmative Action Is Expanded
Congress Enacts the Age Discrimination in Employment Act
Congress Passes the Architectural Barriers Act
Nixon Signs the Occupational Safety and Health Act