Freedom Budget for All Americans As an Economic Plan

Home , Bayard Rustin

ISSN: 2278-3369 International Journal of Advances in Management and Economics Available online at www.managementjournal.info

RESEARCH ARTICLE

The Freedom Budget for All Americans as an Economic Plan

Enrico Beltramini

Notre Dame de Namur University

Abstract

In the second part of the sixties, A. Philip Randolph and Bayard Rustin envisioned an ambitious economic plan aimed primarily at eradicating poverty and joblessness for all Americans and significantly expanding the boundaries of Johnson’s Great Society. It never gained traction and by the end of the Johnson Presidency was relegated to the margins of historical memory. While the recent literature on the Freedom Budget has argued that the program was politically infeasible, this paper sustains that the Freedom Budget as a plan was economically infeasible. After a summary of the aims and content of the Great Society and the Freedom Budget, this paper determines that a main point of the program’s irrelevance lies to some degree in the implausibility of its economic assumptions and in the denial of any necessary economic trade-off.

Keywords: Freedom Budget, Keyserling, Johnson Administration, Great Society, Keynesianism. Introduction The Freedom Budget for All Americans: budget and self-sustainability of the Budgeting Our Resources, 1966-1975, To program, as well as the denial of any Achieve Freedom from Want (also, Freedom necessary economic trade-off, including the Budget or simply Budget), written under the one between inflation and employment. supervision of Bayard Rustin and released First, the article summarizes the main in 1966 by the A. Philip Randolph Institute, features of the Great Society, President was a well developed policy program seeking Johnson’s grandiose vision of universal to secure full economic citizenship for all access to benefits, privileges, income, Americans via an unprecedented housing, hopes, visions, values, government investment. The program achievements, and rights at that time challenged the classic definition of civil enjoyed only by the established, white, male- rights and linked increased government centric middle class. The Freedom Budget spending to economic justice. It never was conceived to significantly expand the gained traction and by the end of the boundaries of Johnson’s Great Society. The Johnson Presidency was relegated to the paper goes on to recapitulate the content of margins of historical memory.2 Scholars the Freedom Budget and its economic have mostly studied the Freedom Budget as assumptions. Finally, the paper analyzes the a political project to build a progressive feasibility of the Freedom Budget in an coalition, and argued that its defeat can be attempt-among other goals-to discern the closely identified with strategic mistakes orientation of the plan as far as taxes and within the U.S. left liberalism and inflation are concerned. reformism.3 This article investigates the The Great Society Freedom Budget as an economic plan and ultimately reveals that the Freedom Budget That’s my kind of program. We should push was economically infeasible, and that the ahead full-tilt on this project. 24 November main point of the program’s irrelevance lies 1963, only two days after the assassination to some degree in the implausibility of its of John F. Kennedy, Lyndon Johnson was economic assumptions, such as the claim of already pushing Walter Heller, Chairman of compatibility with the concurrent federal the Council of Economic Advisers, to pursue

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-60 50 Available online at www.managementjournal.info an anti-poverty plan that he inherited from transportation ($1.6 billion); all social the previous administration.4 From the programs (Social Security, healthcare, beginning of his administration, the newly unemployment, etc.) accounted for $4.9 sworn in Johnson focused on a domestic billion. agenda that included the fascinating merger of civil rights with economic justice.5 The modest financial commitment to welfare Johnson envisioned a society where welfare did not bother the Johnson administration, was an ethical imperative and was socially as results were nonetheless stellar. At the accepted-a post-scarcity economy and a beginning of 1967, Johnson recognized that prosperous society where an absence of class the War on Poverty was achieving important conflict led to general consensus. It was a results with a limited investment of $1.5 to dream of racial harmony, a classical liberal $1.75 billion.7 “Demonstration Cities movement of a huge governmental Program,” a federal plan to deal with the symphony seamlessly playing their crisis of the cities, was initially proposed to instruments to perform Johnson’s lyrical Congress in 1966 with a proposed budget of dream of social engineering. It was a dream $2.4 billion over six years, although it was that implied huge and permanent approved with a final provision of $2.3 investments in education, job training, billion in the same year, the federal infrastructure, and manufacturing as well as government paying 80 percent ($1.9 billion) money to support the vision of millions of and local authorities taking responsibility new employers. It was a plan that for the remaining 20 percent ($0.4 billion).8 envisioned urban renewal, igniting hope in Abram mentions these as “community action the ghettos, and it also attempted to paint a programs” and characterizes them as “not a canvas of poverty defeated thanks to billions great consumer of money.” of federally funded dollars. The Freedom Budget

Despite the grandiose vision, the federal The Freedom Budget, at least in its authors’ spending for the Great Society programs, minds, was an ambitious civil rights including the War of Poverty, had been proposal at the intersection of racial justice relatively modest. While the rhetorical and economic justice for all Americans, image of the Great Society was of a country aimed at primarily eradicating poverty and that possessed unlimited resources and the joblessness and significantly expanding the professionalism to use them for healing the boundaries of Johnson’s Great Society.9 It ills that still plagued the dispossessed, the projected “the practical liquidation of reality was that the costs of its programs poverty in the U.S. by 1975” while it left “no had been “deliberately understated” for room for discrimination in any form.”10 It political reasons.6 In other words, the was a remarkable piece of public policy, rhetorical flourish of a Great Society whose list of social priorities included captured a major departure in terms of housing and education, guaranteed annual federal government’s spending, but income, and expanded medical care, social contrasted with the comparatively modest insurance, employment, and jobs. The plan budget given to the principal federal would engage the poor in rebuilding their agencies, including the Office of Economic own cities and ghettos, towards the Opportunity. The leap looked gigantic only construction of homes, schools, mass transit, because the bar was set so low. A brief and hospitals; the plan would also encourage analysis of the 1966 federal budget helps to a focus on useful services such as healthcare clarify this point. The total spending was and teachers' aides. The Budget was actually $134.5 billion, of which $90.1 billion was an economic plan, worked out by New Deal discretional spending. The main components Keynesian economists such as Leon H. of discretional spending were defense ($59 Keyserling, former Chairman of the CEA in billion), space ($6.6 billion), international the Truman Administration, with detailed affairs ($5.1 billion), education ($3.8 billion), charts, graphs, and statistics. It was an energy ($3.9 billion), housing ($2.9 billion), economic plan, a formal statement of a set of government ($2.3 billion), and business goals, including full employment

