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The Independent Institute
Presentation

The Economics of the Great Society
Theory, Policies, and Consequences


The rapid growth of government and the surge of federal economic interventions that occurred during Lyndon B. Johnson’s presidency—the much-ballyhooed Great Society, whose centerpiece was the War on Poverty—differed from the four preceding surges in twentieth-century U.S. history, each of which had been sparked by war or economic depression. No national emergency prevailed when Johnson took office following John F. Kennedy’s assassination on November 22, 1963. The nation was not engaged in a major shooting war, and the economy was on the mend after the mild recession of 1960-61. According to historian Paul K. Conkin, the Johnson administration “moved beyond a response to pressing constituency pressures, beyond crisis-induced legislative action, to a studied, carefully calculated effort to identify problems and to create the needed constituencies to help solve them.”[1] For the most part, the Great Society represented simply the culmination of economic, political, and intellectual developments, revulsions against the free market, and reformist aspirations stretching back as far as the nineteenth century.

After the Korean War armistice of July 27, 1953, the United States had enjoyed a decade of respite from the rapid growth of government power over economic affairs. The wartime wage, price, and production controls lapsed, although authority to reinstitute the production controls remained. No major extensions of the government’s economic controls were enacted. Big government did not disappear, of course; many of the controls and other interventions put in place in the 1930s and 1940s remained in force. But businessmen, according to economist Herbert Stein, “had learned to live with and accept most of the regulations.”[2] Government spending, especially for Social Security benefits, crept upward. All in all, though, the Eisenhower and Kennedy administrations were placid in comparison with their immediate predecessors and successors.

Under Johnson, however, the federal government’s intrusion into economic life swelled enormously. In little more than two years after LBJ took office, according to Conkin, “Congress enacted over two hundred major bills and at least a dozen landmark measures. The ferment, the chaos, rivaled that of 1933, and all at a scope at least four times greater than the early New Deal.”[3] Major events included enactment of the Civil Rights Act of 1964, the Economic Opportunity Act of 1964, the Food Stamp Act of 1964, the Elementary and Secondary Education Act of 1965, and the Social Security Amendments of 1965 (creating Medicare and Medicaid), as well as establishment of the Office of Economic Opportunity (to oversee programs such as VISTA, Job Corps, Community Action Program, and Head Start), hundreds of Community Action Agencies, and many other bureaus ostensibly promoting poor people’s health, education, job training, and welfare. In addition, during Johnson’s presidency, broad-gauge economic regulatory measures were adopted in connection with traffic safety, coal-mine safety, consumer-products safety, age discrimination in employment, truth in lending, and other areas. Conkin concludes: “In five years the American government approximately doubled its regulatory role and at least doubled the scope of transfer payments.”[4]

Ideological and Political Context of the Great Society

What accounts for this multifaceted outburst? Do its various elements have a common denominator? Some scholars point to an intellectual development that Stein dubs “Galbraithianism,” after its leading propagator John Kenneth Galbraith—a loose collection of socioeconomic analysis and evaluation hostile to the free market and favorably inclined toward more sweeping government controls. “There was,” says Stein, “no demand for a new and different economic system” in the Galbraithian view. Rather, “[t]he ideological case for the old system, the free market, capitalist system, was punctured by the demonstration of exceptions to its general rules and claims, and this opened the way for specific policy interventions and measures of income redistribution without any visible limits.”[5]

Galbraithianism’s arguments and attitudes gained strength from a spreading conviction that the U.S. economy would continue to grow forever at a fairly high rate, thereby ensuring that new and costly government programs could easily be financed by drawing on the so-called “growth dividend.”

