The US Government involvement in economy after the World War II
The European settlements of the seventeenth and eighteenth centuries formed the foundation of the US economy. Industrialization triggered economic growth throughout the nineteenth century. When US government got involved in the World War II, it had achieved economic progress. The 1930s Great Depression had proved to be the most serious threat to economic growth .In order to maintain economic growth during the war period, the US government was directly involved in the efforts to increase economic growth. The tax system is expected to ensure that there are adequate financial resources available to fund government programs .This factor was a key player in the Allies and US victory in the war. After the war ended, the US had managed to maintain a better and stable economy as compared to other countries that had been engaged in the war. If the government had failed to this active role in economy, the US would have fallen back to a great depression similar to the one that had been experienced in the 1930s. It was very important for the US government to build an economy through taxation, regulation, expansion of major corporations and development of new projects that would support a strong economy. This paper will evaluate the importance of US government direct involvement in the economy after the World War II in economic growth.
Discussion
During the World War II which began in 1941, the US was an important and powerful member of the Allies forces. As a result, the US government agencies had increased staff and budget levels with the aim of supporting war activities. The government direct involvement in the war ensured that adequate financial resources resulted to the Allies victory when the war ended. Political changes within America during the war allowed the government to maintain some influence on the economy even after the war. During the war, increased patriotism had many Americans favor lowered production of consumer goods. They therefore supported civil and blackout defense drills characterized by the recycling of paper, metal, cooking fat. Furthermore, the peoples willingness to work for longer hours had domestic changes favour economic growth after the war. The federal government call for the people to conserve and recycle influenced spending after the war. For instance, lots of household trash was considered to be of great value.
The cutting back on consumer goods and food stuffs made sure that the lowered consumer production. For instance, ration cards were used to purchase items such as coffee, sugar, gasoline meat. The frustration created by rationing became beneficial to the economy after the war. The return of industries to consumer production after the war had the Americans go on a spending spree to utilize accumulated savings. In the post war years, growth in US economy was encouraged by the government involvement in the economy through the regulation and generation of government revenue to fund development programs and projects. Due to the ability of the government to maintain a stable economy during the war, the US public after the war ended believed strongly on the ability of the government to increase economic growth and build a stronger economy.
The ability of the American government to maintain a tax regime whereby an unusually high level of compliance was achieved played a critical role in economic growth after the World War II. This allowed the expansion of the government role in the economy whereby the revenue collected funded numerous development projects and maintained economic stability. The long term legacy of the government in increasing economic growth led to the expansion of the tax revenue machine and high levels of investment which were vital for economic growth. The war had created national emergencies that led to public finance reforms and just like during the Great Depression and the World War I, decisive presidential leadership during the World War II contributed to the creation of a new tax regime. The architects of national mobilization in the US had made taxation part of their strategy to persuade the citizens to accept the sacrifice of paying high taxes. The development of a tax program aimed at convincing the large number of tax payers that their contributions to the government revenue were fair and critical for the economy. Consequently, the tax system became a symbolic function that expressed the goals of the US federal government and the progressive tax measures that were adopted focused on the taxation of a larger base of wages and salaries to avoid a post-war economic depression or crisis. The federal government ability to capitalize effectively on economic expansion then can be attributed to the availability of various government tax options. The World War II tax system remained to be the core of federal finance after the war ended hence public support for tax reforms was considered important.
The institutional framework that was put into place allowed proactive manipulation of the federal budget to increase economic growth and stability. The government supported adequate funding for BIR which included punishing employers who failed to withhold taxes. The government revenue agents were expected to enforce tax regime rules by examining the bank accounts, government payments and store accounts to make sure that all citizens who were expected to pay taxes did so without dodging. For instance, the Treasury and the BIR increased efforts to audit individuals so that tax dodgers who the Commissioner of Internal Revenue George Schoeneman referred to as a target group of otherwise respectable individuals feared punishment as well as the possibility of being apprehended if they avoided paying taxes.Before and during the World War II, the US Treasury had used propaganda to stress on the need for citizens to maintain patriotic values by paying taxes. However, after the war ended, it became necessary for the Treasury to adopt a new strategy. The Treasury adopted a new strategy that involved encouraging and coercing citizens to comply with tax laws through threats. For example, the Treasury used the US mass media to deliver threats to the people who failed to pay taxes while at the same time emphasizing on the importance of compliance to economic growth. As a result, the government was able to encourage economic growth by achieving an unusually high level of tax payer compliance. This strategy became very effective for the Treasury to achieve the high levels of compliance through the political popularity of the individual income tax .In addition, the threats that were issued and punishment for defaulters had many tax paying citizens fear the actions of the Bureau of Internal Revenue if they failed to comply.