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 51 Available online at www.managementjournal.info and minimum wage, the reasons they were making the $185 billion he proposed believed to be attainable, and the action spending nearer to 47 percent of added points for reaching those goals. It also federal tax revenues.14 contained the numbers and terms, that is, the financial resources needed to achieve the Two principles seemed to be at work: 1. the plan’s goals ($185 billion over a ten-year sustainability of an $18.5 billion per year period) and the sources of funding (a so- spending for a 10-year period, and 2. the called “growth dividend”).11 rationality of a $40 billion increased tax revenues for a 10-year period. While the The plan, a collective project of economists, former is discussed later in this paper, the labor union, and civil rights leaders, was latter is investigated here. At the core of the coordinated by Rustin, although Leon H. Freedom Budget there was the notion of self- Keyserling wrote it almost single-handedly; sustaining stimulus, or the confidence that it was finally presented at a press conference the fiscal stimulus could pay for itself. The in Harlem’s Salem Methodist Church in plan advocated stimulation of growth October 1966 as an 84-page document, through higher spending and tax increases. complete with statistics, charts, graphs, and Another fiscal stimulus, the Kennedy- a discussion of methodology.12 It called on Johnson 1964 tax cut, had made a similar the federal government to spend $185 billion case: stimulate growth through a tax cut, in restoring and maintaining full and the long-term debt may shrink. Both employment, guaranteeing an adequate fiscal stimuli were supposedly self-financing income for all employed, and a minimum assuming a fiscal “multiplier,” the amount adequate income to all who could not be so by which output rises for each dollar of employed. government spending or tax cuts. However, the analogy ended here, as the difference Most of the 84-page document was devoted between the two plans was not as much in to the social and moral issues related to the their logic as in their size. The Kennedy- aims and contents of the Budget. The last Johnson tax cut was a $12 billion tax cut, chapters addressed the more and within one year the revenues into the specific components of the economic plan. Federal Treasury were already above what The Freedom Budget required the total they had been before the tax cut. The tax cut amount of $185 billion, which would commit paid for itself in increased revenues.15 The the federal government for a mandatory Freedom Budget was an $18.5 billion spending of nearly $20 billion for a 10-year spending for a 10-year period and was period, starting in 1967. Keyserling was supposed to provide increased revenue in the confident that all of the Budget’s programs amount of $40 billion for a 10-year period. In could be paid for without tax increases or other words, the fiscal multiplier at work in cutbacks on defense, international, and the Freedom Budget was supposed to be two space funding by utilizing what he called the times larger than the one at work in the “economic growth dividend.” The “growth Kennedy-Johnson tax cut. dividend” was the aggregate gross national product increase that Keyserling anticipated In linking increased social spending to between 1965 and 1975. This increase was robust economic growth, and insisting on the based on a five percent annual growth rate lack of effects of the program’s costs on tax estimate, which was deemed reasonable at burdens (welfare state without taxing), the the time since the economic growth averaged architects of the Freedom Budget had been exceeding four percent per year conveniently avoided dealing with federal from 1961 to 1966.13 Keyserling suggested budget deficit and inflationary growth, a that only 1/13th of this growth dividend point that will be addressed later, while would cover all costs of the Freedom Budget. conveying a sense of social pacification. In The relevant figure was the increase in fact, economic growth (the “growth federal tax revenues that would have dividend”) would take care of all costs, and resulted from such growth. According to no transfer of wealth was requested between Keyserling’s growth rate, tax revenues “have’s” and “have not’s.” The selling would have increased by $400 billion, proposition of the Freedom Budget was the