Economist Henry Aaron’s description of the climate of opinion in the 1960s essentially agrees with Stein’s. Aaron also traces the widely held Galbraithianism back to previous crises: “The faith in government action, long embraced by reformers and spread to the mass of the population by depression and war, achieved political expression in the 1960s. This faith was applied to social and economic problems, the perceptions of which were determined by simplistic and naïve popular attitudes and by crude analyses of social scientists.”[6]

As the observations of the conservative Stein and the left-liberal Aaron illustrate, scholars of diverse ideological persuasions agree that prevailing attitudes among both elites and masses in the mid-1960s favored increased government intervention in the market economy. Thus, ideological postures engendered or fostered by past crises had come once again into political prominence. Such public attitudes reached their high tide during 1964 and 1965, the first two full years of Johnson’s presidency. Historian John A. Andrew III describes the mid-1960s as “a liberal interlude unmatched in the twentieth century, except perhaps for the mid-1930s.”[7]

Although the 1960s are now often recalled as a sort of radical outburst against established American orthodoxies in economic, social, and political affairs, it would be a mistake to suppose that the business class opposed the dominant strains of political thought and action at that time. Businessmen, observed Time magazine in December 1965, had “come to accept that the Government should actively use its Keynesian tools to promote growth and stability.”[8] Thus, as historian Allen J. Matusow has written, when LBJ stood for election in 1964 “the sweetest returns of all came from Wall Street”:

The nation’s corporate elite, abandoning its traditional preference for the GOP, voted for the party that had stimulated sales, fueled profits, and lowered corporate taxes. An estimated 60 percent or more of the Business Council—the semi-official link between the corporations and the government—favored LBJ. The lion’s share of the big contributions flowed into his campaign coffers. And on September 3 [1964] a group of corporate leaders met in the White House to organize a business committee for Johnson’s re-election. Its forty-five founding members included Henry Ford II, Edgar Kaiser of Kaiser Aluminum, Joseph Block of Inland Steel, two members of Eisenhower’s Cabinet, and several New York bankers. Corporate liberalism paid big dividends for the Democrats at last.[9]

As usual, when given a choice between free-market ideology and crony-capitalist proceeds, the leaders of big business tended to follow the money.

Moreover, in those days, a so-called New Class—composed of scientists, lawyers and judges, city planners, social workers, professors, criminologists, public health doctors, reporters, editors, and commentators in the news media, among others—viewed new government programs as outlets for their “idealism” and as opportunities to do well while doing good. Thus, a multitude of left-leaning intellectuals and pseudo-intellectuals gave significant leadership, support, and voice to the government’s surge during the Johnson years.

More prosaic political developments also played an important role. Lyndon Johnson, who had begun his political career as a New Dealer and political horse-trader in Texas, possessed not only boundless energy and ambition, but also keen political instincts and skills; he knew how to move Congress in the direction he wanted it to go. Moreover, the elections of 1964 gave the Democrats huge majorities in both houses of Congress and brought into office an extraordinarily leftish group of freshman legislators. According to Aaron, “No administration since Franklin Roosevelt’s first had operated subject to fewer political constraints than President Johnson’s.”[10]

The specific forms the Great Society took reflected the increasing diversity of animals in the political jungle. While longstanding lobbies for business, labor unions, farmers, and middle-class professional groups continued to operate, many new interest groups organized and gained political clout on behalf of so-called “oppressed minorities”: women, Indians, Chicanos, students, homosexuals, the handicapped, the elderly, and many others, none of whom had been directly represented as such to an important extent in U.S. politics. These groups demanded that the federal government solve a variety of racial, urban, employment, and consumer problems, real and imagined. As Conkin notes,

Each of [the] Great Society commitments promised benefits to a targeted and often an increasingly self-conscious interest group (blacks, the aged, the educationally deprived, the poor, the unemployed, urban ghetto dwellers, consumers, nature enthusiasts). In no case did the targeted recipients of new favors have either the political clout or the leadership to gain the legislation. But in each case their visibility or their protest helped create broader attention and concern. Passage of each major Great Society bill thus depended upon a broad coalition.[11]

Galbraithianism, Marxism, New Leftism, and other varieties of critical socioeconomic analysis also helped to justify the displacement of antiwar and pro-civil-rights enthusiasms onto a diverse set of anti-market causes, giving rise to heightened support for environmental, consumer, and zero-risk regulations. No perceived social or economic problem seemed out of bounds in this cacophonous new political environment. Faith in the government’s ability to solve social and economic problems reached a new high. Regardless of the nature of the problem—racial antipathy, unemployment, illiteracy, poor nutrition, inadequate housing, workplace accidents, insufficient cultivation of the arts, unsightly roadsides, environmental pollution, and a thousand other real and perceived problems, spanning the full range of social and economic life—both intellectual elites and the mass public agreed in large part that the solution took the same general form: the federal government should “do something” or, if the government were already engaged, it should act more vigorously or on a larger scale. In particular, in one way or another, it should spend more money.