Eventually, the tax policy became a tool for the government to stabilize macro economic activity. As a result, the US economy continued to experience frequent bust and boom cycles. Many policy makers supported and accepted the economic policy of lowering and raising taxes as well regulating spending because it ensured that there was adjusted aggregate demand that in turn led to smooth running of business enterprises. Before the US entered the Second World War, the passing of legislation to increase revenue in 1940 led to an increase in corporate and individual taxes. The US government concerns about economic progress after the war focused on generating revenue through effective implementation of tax laws. The Bureau of Internal Revenue was expected to ensure that adequate financial resources were available for use by the government. The need to improve the work of the Bureau of Internal Revenue had the government in 1953 rename it to become the internal revenue service. (IRS). This led to the reorganization and improvement of the functions of the Bureau of Internal Revenue. By 1959, the IRS had been transformed into the worlds largest revenue collection and accounting organization. The efforts to improve its service to the American tax payers, to streamline its work and automate its functions, the Internal Revenue Service introduced the use of computers. This made the government tax policy a tool for generating revenue and changing incentives in the economy throughout the 1950s.For example, the expansion of the social security and Medicare to provide for the dependents of disabled workers and the aged (65 and above) led to a payroll tax rate increase from 2 to 5 per cent between 1949 and 1962 .
The American government tax regime after the World War II was supported by the need to increase economic growth and address the issue of inflation. Economic growth and persistent inflation had proved to be instrumental in extending the life of the tax regime that the US government had adopted during the war long after the war ended. For instance, in the late 1940s, inflation had peaked. Although it was lowered in the 1950s, it increased again in the 1960s throughout to the 1970s. Unprecedented proportions in federal government financing were achieved when the inflation reduced the value of outstanding debt. In addition, inflation produced the bracket creep. This referred to the pushing of family members into higher tax brackets at a much faster rate than the rate of increase in real incomes. This made the income tax rates structure to become more progressive at higher income levels. As a result, the failure of the government to increase personal exemption even as prices rose had many low-income families pushed into the tax system. By 1980s, the proportion of the US labor force paying taxes had increased to about 75 per cent from about 60 per cent level which was recorded at the end of the World War II .Due to economic growth and government role in the tax regime, the individual income tax revenues by 1980 were estimated to be nearly four times as large as the corporate revenues. The unanticipated inflation had made the revenue system more elastic after inflation together with economic growth had allowed the federal government to respond positively to the needs and requests for new economic programs without necessarily enacting tax increase that would be politically damaging. It was the highly elastic US revenue system and high tax compliance that catered for the funding of Cold War strategic defense programs as well as the Vietnam and Korean wars without permanent income taxation increases or economy falling into a depression.
The post World War II increases in Federal revenue financed the expansion of US domestic projects and programs that were developed and implemented to increase economic and social development. For example, new education programs were developed to provide knowledge and skills to many Americans related to various sectors of economic development. Education institutions offered basic and higher education to provide highly qualified professionals who would increase productivity in businesses, industries and major US corporations. These Welfare programs were implemented to provide financial assistance to the unemployed or the poor. This aimed at improving the living standards of the people.Furthermore, urban development projects were in top gear after the war. The projects increased private sector growth and investment due to improved social and economic development in the urban centres.Industries around the centers became successful because raw materials were available and consumer spending boom created a good market for the products. Manufacturing industries and corporations experienced growth in production and profits. The health of the Americans was a great concern for the government hence efforts to provide good health care services were put into place. Health centers such as hospitals were built and well equipped to improve health care services. The government support for these new projects was made possible by the revenue that was channeled to the local and the state governments through the revenue sharing and grants-in-aid methods. The US federal government expanded intergovernmental support for development programs and projects whereby revenue sharing where federal subsidies were given to the local and state governments were given without programmatic strings attached .Over time, the US government financial support for local and state governments kept on increasing. As a result, more that 20 per cent of local and state revenues by 1974 were estimated to emanate from the federal aid. This was considered to be a form of tax relief to the local and state governments. Tax expenditures allowed the US Congress to maintain a tax regime that increased government revenue. This is because the use of patriotism to encourage tax compliance in the US after the war declined as compared to the period during the war. The need to maintain compliance had the regime enhanced through an increase in tax expenditures, introduction of income-splitting joint return for wives and husbands as well as the acceptance of community-property status. This enabled the Congress to enhance the tax regime legitimacy. Lack of projects and programs to stimulate economic development would have made it difficult for the government to encourage economic progress, an ingredient that was vital in preventing the US economy from getting into a recession.