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 52 Available online at www.managementjournal.info transformation of American society from one bring to light the economic assumption of “have’s” and “have not’s” to one of “have’s” governing the Freedom Budget. only, at no cost for anyone. The extension of the economic privileges to the poor and Since the Full Employment Act of 1946, racial minorities would operate without which declared full employment to be a eroding the existing grasp that the white major goal of U.S. policy, Keyserling middle class had on those same privileges. considered economic growth as the mean to The equation appeared to have validity due attain the end of full employment.18 An to the previous quarter-century of underlying implication here is that extraordinary economic growth. Unlimited consumption drives production and, economic growth offered hope that the consequently, investment and productivity. traditional Aristotelian notion of transfer of The overall idea was that when one puts wealth from the “have’s” to the “have not’s” money into the average family’s pocket in had simply been replaced with economic the form of salaries, education, social expansion in which “have not’s” become security, health, and housing, consumption “have’s” without a transfer of wealth. 16 is stimulated and so is production; therefore, New York Herald Tribune columnist Walter real wages increase. Testifying before the Lippmann described succinctly his Senate Finance Committee in April 1962, understanding of the post-scarcity economics Keyserling sustained that production needed in regards to the 1960s: bigger markets.19 In other words, consumption was the key. To A generation ago it would have been taken Keyserling, consumption was derived from for granted that a war on poverty meant real wages. Thus, consumption was a taxing money away from the haves and function of real wages and a stimulus for turning it over to the have not’s … But in investment. To Keyserling, the notion that this generation a revolutionary idea has investment is determined by consumption taken hold. The size of the pie can be levels rather than by the amount of loanable increased by intention.17 funds or profit rates, led him to stress constant economic growth. This was Post-scarcity economy seemed the pinnacle Keyserling’s critical platform toward of the liberal philosophy of economics, the maintaining immovable and consistent creation of a context in which economic growth. growth, civil rights, and low taxes mutually reinforce each other, preserving affluence to The drafter of the Freedom Budget was an the middle class and enlarging it to economist with an undaunted conviction previously discriminated racial minorities. that the conditions necessary for permanent full employment could not be expected from The expansion of direct federal spending the system of private enterprise. The role of programs at no additional cost for taxpayers- government to maintain full employment a main principle at work in the Freedom when the private economy falters was Budget – was a subordinate of Keyserling’s indispensable.20 Accordingly, Keyserling chief belief that federal spending should be believed in constant growth for full pursued regardless of potential effects on employment fueled by fiscal policy even if budget deficit and inflation. The economic that meant some budget deficit. As a matter theory underlying the notion of constant of fact, Keyserling suggested both tax cuts to spending was interesting and controversial, stimulate consumer demand and built on the premises that the potential of expenditures (spending), the two main the American economy was unlimited and instruments of fiscal policy to promote that economic policies should always be growth, with a preference for the latter.21 To aimed at full employment—full employment Keyserling, spending for growth should be demand and full employment supply. In confirmed in case of both budget deficit and other words, an entire economics stood inflation. Authorities should not be afraid of behind Keyserling’s request for spending. A either temporary deficit, because spending- brief analysis of such an economics will produced jobs and increased production, or

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 53 Available online at www.managementjournal.info inflation, as inflation was generally caused In this chapter, Keyserling made his last by inadequate supply, not by excess point of tax. The Freedom Budget was demand.22 Thus, the correct policy was to conceived to be tax-free. However, stimulate supply. Keyserling’s bottom line was that spending for economic growth as a We should increase taxes by whatever policy was the right prescription for both amount may be necessary to impose the anti-recessionary and anti- burden where it can be easily be borne, inflationary economic cycles. instead of fastening it around the necks of the downtrodden. From the advent of the Korean War to the War in Vietnam, Keyserling approved Not surprisingly, Keyserling was suggesting expansion of defense spending, making no as an alternative a combined inflationary distinction between social spending and growth and tax increase in order to defense spending: both policies were valid stimulate growth and finance spending.26 instruments to fuel economic growth.23 His Although the Freedom Budget denied the belief that great domestic priorities could be trade-off between spending and tax and/or adequately served without corresponding inflation, it was Johnson who had to defense spending cuts remained intact. In confront the political reality that federal his view, guns-and-butter economics was a debt and inflation increased as the domestic crucial ingredient of the full-employment programs and the war in Vietnam expanded strategy.24 and required additional resources.

Feasibility Keyserling’s economic framework relating full employment, growth, spending, and In the second part of the sixties, two budget deficits became the architecture of economic plans attempted to address the the Freedom Budget. The denial of any problem of economic inequality in the Unites necessary trade-off is the theoretical States. One plan was President Johnson principle of the Freedom Budget.25 Reflecting Administration’s Great Society. The other labor leadership’s claim that no necessary was the A. Philip Randolph Institute’s plan trade-off needs existed between military known as Freedom Budget. The two plans spending in Vietnam and domestic spending shared the same economic framework, for War on Poverty, the Freedom Budget Keynesianism, and the same economic proposed guns-and-butter economics and policies: supply-side cuts ("commercial growth-focused strategies with no necessary Keynesianism") and massive defense tax increase to either balance the budget or spending (military Keynesianism).27 They to curb the danger of inflation. The denial of differ, however, on the ultimate goal of trade-off between inflation and employment economic policy, growth for growth's sake in comes with the recommendation to federal the case of the Great Society, and full government to pursue growth for full employment in the case of the Freedom employment also in case of inflationary Budget. More accurately, the plans diverge growth. In the chapter titled “The Moral on the influence these policies would have on Aspects of the Problem of Inflation,” the problem of income inequality in the Keyserling initially discounted effects of United States. inflation on the economy and then made his moral point: President Kennedy used a combination of military and commercial Keynesianism Under any circumstances, it would be a (defense spending and tax cut, respectively) monstrous distortion of our values as a as engines of economic growth. Johnson nation and a people to argue that we should assumed he could do the same, but thanks to balance the desirability of reducing the more receptive political climate, he unemployment […] against the prospects of might also increase social spending and some increases in the prices level. The infrastructure investment. Initially, the chapter on inflation concludes the Freedom Johnson administration was focused on Budget document. keeping the increasing deficit under control.

