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The Great Society, Reconsidered

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The Great Society, Reconsidered

10 Blocks podcast December 11, 2019
Economy, finance, and budgets
Politics and law

Amity Shlaes discusses the economic history of the 1960s and the efforts of Presidents Johnson and Nixon to eradicate poverty—the subjects of her just-published book, Great Society: A New History.

The 1960s were a momentous period, from the Civil Rights Movement to the Vietnam War, but Shlaes’s book focuses on the incredibly ambitious government programs of the era, which expanded the social safety net beyond anything contemplated before. Overall, the Great Society programs, Shlaes writes, came “close enough to socialism to cause economic tragedy.” Great Society is a powerful follow-up to her earlier book, The Forgotten Man, about the Great Depression and the 1930s.

Audio Transcript

Brian Anderson: Welcome back to the 10 Blocks podcast. This is Brian Anderson, the editor of City Journal.

Coming up on the show today, you’ll hear from Amity Shlaes delivering a talk at a Manhattan Institute event where she discussed her latest book, called Great Society: A New History. It’s published by Harper Books—you can find a link to it in the description, or you can find it on Amazon or wherever books are sold.

Amity Shlaes is the chair of the Calvin Coolidge Presidential Foundation and a scholar at The King’s College in New York. She’s also the chair of the Manhattan Institute’s Hayek Book Prize, a yearly award that goes to the book whose ideas best reflects Hayek’s vision of economic and individual liberty.

Amity is the author of a number of bestselling books, perhaps most famously, The Forgotten Man—a history of the 1930s and the Great Depression.

This time, this new book, Great Society, focuses on the 1960s—a period of remarkable drama, with the Civil Rights Movement and Vietnam War, and also a massive shift in the role of government in society.

Amity’s book provides a detailed account of how our nation’s political leaders sought to eliminate poverty by expanding the federal safety net dramatically— which had the unintended consequence of trapping millions in long-term government dependency.

It’s an important story for our time, and I hope our listeners will enjoy it.

Again, the book is called Great Society—we’ll have a link in the description or you can find it wherever books are sold.

That’s it for the introduction, after the music the next voice you’ll hear is Amity Shlaes. Thank you.

Amity Shlaes: The first sentence of the book is a question. Why not socialism? This is a question we asked ourselves last night when we watched the presidential debate. How do we answer it? It's a question all centrists, all common-sense people, all markets people want to be able to deliver an answer to.

We all really feel an obligation to undertake the long-term investment in projects that would open American minds, so that American minds see the challenge and the tragedy of socialism. We want to share the record of the past, or the record of Venezuela, so that when they come to vote or lead businesses and families, younger Americans recognize what is not useful policy.

But, where are we? It's November in 2019. Educating is a long-term investment. Some of us don't have the heart for the long haul. We feel frustrated at the prospect of slow outcomes and perhaps outright failure in our intellectual entrepreneurship. Politics are much more fun and instant gratification. All of us have some vanity. People remember politicians. They do not always remember educators. So, we tend to, we, journalists, business people, philanthropists, scholars, we want to be remembered too and sometimes we pick short-term projects for that reason.

So tonight, I'd like to tell you a story of a really long-term project, a crazy project. This is a story which starts in the 1950s, features a company, a man and the American public. Those are the three characters. It is indeed a story of a failing long-term project of humiliation, of business shame and intellectual failure, no way around it. But the story, which ends in the 1980s, also reveals an unexpected payback, a success. Some of you may know the characters, but might appreciate hearing about them one more time. The name of the company was General Electric.

In the 1950s, General Electric rode high. Its factories in New York, Massachusetts and Connecticut employed many thousands. It was the industrial center in some ways. Every year Americans bought more TVs, more radios, or more freezers. GE was not just a company, it was an icon. It served the Space Program and the Tennessee Valley Authority. Americans trusted General Electric, just like it was said, just as they trusted the game of baseball, a good company that follows rules, the essence.

As you know, the Soviets in 1959 invited the US to create a display about progress at Moscow at Sokolniki Park. America sent several modern kitchens, and the lemon yellow one was General Electric's.

Most GE executives at the time, again, we're talking about the late '50s, like execs at most companies at that time had a set view of how capitalism worked. The private sector was invincible. It was like a workhorse or a moo cow. What it was supposed to do was to serve as that milk cow for the public sector. The government herded the private sector like a domestic animal. John Maynard Keynes noted this at one point. To GE or most of GE that sounded just fine. The milk cow was content with the government.

The Tennessee Valley Authority, that big client, was the essence of a government project and GE executives at the top liked it very much. GE found that the TVA was one of its biggest customers. They didn't mind serving the Space Program, these executives, the military industrial complex. Unions existed by virtue of very strong union law and they demanded big pay packages. All right, GE could pay that. Social experiments by the federal government, well, American business could pay that. Maybe expansion of healthcare, well, the US could pay that or perhaps a longer leave for young parents. That's just a joke. Something like a longer leave for young parents in the early '60s, well, we could pay that too. Well, heavy unions, we could pay any load. Stalin was said to have joked that, "The only country rich enough to afford communism was the United States." Why should it not be true? Why should it not be true?

In the 1960s, just some benchmarks for you, the Dow Jones Industrial Average was approaching a record level of 1000 and it seemed only a matter of months before the Dow would pass its landmark.