Americas public confidence in the US government role in maintaining economic growth after the war through proper regulation measures was evident. There was need for the government to ensure that the war had minimal negative impact on the economy and society. For example, the government supported regulations that increased competition and growth in economy hence large trade surplus benefited the economy. Industrial commodities generated government revenue through exports to foreign markets, especially those in Europe and Asia. Government regulations promoted fair competition and discouraged the growth of monopolies to a level where upcoming industries would find it difficult to survive in the corporate world. The US capitalist economy had laws and regulations that encourage supported competition between business enterprises or companies adopted. For instance, the establishment of the Federal Trade Commission and the Antitrust Division of the Federal Trade Commission was meant to prevent a decline in competition to a level where consumers would suffer as a result of merging of enterprises or potential monopolies. For example, the combination of firms with large market shares was considered to be anti competitive for smaller companies.
The federal government had the overall responsibility of guiding the economic activity by maintaining price stability, high levels of employment and steady economic growth. This was achieved through the adjustment of spending and tax rates (fiscal policy) as well as control of credit use and management of money supply (monetary policy). This was anticipated to speed up the rate of economic growth in the US. For example, the Employment Act of 1946 was a formal commitment by the federal government in the implementation of the fiscal policy. The Act captured three important elements of fiscal policy. One of the elements was the emphasis on the federal government central responsibility to manage levels of employment in the country. The second element was the creation of the Council of Economic Advisors which was given the responsibility to develop an annual published report referred to as the Economic Report of the President. The third element of the Employment Act of 1946 was that it embodied the central objective of the New Deal so that human values were embraced as the context for evaluating and setting the fiscal policy. The implementation of this policy allowed the federal government to be actively engaged in economy-related issues. The government recognized its role in economic affairs hence the enactment of the 1946 Employment act became an important way of stimulating economic growth. The Act aimed at promoting maximum production in industries, increased employment and purchasing power. This legislation allowed the federal government to coordinate and utilize its functions, plans and resources to foster and maintain useful employment opportunities, increase real income, balance growth, give proper attention to the national priorities, ensure adequate productivity growth and balance the federal budget. All these were expected to be achieved through cooperation with state and local governments, and business enterprises.
The government supported a technologically advanced society due to its role in promoting economic growth through industrialization, growth in the private sector and increased agricultural production. For example, the US government boosted an increase in agricultural production through the consolidation of small farms into large agricultural enterprises, introduction of modern farming methods, introduction of machinery and availability of farm inputs to the farmers. As a result, the government therefore allocated funds in research and development so that improvement in industrial and agricultural production would be made based on analysis provided in research and development projects. When it was necessary, the government encouraged the use of foreign technology to boost economic growth. This was facilitated by trade relations between the US government and other countries. Together with urbanization, the creation of a technological and urban society boosted economic growth. Research and development equipped the government with technology that would be able to counter security threats and potential military attacks from rival nations in future.
The expansive system of Social Security adopted by the government played a central role in economic growth. With bipartisan agreement and little public debate, the US federal government embraced a policy that steadily raised the Social Security tax rates. It was President Roosevelts institutional legacy that made the Social Security system proponents to be successful in raising taxes after the war. This is because the strategy of having tax revenues ear marked for the Social Security was able to overcome the pluralist hostility towards tax increases. The expansion of Social Security was also encouraged by a policy network that had been formed by the government social security experts. For instance, professionals in the Social Security Administration such as Robert Ball, Arthur Altmeyer and Wilbur Cohen provided intellectual contributions and analytical understanding of the Social Security in the government. These professionals also acted as policy entrepreneurs and were therefore able to create a network of allies within and beyond the government. This network attracted support from some members of the public too. This Social Security Crowd that was created was bale to defend the Social Security System against political threats. These threats included the criticism from the Keynesian economists who did not support the accumulation of funds arguing that it was deflationary. The Social Security Network advanced programs that supported economic growth. For example, in 1950, the network engineered the expansion of social security coverage to include the self-employed individuals in the payroll taxation. This was followed by strong Congressional and bipartisan support. The increase in tax base and the high tax rates boosted the Social Security revenues, resulting to dramatic and steady economic growth. The payroll taxation produced great per capita levels of tax revenues. It is estimated that the social security taxes in the late 1940s accounted for only one per cent of the Gross National Product.However, by the late 1970s, the taxes had risen by more than 7 per cent. This kind of funding led to increased social security payment from about 472 million in 1946 to about 105 billion in 1979.This was about 4.3 per cent of the Gross National Product.