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The strategy was to finance both the Great government on pursuing social justice or on Society reform at home and the war in Asia foreign military policy became common without raising taxes, while balancing the during that period. Martin Luther King, Jr., budget to hold down inflation. The whole sided against funding the Vietnam War, strategy relied on the level of economic famously predicting that “the bombs that growth: a slowing path of the economy would [Americans] are dropping in Vietnam will predict a higher federal deficit and higher explode at home in inflation and inflationary pressure. In January 1966, unemployment.”32 King exposed the civil Johnson’s plan was to maintain the federal rights view of the debate. Wilbur Mills, the budget at $112.8 billion, an increase of $6.4 House Ways and Means Committee billion over the previous year, mostly to Chairman, exposed the interest of taxpayers cover the cost of the Vietnam War. A deficit and the underlying struggle for control over in the order of $1.8 billion would maintain the nation’s tax vs. spending priorities. control of inflation.28 Uncertainty about the Mills, a primary tax expert in the Congress degree of economic growth marked Johnson and later a leading architect of the Tax administration’s economic policy in 1966. He Reform Act of 1969, favored a conservative decided on a $4.8 billion supplemental fund fiscal approach, adequate tax revenue to for Vietnam in March, announced a budget fund government programs, and a balanced reduction in September (estimated by his budget. He made clear that any proposal economic advisors in the order of $3.5 asking Americans to pay more taxes must be billion), but still remained silent on taxes. It accompanied by a significant reduction in became clear that Johnson's desire to the rate of government spending. He also maintain the Great Society domestic clarified that “what many of us fear is that programs while fighting the war in Vietnam tax increases now make more revenue increased federal debt. His economists at the available for spending programs in the Council on Economic Advisers (CEA) tried to future.”33 educate him about the consequence of federal debt on inflation and advised him to The Johnson administration was still propose a tax increase to finance the war. collecting important results: between 1963 For two years, Johnson held back, thus and 1968, real GDP increased by 29 percent, creating a growing hole in the federal or by 5.2 percent per year on average. The budget.29 Soon, the economy entered into the rate of unemployment declined from 5.7 so-called mini-recession of 1966-67. This was percent in November 1963, when Johnson only the beginning of a spectacular, became president, to 3.4 percent in January unpredictable change in the economic cycle. 1969, when he left office.34 However, the risk of an increasing inflation tied Johnson’s In January 1967, only three months after hands. Until 1964, the American economy the launch of the Freedom Budget, Johnson was growing, the unemployment rate was finally asked for more taxes via a temporary falling, and there was almost no inflation.35 six percent surcharge on corporate and In 1965, the unemployment rate fell from individual income taxes. He also promised to five percent at the start of the year to four hold the federal deficit to $2.1 billion. The percent at the end, while the Consumer prospective budget deficit was of $10 and Price Index (CPI), a measure of the general $11 billion, thanks to $20 billion for price level, began the year rising at a one Vietnam, and Johnson – despite his promise percent annual rate. It ended at two percent, -- ended the fiscal year with a final deficit of the highest sustained rate since 1958. To $8.6 billion.30 His decisions, unpopular as administration economists, who have to they may have been, signaled the end of non- make a trade-off between maintaining low taxationary solutions to balance the federal unemployment and low inflation, the budget, while the evidence that the budget increase in inflation was the price paid for deficit would be much larger than Johnson lower unemployment. In his 1966 State of admitted failed to restore public confidence the Union speech to the Congress, Johnson and to reduce inflation.31 A confused and mentioned his Fiscal and Monetary Policy, violent debate about whether to concentrate which aimed “at full employment without the economic resources of the federal

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 55 Available online at www.managementjournal.info inflation.”36 The underlying idea was that economists did not interpret them that way. the administration should promote further By December 1967, the annual rate of CPI expansion through tax reductions, while the increase was 4.6 percent, 1.8 percentage deficit created by the tax cut was financed points higher than a year earlier, by the Federal Reserve’s monetary policy skyrocketing the cost of financing the Great with no large increase in interest rates. The Society’s programs and the Vietnam War.41 increase in federal tax revenues that would have resulted from such growth would cover The American economy operated through a all costs. It turned out that 1964 was the last delicate balance of federal debt, inflation, year of non-inflationary growth.37 and interest rates components; severe pressures caused the delicate system to Beginning in 1965, the general price level collapse after the decisive 1965-66 period began to rise at an increasing rate. The CPI when Johnson decided not to reduce rose 23.07 percent from 1965 to 1970, with spending, to raise tax rates, or to have the an annual percent increase of about 4.25 Federal Reserve raise interest rates percent. At the time, the Federal Reserve (ironically, the Freedom Budget’s primarily was a symbol of conservative fiscal policy. Its economic framework).42 The virulent role was to provide the reserves to finance inflation that gathered speed from 1966-67 the federal budget deficit at the lowest cost proved guns-and-butter economics possible, which means that the Federal unsustainable, led to record budget deficits, Reserve was also supposed to support the and forced budget director Charles Schultze policy by preventing an increase in market to suggest to the president in November interest rates. However, when deficits 1966 that they “concentrate our scarce funds, increased and inflation rose, the Federal digest what we have and be very selective in Reserve had no choice but to promote anti- asking for new programs.” With little inflationary policies, raise interest rates, and expectation of a balanced budget and the temporary slowdown economic growth, hard reality of increasing inflation, there which would accompany a policy of not was no space for any more economic expanding money. An increase in the programs. While the funds designated for demand for loans for defense contractors and war or war-related programs increased, the an unpopular Treasury’s issue of 18-month funds for domestic programs declined. Just 4.25 percent notes led the Federal Reserve to two weeks after the launch of the Freedom raise the discount rate from four to 4.5 Budget, Schultze informed President percent.38 The action did not stop inflation or Johnson that “we are not able to fund slow growth of the monetary base. President adequately the new Great Society Johnson was not much concerned about the programs.”43 When the Freedom Budget was inflation and did not accept limits in launched in October 1966, the Great Society spending and warnings on the deficit. He did and Johnson’s other domestic programs were not want any increase in rates.39 He openly already in retreat. criticized the Treasury’s decision and intentionally misinterpreted it, so as to One of the main principles at work in the avoid any further increase in interest Freedom Budget was the sustainability of an rates.40 Once the public learned that $18.5 billion spending for a 10-year period. A policymakers were reluctant to act to growing gap between the expectations of the prevent a rise in inflation, they anticipated Budget’s promoters and the available that anti-inflation policy would soon cease. resources of the Johnson administration By March 1966, the 12-month rate of fueled frustration on both sides. To put the increase in the CPI reached 2.8 percent, the requested provisions of the 185 billion-dollar highest rate in eight years. In April 1966, Freedom Budget in context, the federal and for the next eight months, the Standard spending for the Great Society programs, & Poor’s 500 index dropped about 22 including the War of Poverty, had been a percent. The market downturn and other fraction. When compared with the $185 signs of weakness should have suggested billion Freedom Budget, the difference in that additional anti-inflationary actions funding between the running programs were necessary, but administration cannot be more evident. The Freedom