Nevertheless, although the Great Society established critically important new federal powers and agencies, it did not cause total federal domestic spending to increase tremendously at first. A portentous sign might have been seen, however, in the quick acceleration of federal transfer payments, which increased from $34.2 billion in 1963 to $65.5 billion in 1969.[12] Over time, this fiscal locomotive gained more and more momentum. Thus, according to Michael D. Tanner, between 1963 and 2010, “the federal government spent more than $13 trillion fighting poverty.”[13]

Almost everyone now acknowledges that federal entitlement programs, crowned by the enormously costly health-care systems the Great Society spawned, have promised much greater benefits than the government can fund indefinitely, and hence many of these benefits will have to be cut, notwithstanding the political fury such cuts surely will elicit. This impending socio-political tumult represents one of the Great Society’s bitterest fruits.

Economic Analysis and Great Society Programs

Although the Great Society should be understood as primarily a political phenomenon—a vast conglomeration of government policies and actions based on political stances and objectives—economists and economic analysis played important supporting roles in the overall drama. Even when political actors could not have cared less about economic analysis, they were usually at pains to cloak their proposals in some sort of economic rationale. If much of this rhetoric now seems to be little more than shabby window dressing, we might well remind ourselves that the situation in this regard is no better now than it was then—witness, for example, the stampede of mainstream economists back to vulgar Keynesian remedies in wake of the economic crisis that assumed panic proportions in 2008.[14]

Regardless of how political actors in the 1960s might have sought to exploit economic analysis to gain a plausible public-interest rationale for their proposed programs, the most prominent body of economic analysis in those days—the sort taught by the leading lights at Harvard, Yale, Berkeley, and most of the other great universities—virtually cried out to be exploited in this way. During the mid-1960s—as luck would have it, the very years during which I was learning economics in four different colleges and universities—the so-called Neoclassical Synthesis (a term coined by Paul Samuelson) achieved its greatest hold on the economics profession. By “synthesis,” this term refers to the combination of a microeconomic part, which contains the theory of individual markets that had been developed during the preceding two centuries, and a macroeconomic part, which contains the ideas about national economic aggregates advanced in John Maynard Keyes’s landmark 1936 book The General Theory of Employment, Interest and Money as further developed, systematized, and extended by (some of) Keynes’s followers during the three decades after the book’s publication. (Note that not all leading economists accepted the Neoclassical Synthesis as an accurate representation of Keynes’s own views. Joan Robinson, for example, called it “bastard Keynesianism.”)[15]

On the microeconomic side, the Neoclassical Synthesis incorporated the so-called New Welfare Economics that had been developed during the 1930s, 1940s, and 1950s. In this form, microeconomic theory advanced a general equilibrium theory of the economy’s various markets, identified the conditions for the attainment of equilibrium in this idealized system, and demonstrated that various “problems”—springing from external effects, collective goods, less-than-perfect information, and less-than-perfect competition, among other conditions—would cause the system to settle in a state of overall inefficiency, causing the value of total output to fall short of the maximum that would have resulted from systemic efficiency, given the economy’s available resources of labor and capital and its existing technology. Attainment of such an inefficient state was characterized as a “market failure,” and economists expended enormous efforts in alleging the existence of such market failures in real-world markets and in proposing means (for example, taxes, subsidies, and regulations) by which the government might, in theory, at least, remedy these failures and thus maximize “social welfare.”

Had economic theorists rested content with using the microeconomics of the Neoclassical Synthesis strictly as a conceptual device employed in abstract reasoning, it might have done little damage. However, as I have already suggested, this type of theory cried out for application—which, in practice, was nearly always misapplication. The idealized conditions required for theoretical general-equilibrium efficiency could not possibly obtain in the real world; yet the economists readily endorsed government measures aimed at coercively pounding the real world into conformity with these impossible theoretical conditions. Closely examined, such efforts represented a form of madness. Moreover, as the great economist James Buchanan observes, the economists’ obsession with general equilibrium gives rise to “the most sophisticated fallacy in [neoclassical] economic theory, the notion that because certain relationships hold in equilibrium the forced interferences designed to implement these relationships will, in fact, be desirable."[16] Great Society measures such as the Elementary and Secondary Education Act (1965), the Higher Education Act (1965), the Motor Vehicle Safety Act (1966), and the Truth in Lending Act (1968), as well as many of the consumer-protection and environmental-protection laws and regulations, found ready endorsement among contemporary neoclassical economists, who viewed them as proper means for the correction of imagined market failures.

