How the Dream of the Great Society Became a Nightmare

A new book about the Great Society should give significant pause to today’s advocates for more government intervention in the economy.

The late 1960s and early 1970s were not a happy time for America. The United States of the postwar years had believed that there was no problem that it couldn’t solve. But this self-confidence later gave way in the face of America’s rising political dysfunctionality, unemployment, stagflation, cultural pessimism, and worries that it was losing its edge in the Cold War.

The sixties and seventies were also decades in which some very bright people, overseen by Democratic and Republican politicians, expanded the government’s intervention in America’s economy. Such individuals were convinced that, if the federal government were given enough resources, it could take America to the next economic stage. Their goal, as President Lyndon Johnson stated in his 1964 State of the Union Address, was “not only to relieve the symptom of poverty, but to cure it.” This was the core ambition behind what Johnson called “the Great Society.”

Amity Shlaes’s new book, Great Society: A New History, explains how Johnson’s dream became a nightmare, and the ways in which politicians, unionists, business leaders, and, above all, experts contributed to America’s nationwide economic decline and growing social chaos. The newness of Shlaes’s account does not lie in its demonstration of the failures of these programs (which began during the Kennedy Administration, became the domestic centerpiece of Johnson’s presidency, and continued under Richard Nixon). Rather, Shlaes’s contribution is to identify the deeper reasons for the failures.

Beware the Experts

Shlaes focuses on the individuals who played a major role in designing and rolling out the Great Society programs. As in her highly effective 2007 book, The Forgotten Man: A New History of the Great Depression, she takes us beyond the statistics to explain why people made decisions that ended up hurting many of those whom they had wanted to help.

Some of these policymakers, such as Daniel Patrick Moynihan, remain relatively well-known. Others, however, are less familiar to contemporary audiences: they include, among others, Sargent Shriver, President Kennedy’s brother-in-law and Johnson’s poverty czar; Walter Reuther of the United Auto Workers Union; George Romney, Governor of Michigan and later Secretary of Housing and Urban Development; and Arthur Burns, Chairman of the Federal Reserve.

According to Shlaes, such individuals played “large roles in supporting federal expansion—far greater than traditional histories suggest.” They were the equivalents in domestic policy of those charged with winning the Vietnam War, whom David Halberstam famously called “The Best and the Brightest.” Just as figures in foreign policy, like Defense Secretary Robert McNamara, continued to follow strategies even when they failed to attain expected outcomes, so too did experts in domestic affairs persist with policies that were generally counterproductive.

It is not that these people were ill-intentioned: Shlaes shows that most really did care about poverty. Nevertheless, they were caught up in the postwar Keynesian consensus, which held that government programs, run by people like themselves, could significantly improve economic conditions for the less well-off.

Some of these individuals, according to Shlaes, did start to question the logic that underlay many Great Society programs. Moynihan, for instance, recognized the unintended negative consequences for poor families—especially black families—of the massive expansion of government assistance programs. He tried to adjust course when he served in the Nixon Administration, but discovered that this was easier said than done.

Unfortunately, the more common reaction of policymakers to signs of failure was to expand Great Society programs and to throw more money into them. This not only exacerbated the rapidly metastasizing problems, it also helped create large bureaucratic constituencies, especially in Washington, D.C. By the 1970s, Shlaes points out, many of those who worked in these offices had become far more concerned with retaining their government jobs than with helping those in need.

Contrary Voices

That’s not to say that the Great Society at its zenith lacked critics. Shlaes identifies several opponents, ranging from an actor-turned-politician named Ronald Reagan to the author and urban development activist Jane Jacobs.

It’s no secret that Reagan owed his prominence to his ability to articulate an attractive, market-oriented alternative to the Great Society’s government-first economic initiatives. But Shlaes also showcases Reagan as one of the first conservative politicians to see how mistaken economic policies encouraged dysfunctional politics, and vice-versa.

As Governor of California, for example, Reagan realized that activist lawyers were invoking the language of rights to push the judiciary to enable more government intervention into the economy. This, Reagan saw, was a de facto usurpation of the responsibilities of the legislature and the executive. In that respect, the actor was ahead of most conservatives in understanding the unhealthy interplay between interventionist economic policies and the rights-talk that dominates politics today.