The Marshall Plan economic aid and financial assistance that the US government offered to the European nations after the war had economic benefits to the US. The European countries had been adversely affected by the war hence the US government through the Plan offered financial and technical assistance to Western European countries. The plan maintained the Europes market for US commodities.The long term and short term impact of the programs that were implemented under the plan was beneficial to the US. The Marshall plan was also referred to as the European Recovery Program(ERP) reconstruction plan was developed and established in 1947.The World War II had adverse economic effects on the countries. The economic assistance that was estimated to amount to about 13 billion proved to have great economic benefits to the US after Europe recovered from the economic crisis. Because the Marshall Plan was an element of European Integration, it played a very critical role in eliminating trade barriers and setting up institutions that could coordinate economic issues. This stimulated political reconstruction of Western Europe and encouraged good relations with countries they had earlier being at logger heads .The consumer spending in the US that was witnessed after the war led to increased industrial and consumer goods production. Some of the commodities such as fuel and food were supplied to the European nations. The Marshall Plan financial and technical assistance facilitated the purchase of raw materials from US hence the US economy benefited from the financial returns generated from exports to Europe. The European nations had their foreign exchange reserves exhausted during the war. Hence financial aid from the Marshall Plan acted as a means of importing goods. Although earlier exports of food and fuel were high, equipment for reconstruction was also supplied. Reindustrialization of European nations was expected to have positive impact on US economy .Fast economic growth in Europe was witnessed between 1948 and 1952and the industrial and agricultural production increase enabled Europe to embark on economic growth. Although there is controversy to which the Marshall Plan contributed to Europes economic recovery, the US government support for Europe had short term and long term economic benefits to the US economy after the flourishing of European economies. This had positive impact on US-Europe trade relations. The commodities from the US were shipped across the Atlantic using American merchant vessels.Furthermore,the coming together of European nations as a single economic unit increased foreign trade nations between the US and Europe. Over time, economic growth enabled the US government to offer aid to African nations and establish relations with nations that served Americas strategic goals .The growth of American economy promoted the diversification of and expansion of major corporation within and beyond the US .In addition, the expansion of the global economy after the war increased worldwide diversification in business. The expansion of US corporations and multinationals were attributed to the support of US government policy, a strong domestic economy and the growth of the global economy. Economic prosperity in foreign nations had the US multinational corporations invest overseas. This increased foreign activity of US corporations. For instance, it is estimated that by 1970, the expansion of US corporations had about 3,500 US companies make direct foreign investment in about 15,000 enterprises. The total amount of these investments in1970 reached 78.2 billion. This increase in foreign investment kept pace with the American economic expansion. Numerous US multinational manufacturing companies attracted investment funds and those that invested abroad often dealt with technology related products and unique products such as office and electrical equipment .Both domestic and foreign investments made by the companies aimed at expanding the companies market share in various markets. During the prewar periods, the US government and the corporations had realized that market share could not be achieved through increased exports only. The availability of cheap foreign labor made foreign investment by the US multinationals attractive and more cost efficient.However, business environment in foreign nations before and after the war differed. In the early 1920s, US multinationals had been required to adapt and respect customs and regulations in countries that they invested in for them to conduct business there. However, this changed after the World War II.Independence movements in Middle East, Latin America, Asia and Africa had the political and social environment in these countries rearranged and as a result, US corporations had to enter into partnership agreements with nationalistic governments that had been newly created if they desired to continue doing business in the foreign countries. For instance, US oil companies were able to reduce and replace the domination of British companies in the Middle East after the war. The involvement of the corporations in oil production had positive impact on the US. The companies were in a good position to meet the fuel needs of the US by facilitating trade with nations such as Saudi Arabia. The companies were able to make partnership arrangements with numerous Middle Eastern governments in the late 1960s and 1970s.The US multinationals tried to alter their management structures to adapt to the world wide changes that were being witnessed. The US corporations that been set up in 1920s set up foreign companies that evolved into international divisions within parent corporations after the war. This led to the establishment of new international divisions by 1950s.