The assumptions that underlay these economic interpretations and applications, however, could be sustained only by wishful thinking. Economists presumed to know where general equilibrium lay, or at least to know the direction in which various inputs and outputs should be changed in order to approach general-equilibrium efficiency more closely. But neoclassical economists cannot move the earth with a mathematical lever, because they have no place to stand—no "given" information about (presumably fixed) property rights, consumer preferences, resource availabilities, and technical possibilities. What neoclassical economics takes as given is, in reality, revealed only by competitive processes. "Most modern economists," Buchanan aptly concludes, "are simply doing what other economists are doing while living off a form of dole that will simply not stand critical scrutiny."[17] Yet, critics such as Buchanan were hardly numerous during the 1960s. In my own training in economics, between 1962 and 1968, I encountered only one of them—Buchanan himself, when he made a seminar presentation at Johns Hopkins while I was a graduate student there. In this regard, my education was typical of what other students were being taught during those years.

If the microeconomic side of the Neoclassical Synthesis fostered government measures to remedy a variety of putative market failures, its macroeconomic side endorsed government measures to remedy the greatest alleged market failure of all—the economy’s overall instability and its frequent failure to bring about a condition known as “full employment.” The supposition that mass unemployment constituted or reflected a market failure came easily to young economists who had come of age during the Great Depression. In those years of seemingly endless subpar economic performance, all sorts of ideas had been advanced to explain what was wrong and what should be done to repair the economy. Keynes’s ideas had many competitors, most of them utterly crackpot. The longstanding commitment of Anglo-American economists to classical and neoclassical economics did not collapse completely during the 1930s, but it came under increasing strain, and many good economists who should have known better capitulated to unsound, but increasingly influential ideas. In the 1940s, however, the dam burst completely, at least for the elite members of the economics profession, and by the early 1950s, Keynesian ideas had entrenched themselves solidly. Since then, some species of Keynesianism has been either in the professional saddle or clamoring to get there. Time magazine observed in December 1965, “Now Keynes and his ideas, though they still make some people nervous, have been so widely accepted that they constitute both the new orthodoxy in the universities and the touchstone of economic management in Washington.”[18]? Although the stagflation of the 1970s and the rise of the New Classical school seemed for a while to have banished Keynesianism from the leading circles of the economics profession—at least in its form circa the 1960s—vulgar Keynesianism came back with astonishing vigor in the wake of the panic of 2008 and the subsequent recession.[19]

In the mid-1960s, however, these events lay far in the future, and the Neoclassical Synthesis reigned supreme among American economists in the profession’s upper reaches. Thus, John F. Kennedy obtained advice about economic policy from Paul Samuelson in 1960 and 1961, and President Johnson maintained a Council of Economic Advisers headed in succession by three prominent Keynesian macroeconomists, Walter Heller, Gardner Ackley, and Arthur M. Okun, and including others, such as Otto Eckstein and James Duesenberry. Thus, whatever advice Johnson received from his council accorded with the tenets of the Neoclassical Synthesis. Among economists outside the Johnson administration, the Neoclassical Synthesis received its most influential exposition from such lions of the economics profession as Samuelson, John R. Hicks, Robert Solow, James Tobin, Lawrence Klein, and Franco Modigliani—all future winners of the Nobel Prize in economics. In December 1965, Time magazine quoted Milton Friedman, whom it described as “the nation’s leading conservative economist,” as saying: “We are all Keynesians now.”[20]

In classical economics, long periods of mass unemployment had been regarded as impossible, because such a condition represented a gross, sustained disequilibrium in the labor market, and normal economic changes, especially reductions in the real wage rate, would tend to restore an equilibrium in which the amount of labor services that workers wished to supply equaled the amount that employers wished to demand, and hence no involuntary unemployment of labor would exist. Keynes and his followers insisted, however, that in modern economies, wages and prices were not as flexible as they were assumed to be in classical economics. Real wage rates might not fall (or might not fall enough), notwithstanding extraordinarily great unemployment of labor. In this view, the only way to reduce such sustained mass unemployment was by increasing the demand for products, thereby increasing the quantity of labor services employers demanded even at the given, rigid level of real wages.