Jane Jacobs’s politics were somewhat different from Reagan’s. Yet she became the most prominent opponent of various urban renewal schemes that were implemented under the Great Society’s auspices. Long before it became fashionable to do so, Jacobs showed how clearing neighborhoods labelled as “slums,” and replacing them with neo-Stalinist-like public housing, actually destroyed vibrant and hospitable ethnic communities. Jacobs subsequently became deeply unpopular with the urban planning professionals and architects who liked government contracts, as well as with Great Society bureaucrats who were imbued with the spirit of social engineering. That unpopularity, however, didn’t make her any less right.

Desiring Social Democracy and Living Corporatism

Shlaes underlines that many who supported and implemented the Great Society held a certain belief in common: that Western European nations had shown how widespread economic interventionism—whether in the form of large welfare states or the extensive use of industrial policy—was the future. The economic models of Sweden and similar countries fascinated individuals like Walter Reuther. Why, they thought, could America not take a similarly enlightened approach?

Shlaes goes to considerable lengths to demonstrate that the desire to realize social democracy was more widespread in America than many have realized. In the realms of ideas, public opinion, and policy, Great Society advocates like Reuther and Shriver were pushing at an open door.

The impact of these trends was further exacerbated by another factor that emerges in the background to Shlaes’s narrative: that by the 1950s, the American economy had become very corporatist. The alliance of Big Government, Big Business, and Big Unions, arranging matters between themselves, was far more active in major economic sectors than many have previously understood.

This was especially true of manufacturing. The regulatory environment (except in some right-to-work states) legally constrained companies from making the difficult but sometimes necessary decisions that all business leaders must make at some point. Automobile executives therefore considered it entirely natural to sit down with union leaders like Reuther to negotiate wages and conditions.

The corporatist mindset tended to blind American business leaders and union bosses to the reality that no amount of regulation or intervention could stave off the impact of growing competition from abroad. In fact, corporatist culture both hampered their ability to adjust expectations and encouraged them to look to regulators and the federal government to protect them. The results were an increasingly inefficient American economy and rising unemployment from the late 1960s onward.

Reality Bites

By the early 1970s, the Great Society’s negative effects were becoming ever more evident. It turns out, Shlaes emphasizes, that foreigners were very attuned to what was happening. They could read a balance sheet, and saw that the U.S. government’s ever accelerating spending on domestic programs was not producing the anticipated results. In the late 1960s, countries like France and West Germany began redeeming their U.S. dollar holdings for gold, signaling their declining confidence in America’s economic future.

But perhaps the most depressing sections of Shlaes’s book concern the inept reactions of American politicians and policy-experts to mounting indications of the Great Society’s failures in the 1970s. For the most part, they didn’t seek to address the deeper economic malaises at work, let alone question the thinking that facilitated these problems. Instead, they punted. A good example was President Nixon’s decision—supported by most of his ostensibly free-market economic advisors—to abandon the link between gold and the U.S. dollar on August 15, 1971, in order to “fix” the problem of foreign governments’ exchanging dollars for gold.

The Bretton-Woods gold exchange standard had been the lynchpin of the postwar international monetary system. It was also a potent symbol of postwar America’s unique geopolitical status. But what was meant to be a temporary suspension of the dollar–gold link became a permanent fixture of American economic life. Inflation and deficit-spending subsequently worsened in the 1970s. More consequentially, we were bequeathed with the fiat-money world in which we live today.

Just as Shlaes’s Forgotten Man brought upon her the wrath of FDR devotees and New Deal defenders, her Great Society will attract fierce criticism from those who resent any questioning of the results of 1960s idealism and its driving philosophies. But it also won’t make her popular today with those on the left and the right—perhaps especially those on the right—who are calling for yet more government tinkering with the economy via means such as industrial policy—policy that is to be guided, of course, by experts.

Shlaes’s book reminds us of the unintended consequences of going down such paths. We can only hope that it will cause those who are willing to absorb history’s lessons to hesitate, before they repeat, yet again, the mistakes of the past.

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