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Budget provision “would have been the stubborn inflation of the 1970s. The plan whole total [federal] budget for one year, proposed tax-free growth as a useful defense and everything else,” argued Morris rhetorical image, but the more relevant idea Abram, President Johnson’s advisor for civil was the option of an inflationary growth and rights.44 The parallel established between more taxes in return for full employment. the 10-year Freedom Budget and Abram’s 1- Finally, Keyserling presumably exaggerated year federal budget seems a rhetorical trope the fiscal multiplier, as the fiscal stimulus to show that the Freedom Budget was not could not pay for itself. simply abnormally larger in scope when compared with other social and economic While the notion of post-scarcity economy programs; in terms of sustainability, it had fueled the expectations of the Freedom the potential to derail the entire federal Budget promoters, the hard reality of limited budget.45 resources led the Johnson Administration to a more negative assessment of the plan. The Conclusion bottom line is that the weakness of the Recent scholars have offered a political Budget was two-fold: it overestimated the interpretation of the demise of the Freedom potential of American capitalism to produce Budget. Although a legitimate point, there is enough resources for the federal government no doubt that the Freedom Budget was to afford defense spending and forever heal primarily a piece of economic work. This social ills, and it underestimated the effects paper has investigated the Budget from a of budget deficit on inflation. wider economic viewpoint, addressing the eventual intrinsic shortcomings of the plan Notes with regard to the state of the economy at that time. In conclusion, this article suggests 1. A preliminary partial version of this article an economic interpretation of the Freedom was delivered as a paper at the International Budget’s failure [01-32]. Summit on Civil and Human Rights, 28-30 October 2015, Kennesaw State University. I First, Rustin and Keyserling likely am grateful to the organizers of the conference for the invitation to speak and to the underestimated the limit of federal finance. participants for their feedback. The maneuvering of Rustin and Randolph was based on Keyserling’s assumption that 2. A. Philip Randolph Institute, A Freedom the American capitalism could somehow Budget for All Americans. The Freedom absorb the demands of the poor and Budget has been mentioned primarily in books of economic history, such as Michelmore, Tax underclass and turn them into forces of and Spend. Johnson does not mention the further growth. Assuming Keyserling Freedom Budget in his memoir, The Vintage estimated the correct price tag for a full- Point. Biographers and Presidential historians scale commitment to poverty and such as Robert Dallek and Doris Kearns unemployment change, the sizes of federal Goodwin do not mention the Budget. Nick finance of those times-over $100 billion- Kotz, the author of the best history of the were not compatible with the Freedom working relationship between Johnson and Budget. Second, Rustin and Keyserling were King, does not mention the Budget. See probably wrong: as a matter of fact, the Dallek, Flawed Giant; Goodwin, Lyndon federal government could not afford to Johnson and the American Dream; Kotz, Judgment Days. Eventually, the fifth 46 finance guns and butter. And King was volume of the Years of Lyndon Johnson, apparently right: dollars that might have a biography of Lyndon B. Johnson by an gone to the Freedom Budget were directed American writer Robert Caro, will address the instead to pursue the unpopular war in subject, as it will deal with the bulk of Vietnam. However, military Keynesianism Johnson’s presidency. The volume is expected was an essential component of the Freedom to be published soon. Budget. On this point, the plan was in tune 3. Le Blanc and Yates, A Freedom Budget for All with the Johnson Administration. Third, the Americans. See also D'Emilio, Lost Prophet, plan clearly discounted the effects of federal 429-439. budget deficits and incipient signs of the