Further, to bring about such an increase in “aggregate demand”—the overall amount spent for new final goods and services per period of time—reliance on private consumers and investors might prove unavailing. Consumers, whose incomes would be diminished by the lost earnings occasioned by mass unemployment, could play only a passive role. Investors might fail to save the day because of what Keynes’s called a lapse of their “animal spirits,” which, to be frank, was no explanation at all, but merely a name given to a mysteriously shrunken amount of private demand for new capital goods. In this situation, aggregate demand could be raised sufficiently only from a third source, namely, increased government spending for newly produced goods and services, financed by government borrowing. Moreover, such increased government spending would not only raise aggregate demand directly, but would also have a so-called “multiplier effect,” whereby private incomes would be increased, and expenditure of these increased money receipts would set in motion a continuing series of greater demand, increased employment, higher income, and so on, by which the economy might ultimately be pushed to a state of full employment.

In the 1960s, few economists disputed this general framework of analysis. Even critics such as Milton Friedman accepted it, arguing only that certain second-order aspects of the model—for example, the quantitative response of aggregate demand to an increase in the quantity of money—differed from what the Keynesians assumed. In the 1960s, few macroeconomists looked to monetary policy changes as important means of pushing an economy out of what they viewed as a mass-unemployment equilibrium. For the typical macroeconomist of those days, fiscal policy—changes in government spending, taxing, and borrowing—held the key to keeping the economy on a stable growth path. As if to certify the completeness of Keynesianism’s conquest, in December 1965, Time magazine put an image of Keynes on its cover and featured a long, laudatory article titled “We Are All Keynesians Now.”

Keynesians recognized that using fiscal policy to alleviate mass unemployment might be overdone, however, raising aggregate demand so high that the main effect of increasing it further would be not so much a further increase in employment as an increase in the rate of (overall consumer price) inflation. To analyze this problem, they developed what became known as the Phillips Curve, an empirically derived, inverse relationship between the rate of unemployment and the rate of inflation. They also made numerous attempts to estimate statistically the precise parameters of this curve. Above all, they assumed its stability over time. If indeed it was stable, it offered policy makers a menu of choices from which to select: combinations of the rate of unemployment and the corresponding rate of inflation. If they were willing to tolerate a higher rate of inflation, for example, they could use increases in deficit-financed government spending to push the rate of unemployment down further. Using fiscal policy in this fashion came to be known as “fine tuning” the macroeconomy. Fine tuning was an economic technocrat’s dream come true, assuming that it really worked. However, as economist Edmund S. Phelps noted in 1974, “[T]here was absolutely nothing in economic theory that would have lent significant support to such a belief.”[21]

President Johnson was fortunate in regard to economic stabilization and growth during his term in office, although he does deserve credit for pushing Kennedy’s stalled tax-cut proposal to quick enactment in February 1964. Still, the economy was already growing and the rate of unemployment declining when LBJ took office in November 1963, and macroeconomic conditions continued to improve throughout his presidency, although the rate of inflation began to edge up after 1965, reaching almost 5 percent during his final year.[22] Between 1963 and 1968, real GDP increased by 29 percent, or by 5.2 percent per year on average.[23] The rate of unemployment declined from 5.7 percent in November 1963, when LBJ became president, to 3.4 percent in January 1969, when he left office.[24] This macroeconomic success owed nothing to policy makers’ fine tuning, because neither the administration nor the Congress succeeded in making such delicate adjustments of fiscal policy as economic conditions changed. In truth, fine-tuned fiscal policy was impossible in the context of the U.S. government’s institutional realities. Even more than Calvin Coolidge, Johnson was simply lucky in the coincidence of his economic policies and the robust performance of the economy.