During the 1950s and 1960s, US multinational corporations adopted cosmopolitan, global or worldwide management structures. The top management in the companies became more engaged in worldwide operations despite the fact that US multinationals continued to grow in the 1970s though at a slower pace than in 1950s and 1960s.This was attributed to the restrictions that assertive national governments imposed on the multinationals through taxes .The proponents of foreign investment by US companies argued that the companies had positive impact on US economic growth because they eased the balance of payment problems through the creation of foreign markets for US foods when the American subsidiaries located abroad became large purchasers of US commodities. The multinationals provided the US with access to advanced foreign technology and this made the US economy more competitive in the global economy by adopting modern technology that increased productivity and efficiency and lowered the cost of production. Some economic analysts also asserted that multinationals acted as instruments of the US government foreign policy in countries they were working in. These companies defended the interests of the US government in foreign nations and prevented the monopoly of other companies over key raw materials such as bauxite, oil, iron ore and uranium. The success and expansion of US corporations no doubt paved way for more economic growth in years that followed .However, domestic critics of the US multinationals investment in foreign nations argued that the companies injured the economy through capital outflow for foreign direct investment that hurt the US balance of payments.Furthermore,they considered constructing plants in foreign countries as a way of reducing the US exports, increasing imports and contributing to brain drain when the trained personnel required at home ended up overseas. The US government worked together with corporations in efforts to boost the securities market. For example, manufacturing corporations became the suppliers of funds to the US government securities market. Between December 31, 1946 and 1955, large manufacturing corporations became the net suppliers of about 6.3 billion funds to the US government securities market. Although the corporations had their funds withdrawn from the government securities market in 1952 and 1954, they became purchasers of government securities. As a result, they were important net suppliers of funds to financial markets. In 1955, about two hundred manufacturing corporations represented in the Federal Reserve Board tabulation of sources as well as corporate funds through purchases of government securities released about 2.5 billion. The positive impact of corporations in the US strengthened Americas industrial sector and boosted trade between the US and other nations, transforming America into the worlds largest economy.
The government boosted consumer and business confidence during the post war years and had price and wage controls terminated. The US government after the word war II sought to strengthen the economy by fostering rapid growth in money supply to encourage spending and support for a sound fiscal policy to address concerns about the negative impact of inflation on the economy. The US government was actively involved in the revival of a pattern of positive technological change, high levels of investment and productivity growth. During the war, the strengthening of the government, development capabilities and corporate research maintained economic progress. This resulted to a high level of new investment as well as productivity growth between 1945 and 1969 due to rise in real incomes. Expansion of education and training programs led to improvement in skills while low primary product prices led to a supply of cheap resources and moderate inflation rates. Despite the economic recessions that were witnessed between 1953-54,1957-58,1960-61 and 1970,the real national income between 1948 and 1973 increased by about 3.7 per cent per year . The 1960s economic boom reduced unemployment levels. In the 1950s and 1960s, unemployment and inflation levels were modest as compared to those experienced in 1970s. The twin forces of consumption and private sector investment influenced the economic activity of between 1945 and 1960.The government had economic growth concentrated in automobile, housing and consumer durables sectors. This revived key areas that had increased economic prosperity in the 1920s.The World War II had created economic conditions favorable for high consumption levels and accumulation of savings. For example, it is estimated that personal savings between 1941 and 1945 averaged 21 per cent of personal disposable income .These factors had positive impact on post war economy. US economic growth after the World War II led to the expansion of white-collar employment especially in salaried jobs. Direct influences included tax deductions on mortgage debt. The end of the war led to a high demand in housing because war time migrations had led to suppressed demand. This had the number of new housing increase over time. Two factors, the rising real incomes and population growth, demand for goods were maintained. Federal policies supported the housing boom experienced after the war. For instance, between 1945 and 1951, US Treasury compelled the Federal Reserve to have low interest rates maintained in order to have the value of Treasury bonds maintained.
Conclusion
The US government was directly involved in the economy during the World War II.This aimed at ensuring that industries and companies developed and produced products that supported the war. This enabled the US government to influence the outcome of the war in Allies favor. After the war, the government did not stop reforms in the economy. The need to strengthen the economy had the US government directly involved in the rebuilding of the economy. Enactment of a good tax policy, regulation and expansion of corporations were some of the major ways through which the government maintained an active role in economic growth. Establishment of new projects and programs by the government after the World War II aimed at increasing economic growth and enabling the government to prevent slow economic growth or having the economy enter into a recession. The failure of the government to do this would have pushed the economy into Great depression.
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