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 57 Available online at www.managementjournal.info 4. Heller Papers, John F. Kennedy, Boston, 15. Heller, “Statement”, 161. Canto et al. come Massachusetts. closest to proving that the Kennedy tax cut paid for itself by including higher revenues 5. Carter, The Music Has Gone out of the that accrued to state and local governments Movement, 22. with those obtained by the federal government 6. Andrew, Lyndon Johnson and the Great (Canto, et al., "The Revenue Effects of the Society, 196. Kennedy Tax Cuts", 72-103). 7. As for the budget of the War of Poverty, see 16. Crespo, A Reassessment of Aristotle’s Pear, “Poverty 1993”. For the supposed budget Economic Thought. of the War on Poverty, see Johnson, 17. Lippermann, “Today and Tomorrow”. “Conversation with Bill Moyers”. 18. The original bill, called the Full Employment 8. For the initial budget, see Public Papers of the Bill of 1945, was introduced in the House as President, Lyndon B. Johnson Library, 1966, I, H.R. 2202, and in the Senate (without change) 82-91. For the approved provision, see as S. 380. The bill mandated that the federal Demonstration Cities and Metropolitan government do everything in its authority to Development Act of 1966. achieve full employment, which was 9. For the antecedents of the Freedom Budget in established as a right guaranteed to the 1961, the new president of the National Urban American people. The further debate forced League, Whitney Young, proposed a Domestic the removal of the guarantee of full Marshall Plan. In 1964, Martin Luther King, employment. Assuring Full Employment in a Jr., suggested a GI Bill of Rights. Short of Free Competitive Economy (1945), p. 81. The policy details, the two plans set the stage for proposed legislation used the words “are the Freedom Budget. entitled to” rather than the word “right” but it is clear in the following subsection and in the 10. Quotes from A. Philip Randolph’s debates and hearings that the sponsors “Introduction”. intended to establish the opportunity to full- 11. Estimate and quote from A Freedom time employment as a basic right of all Budget for All Americans, 5-10. Americans. See Assuring Full Employment in a Free Competitive Economy. Report from the 12. Correspondence between Keyserling and Committee on Banking and Currency, 79 Rustin throughout 1966 suggests that the Cong., I Sess. (Government Printing Office, former completed the original almost single- September 1945) e.g. pp. 7—B and 71—80. handedly. Source: Letter Keyserling and Rustin, 9 February 1966, Bayard Rustin 19. Leon H. Keyserling, hearing before the Papers, 1942-1987, box 20, the Library of Committee of Finance, US Senate, Revenue Congress. As for the Freedom Budget, see A Act 1962, HR 10650, 6 February 1962, part 8, Freedom Budget for All Americans. As for the p. 3297. collective work, the plan received input from a 20. Keyserling’s commitment to full employment number of individuals, including Gerhart economics is confirmed by a short list of Colm, Herbert J. Gans, Woodrow Ginsburg, various acts and official publications, such as Nathaniel Goldfinger, Vivian Henderson, Tom Keyserling, “A Freedom Budget for All Kahn, and Leon Keyserling. Americans”; Keyserling, “Full Employment 13. The five percent figure came into Without Inflation”; Keyserling, “The prominence in the Rockefeller Brothers Fund Humphrey-Hawkins Bill”; Keyserling, “Goals report, later published as Prospect for America: for Full Employment”; Keyserling, “How to The Rockefeller Panel Reports (1961). The five Cut Unemployment to Four Percent”. percent was adopted by Keyserling’s long 21. Since the Truman era, Keyserling had been memorandum on economic growth policy a strong proponent of a complex receipt of within the Democratic Advisory Committee in social and defense spending, limited tax cut 1960. It was in the 1960 Democratic platform. and expanded federal insurance for Sources: Special Studies Project Records, 1956- unemployment. For example, in August 1960, Series D - Subpanel IV: U.S. Economic 1962 and January 1963, he invited the and Social Policy, Rockefeller Brothers Fund Kennedy administration to enact an Archives, 1941-1989, New York; Democratic immediate personal income tax cut of $7 Party Platform of 1960, 11 July 1960. billion concentrated in the lowest income 14. David Andrew Wallach, Harvard brackets, a $3 billion increase in federal University: Seminar in Black Intellectuals. The spending, and a liberalization of monetary Freedom Budget, 2003. policy by lowering interest rates. Source: Keyserling, “One Prescription For