In any event, this remarkable macroeconomic performance probably deserves the lion’s share of the credit for the reduction in measured poverty that occurred during the Great Society years. Of course, the administration proposed, enacted, and implemented a plethora of bills aimed in one way or another at reducing poverty. Indeed, for many observers, the Great Society is virtually synonymous with the War on Poverty. In general, however, nearly all of the anti-poverty measures, to the extent that they met with any success at all, had only a small effect on the national poverty rate, which fell from 19.5 percent in 1963 to 12.8 percent in 1968.[25] Many of the anti-poverty programs had scant funding, and the news coverage they received was out of proportion to the amount of money they received. Some of them, such as the urban renewal programs, were probably counterproductive; most of them were probably neither fish nor fowl, but only more taxpayer money spent with nothing much to show for their display of good intentions. “[T]hose who most directly benefited,” says Matusow, “were the middle-class doctors, teachers, social workers, builders, and bankers who provided federally subsidized goods and services of sometimes suspect value.”[26]

As Tanner has recently remarked, apropos of the War on Poverty and its programmatic legacies:

Throwing money at the problem has neither reduced poverty nor made the poor self-sufficient. Instead, government programs have torn at the social fabric of the country and been a significant factor in increasing out-of-wedlock births with all of their attendant problems. They have weakened the work ethic and contributed to rising crime rates. Most tragically of all, the pathologies they engender have been passed on from parent to child, from generation to generation. In fact, the whole theory underlying our welfare programs is wrong-headed. We focus far too much on making poverty more comfortable, and not enough on creating the prosperity that will get people out of poverty.[27]

The Great Society at least did not bring economic growth to a halt, and therefore it did not preclude a continuation of the long-term reduction in the proportion of Americans living in poverty. As for the Johnson administration’s War on Poverty in particular, however, no such benign evaluation is justified. Matusow, who can scarcely be described as a spear carrier for conservative dogma, concludes that “the War on Poverty was destined to be one of the great failures of twentieth-century liberalism.”[28]

The Great Society programs, whether for macroeconomic fine tuning, microeconomic remedy of alleged market failures, or redistributions of income and wealth to reduce the incidence of poverty had an important element in common: the presumption that technocrats possessed the knowledge and capacity to identify what needed to be done, to design appropriate remedial measures, and to implement those measures successfully. In short, the Great Society amounted to social engineering—or, worse, to sheer, groping, social experimentation—on a grand scale. The planners more or less presumed the existence of private-sector problems and took for granted that they could successfully solve those problems through the use of government’s coercive power and the taxpayers’ money. They did not give much weight—indeed, they often gave no weight whatsoever—to the possibility of what later came to be known in public choice theory as “government failure.” Thus, seeing apparent market failures that left the economy in an inefficient configuration, they supposed that they could identify exactly what to tax, subsidize, or regulate and exactly how much to do so in order to move the economy into an efficient configuration. According to LBJ’s biographer Paul Conkin, Johnson “never easily conceded that any except purely private problems did not lend themselves to a political answer. That is, government could directly or indirectly alleviate any distress.”[29] As White House aide Joseph Califano later confessed, “We did not recognize that government could not do it all.”[30] Yet, to describe the Great Society’s multifaceted undertakings as merely hubristic would be too kind to their promoters.

All too many of the programs fell short of even this species of defectiveness, amounting to little more than garden-variety efforts to divert taxpayer money in the service of purely personal and political gain for the insiders who designed, operated, and received benefits from the programs.? For example, the community action program, unforgettably lampooned by Tom Wolfe in his 1970 story Mau-Mauing the Flak Catchers, combined ample components of white middle-class guilt, minority shakedowns, and money thrown around basically to appease the menacing claimants who, having been invited to snatch the money, resorted to whatever form of intimidation would get it for them quickest. “The money,” Conkin concludes, “often seemed to dwindle away, funding little more than the wages of [community action agency] employees.”[31] More generally, as Andrew notes, “Through ‘iron triangles’ and the use of clientele capture, the very objects of Great Society reforms all too often seized control of the process to block significant change and enhance their own interests.”[32]

Level-headed analysts could scarcely have been shocked by this outcome. As Adam Smith long ago remarked, although the “man of system”—preeminent examples of which played leading roles in initiating the Great Society—treats the members of society as if they were but pieces on a chess board, the people actually have a motive power of their own. In the mid-1960s, the people whom the social and economic planners undertook to “reform” in various ways refused to sit still while the technocrats treated them as lab rats. Instead, they often reacted by resisting, diverting, or seizing control of the “top down” plans the government sought to impose on them, causing what, from the planners’ perspective, seemed to be program failures. One man’s failed experiment, however, was often another man’s fulfilled political ambition or bulked-up bank account. Across the country, for example, local politicians diverted federal money intended to fund Great Society “reform” measures into support for prosaic, local political priorities.

Conclusion

The economics of the Great Society, whether we consider it from the perspective of economic theory, economic policies, or the consequences of those policies, offers much to criticize and little to praise. The theory—the Neoclassical Synthesis—combined a microeconomic theory focused on the identification and rectification of market failures and a macroeconomic theory based on primitive, deeply flawed Keynesianism. Although this body of analysis might sometimes arrive at constructive proposals by accident, as it did when it helped to push through the 1964 tax cut, in general it fostered unconstructive or even counterproductive policies whose common element was increased government intervention in the market system. The best thing we can say for the Great Society economic programs as a whole is that they amounted to a gigantic waste of the taxpayers’ money. Many, however, were worse than wastes; they actually caused harm.

Viewed from today’s perspective, the Great Society seems to have been above all an almost preposterously bloated collection of social-engineering projects. The mentality that underlay this panoply of policies and actions was one of arrogance and presumption: the presupposition that the leadings intellectuals, “the best and the brightest,” ought to, and knew how to rearrange the pieces on the human chess board to construct a better society from the top down. Of course, the politicians who joined in this carnival of folly, for the most part, did not care one way or another about intellectual presumptions or positions; they simply saw an inviting opportunity to feather the nests of their supporters, while accruing wealth, public acclaim, and power for themselves. Opportunists of all sorts, from welfare hustlers to subsidy-seeking real estate developers, naturally came running to the fountain from which such copious quantities of the taxpayers’ money were flowing.

After 1965, as the civil rights revolution dissolved into urban riots and violent splinter groups and as the growing U.S. engagement in Vietnam lengthened American casualty lists and increased Pentagon outlays, the public first soured and then turned increasingly against both LBJ’s domestic program and his foreign war. By the beginning of 1968, if not earlier, the president had conceded the impossibility of his reelection, and his leading advisers had lost much of their previous enthusiasm for the administration’s crusades at home and abroad. Although Richard M. Nixon was elected in 1968, many elements of the Great Society lived on, and some were extended and made ever more expensive, especially the food stamp program, Medicaid, and Medicare. Indeed, the currently looming fiscal train wreck associated primarily with the federal medical-care programs attests that in fundamental ways, the U.S. economy continues to suffer grave damage as a consequence of programs initiated during the Great Society.



[1]? Paul K. Conkin, Big Daddy from the Pedernales: Lyndon Baines Johnson. Boston: Twayne Publishers, 1986), p. 209.

[2]? Herbert Stein, Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond (New York: Simon and Schuster, 1984), p. 84.

[3]? Conkin, Big Daddy from the Pedernales, p. 190.

[4]? Ibid., p. 238.

[5]? Stein, Presidential Economics, p. 98.

[6]? Henry J. Aaron, Politics and the Professors: The Great Society in Perspective (Washington, D.C.: Brookings Institution, 1978), p. 151.

[7]? John A. Andrew III, Lyndon Johnson and the Great Society (Chicago: Ivan R. Dee, 1998), pp. 183-84.

[8]? “The Economy: We Are All Keynesians Now,” Time, December 31. 1965. Available at: http://www.time.com/time/magazine/article/0,9171,842353,00.html.

[9]? Allen J. Matusow, The Unraveling of America: A History of Liberalism in the 1960s? (New York: Harper and Row, 1984), p. 151.

[10]? Aaron, Politics and the Professors, p. 3.

[11]? Conkin, Big Daddy from the Pedernales, p. 213.