Unemployment”, 10G, 56G-57G; Keyserling,

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 58 Available online at www.managementjournal.info “Statement of Keyserling”. On that occasion, expensive war and to hold down inflation. Keyserling declared that “the proposed tax See Sloan, “President Johnson”, 89-98. program is like a pygmy sent out to do a 30. As for Johnson decisions, see Public Papers giant’s job.” In 1969, Keyserling argued in of the President, 39-43, 72-77. The federal “Letter to the Editor” that “tax reduction deficit in 1966 was $3.7 billion (0.5% of its never cleared a slum, and tax reduction total GDP). In 1967, the deficit was $8.64 never increased a teacher’s salary.” billion (1% of its total GDP). In 1968, the 22. Keyserling claimed that the rising inflation last year of the Johnson administration, the was the result of a too slowly, rather than federal deficit was $25.2 billion (2.8% of its too rapidly, growing economy, “Keyserling to total GDP). Once added the government’s Johnson”. deficit of $3.7 billion to the total federal debt, the total debt at the end of 1966 was 23. By 1970, Keyserling was criticizing 42% of GDP. The total federal debt at the economic decision related to Vietnam. See end of 1967 and 1968 were respectively Keyserling, “The Economic Record”. 40.6% and 41% of GDP. Source: US Federal 24. Point taken from Wehrle, Budget 1966, 1967, and 1968. ''Guns, Butter, Leon Keyserling”, 730–48, 31. In “State of the Union Address”, Johnson esp. 730 and 740. Actually, Keyserling asked for a surcharge of six percent on both succeeded Edwin Nourse on the Council of corporate and individual income taxes—to Economic Advisers chairmanship in 1949 last for two years or for so long as the because he convinced Truman that no choice unusual expenditures associated with our had to be made between guns and butter. efforts in Vietnam continue." Congress did 25. Keyserling’s lack of faith in the Phillips not pass the tax until 1968, at which point curve, the increase in inflation was the price the legislation levying a tax also required a paid for lower unemployment, was not reduction in government expenditures. On heterodox per se. William McChesney 28 June 1968, Johnson signed the Revenue Martin Jr., Chairman of the Board of and Expenditure Control Act into law, with Governors of the Federal Reserve, its $10 billion tax increase and a $6 billion questioned whether there was a reliable spending reduction. Many Great Society trade-off between inflation and supporters were concerned that the unemployment. In his 1967 AEA spending reduction would threaten domestic Presidential address, Milton Friedman social programs. Nevertheless, Congress predicted the death of the Phillips Curve. was unable to cut the full $6 billion from the However, the skepticism of Keyseling was of budget, and the fiscal 1969 budget ended up a different nature than Martin’s and with a $3.2 billion surplus and intact Great Friedman’s. See McChesney, “Joint Society programs. Economic Committee”, 10-11; Milton 32. Martin Luther King Jr., “Beyond Vietnam. A Friedman, “The Role of Monetary Policy,” Time to Break Silence,” speech delivered 4 Presidential Address delivered at the April 1967, Riverside Church, New York Eightieth Annual Meeting of the American City. Economic Association, Washington D.C., 29 December 1967. 33. Cf. Michelmore, Tax and Spend, 72-95. 26. From A Freedom Budget for All Americans, 34. As for the GDP, see U.S. Department of 74-75. Commerce, Bureau of Economic Analysis, “National Income and Product Accounts,” 27. The expression "commercial Keynesianism" Table 1.1.6. As for unemployment, see U.S. was coined by Robert Lekachmen, The Ages Department of Labor, Bureau of Labor of Keynes, 287. The expression "military Statistics, “Labor Force Statistics from the Keynesianism" means massive defense Current Population Survey”. spending. 35. In the early years of the 1960s, prices were 28. For the strategy, see Johnson, “State of the relatively stable, rising at a very slow rate. Union Address”, especially the passage Between 1960 and 1965, the CPI rose 6.54 “This nation is flourishing.” For the percent with an average annual percent situation as for January 1966, see Public increase of approximately 1.14 percent. This Papers of the President, 47-68. The increase was particularly remarkable in light of the of $6.4 billion: $5.8 billion for Vietnam, $0.6 fact that the Kennedy Administration and billion for the Great Society. early Johnson administration had 29. Johnson’s economists recommended a tax implemented policies which were designed to increase to help pay for the increasingly stimulate economic growth and reduce unemployment. A stimulative tax cut was

Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 59 Available online at www.managementjournal.info proposed to President Kennedy, and then 41. For an exhaustive history of the central bank successfully implemented by the Johnson and monetary policy in Johnson’s era, see administration. In addition, the Federal Meltzer, A History of the Federal Reserve. Reserve resolved to maintain low interest 42. The "New Economics" of the 1960s attempted rates, and the Kennedy Administration put to maximize economic growth through "fine pressure on industry and unions to keep tuning," meaning that economists had price and wage increases to a minimum to progressed to the point where they could ensure that there would be no upward apply short term stimuli or dampen growth pressure on the general price level. so as to assure smooth progress, unmarked 36. Lyndon Johnson, Annual Message to the by severe recession or inflation. The New Congress on the State of the Union, 12 Economics propounded the notion that the January 1966. economy was liable to operate below its potential or full employment level so there 37. The Kennedy-Johnson tax cut was created by could be a case for intervention even during Walter Heller, chairman of the Council of upswings. Economic Advisors, in the summer of 1962, accepted by President Kennedy, and signed 43. Charles Schultze, Memorandum to the into law on 26 February 1964. It provided for President, “Great Expectations Vs. a cut of $14 billion in 1964 and $11 billion in Disappointments,” 7 November 1966, Lyndon 1965 and is considered responsible for the B. Johnson Library. In late 1966, Office of U.S. economic expansion in 1964. Economic Opportunity (OEO) Director (and Kennedy brother-in-law) Sargent Shriver 38. Board of Governors of the Federal Reserve contemplated resigning because of System. Annual Report (Washington, DC: differences with the President over funding 1965), 190; Board of Governors of the Federal levels for the War on Poverty and frustration Reserve System. Minutes (Washington, DC: over perceptions that his effectiveness had 16 November 1965), 22. diminished. 39. Martin, William McChesney Jr. Oral History. 44. Abram, “Oral History Interview I,” 20 March Missouri Historical Society. St. Louis: 8 May 1984, by Michael L. Gillette, Lyndon B. 1987, 9. Here is the excerpt: “He [President Johnson Library. Johnson] didn’t want any increase in rates and he wanted me to assure him that there 45. Abram also seems to imply that the wouldn’t be.” underlying fallacy of the Freedom Budget was that it assumed that federal government 40. For Johnson’s criticism, see New York Times, can concentrate on one major problem – 6 December 1965, p. 31. For Johnson’s poverty – without considering collateral, and misinterpretations, see Martin, William perhaps deleterious, side effects on other McChesney Jr. “Martin Papers,” as cited by issues. the Missouri Historical Society. St. Louis: 8 May 1987, pp. 1-2. Here is the excerpt: “I 46. In the entire war, the United States spent [Senator Richard Russell talking with about $173 billion. Source: Department of William McChesney Jr] had better Defense. information than the Treasury had…I went to the President, oh, I’d say four or five times Disclosure Statement and and laid them out to him.” At that time, the Acknowledgements President did not let the members of the Council or Treasury officials know the actual No potential conflict of interest was reported size of planned spending increases. Martin by the author. A preliminary partial version also learned that the budget estimates of this article was delivered as a paper at the understated the increase in defense spending International Summit on Civil and Human and that Johnson had suppressed the Rights, 28-30 October 2015, Kennesaw State planned increase. He knew also that contrary to standard practice, the Budget Bureau University. I am grateful to the organizers of would not discuss the budgetary projections the conference for the invitation to speak with him or his staff. and to the participants for their feedback. References 1 Andrew John A, Lyndon Johnson and the Side Economics: Theory and Evidence, edited Great Society. Chicago: I.R. Dee, 1998. by Victor A. Canto, Douglas H. Joines, and Arthur B. Laffer, 72-103. New York: Academic 2 Canto Victor A, Douglas H Joines, Robert I Press. Webb (1983) The Revenue Effects of the Kennedy Tax Cuts". In Foundations of Supply- Enrico Beltramini| Sep.-Oct. 2016 | Vol.5| Issue 5|50-61 60 Available online at www.managementjournal.info 3 Carter David C (2009) The Music Has Gone out 18 Keyserling Leon H (1969) Letter to the Editor”. of the Movement: Civil Rights and the Johnson New York Times. Administration, 1965-1968. Chapel Hill: 19 Keyserling Leon H (1962) One Prescription University of North Carolina Press. For Unemployment”, The New York Times, 4 Crespo Ricardo F (2014) A Reassessment of Magazine section, pp. 10G, 56G-57G. Aristotle’s Economic Thought. New York: 20 Keyserling Leon H (1963) Statement of Routledge. Keyserling. Conference of Economic Progress, 5 Dallek Robert (1998) Flawed Giant: Lyndon Washington D.C.. Johnson and His Times, 1961-1973. New York: 21 Keyserling Leon H (1970) The Economic Oxford University Press. Record, The New Republic. 6 D'Emilio John (2003) Lost Prophet: The Life 22 Keyserling Leon H (1977) The humphrey- and Times of Bayard Rustin. New York: Free hawkins bill full employment and balanced Press. growth act of. Washington, D.C.: Conference on 7 “Freedom Budget” for All Americans: Economic Progress, 1977. Budgeting Our Resources, 1966-1975, to 23 Kotz Nick (2005) Judgment Days: Lyndon Achieve Freedom from Want. New York: A. Baines Johnson, Martin Luther King, Jr., and Philip Randolph Institute, 1966. the Laws That Changed America. Boston: 8 Goodwin, Doris Kearns. Lyndon Johnson and Houghton Mifflin. the American Dream. New York: St Martin’s 24 Le Blanc Paul, Michael D Yates (2013) A Griffin, 1991 (1st edition 1976). Freedom Budget for All Americans: 9 Heller Walter W (1977) Statement, in The 1977 Recapturing the Promise of the Civil Rights Economic Report of the President, 161. Joint Movement in the Struggle for Economic Justice Economic Committee, U.S. Congress, 95th Today. New York: Monthly Review Press. Congress,. Washington: U.S. Government 25 Lekachman Robert (1966) The Ages Printing Office. of Keynes. New York: McGraw-Hill. 10 Johnson Lyndon B (1966) Conversation with 26 Lippermann Walter (1964) Today and Bill Moyers on Sargent Shriver, Politics, and Tomorrow. New York Herald Tribune. the War on Poverty. 26 December 1966, White House Tapes, Lyndon B. Johnson Library, 27 McChesney Martin, William (1963) Testimony, Austin. Joint Economic Committee. In Records, 10-11. Washington, DC: Board of Governors of the 11 Johnson, Lyndon B (1971) The Vintage Point: Federal Reserve System, 1 February. Perspectives of the Presidency, 1963-1969. New York: Holt, Rinehart and Winston. 28 Meltzer Allan H (2010) A History of the Federal Reserve Vol. 2, Book 1, 1951-1969. 12 Keyserling, Leon H (1966) A Freedom Budget Chicago: University of Chicago Press. for All Americans”. Washington, D.C.: Conference on Economic Progress, 1966. 29 Michelmore Molly C (2012) Tax and Spend. The Welfare State, Tax Politics, and the Limits 13 Keyserling, Leon H (1975) Full Employment of American Liberalism. Philadelphia: without Inflation”. Washington, D.C.: University of Pennsylvania Press. Conference on Economic Progress, 1975. 30 Pear Robert (1993) Poverty Bigger, Deeper, 14 Keyserling, Leon H (1978) Goals for Full Younger, Getting Worse. New York Times, 10 Employment and How to Achieve Them Under October 1993. the ‘Full Employment and Balanced Growth Act of 1978’”Washington, D.C.: Conference on 31 Sloan John W (1985) President Johnson, The Economic Progress, . council of economic advisers, and the failure to raise taxes in 1966 and 1967. Presidential 15 Keyserling, Leon H (1962) Hearing before the Studies Quarterly, 15(1):89-98. Committee of Finance”. US Senate, Revenue Act 1962, HR 10650, part 8, 3297. 32 Wehrle Edmund F (2004) Guns, Butter, Leon Keyserling, the AFL-CIO, and the Fate of Full- 16 Keyserling Leon H (1983) How to Cut Employment Economics”. Historian 6(4):730- Unemployment to Four Percent and End 48. Inflation and Deficits by 1987. Washington, D.C.: Conference on Economic Progress. 17 Keyserling Leon H Keyserling to Johnson”. 25 November 1966, box 119, White House Central Files, Name Files, Lyndon B. Johnson Library.

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