[12]? U.S. Department of Commerce, Bureau of Economic Analysis, “National Income and Product Accounts,” Table 3.2. Available at: http://www.bea.gov/National/nipaweb/TableView.asp?SelectedTable=87&Freq=Qtr&FirstYear=2008&LastYear=2010.

[13]? Michael D. Tanner, “More Proof We Can’t Stop Poverty By Making It More Comfortable,” Investor’s Business Daily, September 17, 2010. Available at: http://www.investors.com/NewsAndAnalysis/Article/547746/201009171932/More-Proof-We-Canand8217t-Stop-Poverty-By-Making-It-More-Comfortable-.aspx.

[14]? Justin Fox, “The Comeback Keynes,” Time, October 23, 2008. Available at: http://www.time.com/time/magazine/article/0,9171,1853302,00.html. “The Keynes Comeback,” The Economist, October 1, 2009. Available at: http://www.economist.com/node/14539560. Ben Quinn, “Raising Keynes: An Old Economist Finds New Rock-star Status,” Christian Science Monitor, January 13, 2009. Available at: http://www.csmonitor.com/Business/2009/0113/raising-keynes-an-old-economist-finds-new-rock-star-status. Louis Uchitelle, “Economists Warm to Government Spending but Debate Its Form,” New York Times, January 6, 2009. Available at: http://www.nytimes.com/2009/01/07/business/economy/07spend.html.

[15] “Bastard Keynesianism,” in An Encyclopedia of Macroeconomics, edited by Brian Snowden and Howard R. Vane (Northampton, Mass.: Edward Elgar, 2002), p. 51.

[16]? James M. Buchanan, “General Implications of Subjectivism in Economics,” in What Should Economists Do? (Indianapolis: Liberty Fund, 1979), p. 83.

[17]? Ibid., pp. 90-91.

[18]? “The Economy: We Are All Keynesians Now,” Time, December 31. 1965. Available at: http://www.time.com/time/magazine/article/0,9171,842353,00.html.

[19]? See sources cited in footnote 14. See also Robert Higgs, “Recession and Recovery: Six Fundamental Errors of the Current Orthodoxy,” The Independent Review 14 (Winter 2010): 265-72.

[20]? “The Economy: We Are All Keynesians Now,” Time, December 31. 1965. Available at: http://www.time.com/time/magazine/article/0,9171,842353,00.html.

[21]? Edmund S. Phelps, “Economic Policy and Unemployment in the 1960s,” in The Great Society: Lessons for the Future, edited by Eli Ginsberg and Robert M. Solow (New York: Basic Books, 1974), pp. 38-39.

[22]? U.S. Department of Commerce, Bureau of Economic Analysis, “National Income and Product Accounts,” Table 1.1.9. Available at: http://www.bea.gov/National/nipaweb/TableView.asp?SelectedTable=13&Freq=Qtr&FirstYear=2008&LastYear=2010.

[23]? U.S. Department of Commerce, Bureau of Economic Analysis, “National Income and Product Accounts,” Table 1.1.6. Available at: http://www.bea.gov/National/nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=2008&LastYear=2010.

[24]? U.S. Department of Labor, Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey.” Available at: http://data.bls.gov/pdq/SurveyOutputServlet.

[25]? Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, “Income, Poverty, and Health Insurance Coverage in the United States: 2008,” U.S. Census Bureau, Current Population Reports: Consumer Income, September 2009, p. 44, Table B-1. Available at: http://www.census.gov/prod/2009pubs/p60-236.pdf.

[26]? Matusow, The Unraveling of America, p. 240.

[27]? Tanner, “More Proof.”

[28]? Matusow, The Unraveling of America, p. 220.

[29] ?Conkin, Big Daddy from the Pedernales, p. 193.

[30] Andrew, Lyndon Johnson, p. 196.

[31]? Conkin, Big Daddy from the Pedernales, p. 223.

[32]? Andrew, Lyndon Johnson, p. 194.


Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.

Full Biography and Recent Publications

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CRISIS AND LEVIATHAN (25TH ANNIVERSARY EDITION): Critical Episodes in the Growth of American Government

The size and scope of government power has grown in response to crises of war and economic upheavals. Such increased power remains long after each crisis passes, threatening both civil and economic liberties, all at the behest of special interest groups. Learn More »»