But there was one aging, underappreciated executive at GE who saw things differently. He was an older guy. He was a vice president slash labor relations, and the name of this man was, Lemuel Ricketts Boulware. Boulware believed growth didn't come when a board paid taxes to the federal government, or when it met all together and wrote out big plans. Boulware believed growth took place when a lonely scientist in a dumpy lab had an idea and flaunted the world, ideas like the light bulb, a GE idea. Boulware believed that the burden of government spending and the burden of union demands backed by government would gradually strangle American competitiveness. "Even a little bit of socialism," Boulware said, "could do damage."

The reason our 1959 kitchens were better than the Russian kitchens was those old longest term investments of inventors at the beginning of GE. The reason that companies thrived was that the goods were affordable, but the high wages and prices would render GE uncompetitive. In the end, the Russians would make better kitchens. Nobody could quite imagine Japan at this point, right? So, that was the scope of the imagination.

It was the God given assignment, in the view of Lemuel Boulware, for, of a pristine company like General Electric, a national hero to inspire America to return to old capitalism of Edison. And the problem was urgent, Boulware said. I'm going to read a quote from him. "The current rapid trend has got to be changed, or are we through with everything we cherish?" We are through with everything we cherish.

The younger executives at General Electric found Boulware ludicrous. He wasn't modern. His superlatives irritated them. And in the public, many agreed with this evaluation. Fortune Magazine described Boulware, this vice-president as, "A figure who combined the folksiness of a Kentucky farm background with a fervor of a washing machine salesman." The other executives at GE, did not worry. They were the future. Boulware was approaching retirement. By 1960 or maybe 1965, he would be out anyhow. Let him rant from his recliner in Delray Beach.

Still, Boulware determined to use his final years and hours to make his own long-term investment in saving the future, GE's and America's. He wanted to teach Americans the gift, the nature, the depth, the preciousness of the gift they had in capitalism. He spent millions of GE money mimeographing pamphlets, explaining the value of markets. He warned towns where GE operated, the Midwest or the East, that the high wages and all the extra social benefits would force companies eventually to leave. One such town was Pittsfield, Massachusetts, an industrial center. He warned the people, "Grass will grow in Pittsfield if Pittsfield didn't wake up to the importance of competitive prices, wages and costs."

Boulware used new media, in his case that would be television, to reach the people creating a TV show that some of you have seen called GE Theater to showcase traditional American values. He hired staff including that aging actor to be GE's spokesman. Remember, the actor was a union man, a Democrat who admired Franklin Roosevelt and The New Deal. Still, I won't say his name yet, but this actor who was hired had potential.

Well, we have our C-SPAN audience [inaudible 00:00:09:14], so let's stick with their story. Boulware kitted out as special GE house with all modern appliances, kind of like the GE kitchen in Moscow, for the actor to live in. And Boulware schooled the actor who was Ronald Reagan in Adam Smith, Friedrich von Hayek, John Locke and Tocqueville with little essays added by Henry Hazlitt. He gave little books, just like the Manhattan Institute does, out and hoped they would be read.

This actor, Reagan wasn't exactly popular across GE either. The younger executives didn't like having some kind of Western propagandist and they complained about Reagan. But for the few remaining years Boulware was there, they couldn't stop Boulware and his actor. And Boulware sent Reagan all around to hundreds of GE plants with mimeograph pages to explain all about the TVA and the future of industry and that industry might move West and so on.

The actor and he wrote speeches about the dangers of socialism and that socializing medicine was a bad idea. The TVA was a bad idea. Power could innovate faster when it was free to make its own decisions. Maybe hydro-power wasn't the only kind of power in the future of the United States. And soon enough, Reagan, the actor began to take Boulware's arguments seriously. He even bought his son some GE stock.

The year 1960 cast a dark cloud over GE, Boulware and Boulware's propaganda mill. The Justice Department was investigating the company. In 1961, the new attorney general whose name was, Robert Kennedy pulled together a strong case. GE was colluding with other companies like Westinghouse to fix high prices on the turbines it sold to the TVA. The Justice Department went to court and the judge sent the GE executives to jail.

The irony was undeniable. Here was GE's propaganda department mouthing off about free markets even as GE cheated the American taxpayer. This was a terrible blow for GE and for Boulware. The company looked like the worst hypocrite in the world. Nationwide people felt betrayed by their trusted company. It was like the Black Sox scandal of 191 when this happened to GE. A national, the trail GE stock went in the toilet. The actor was fired. GE Theater was canceled and Lemuel Boulware got pneumonia and did retire to Delray Beach.

The years that followed the subject of the Great Society only deepened the sense of failure for such a venture. GE itself deepened its cooperation as did many other companies with the federal government. The news on Boulware's TV set mocked his old efforts. American voters didn't turn away from socialism. They thought social democracy or just government expansion sounded nice. They voted in Lyndon Johnson and a socializing program. We can call it that, the Great Society. Johnson promise to cure poverty, to make America and even better place, a great place with an even stronger economy. And they did create the beginnings of our national healthcare system that we're getting now, Medicare. This era, the Great Society leaders did strengthen unions and Johnson was only the beginning.

One of the revisions of Great Society in this book is a revision of Richard Nixon. In my research, I discovered that Nixon actually expanded government as Johnson had before him, in some areas even more rapidly and other presidents just added on. So, you want to imagine a great encrusting process of program upon program. Charles Murray of The Manhattan Institute was the first to lay out the numbers and recent Hayek Prize winner, John Cogan laid out a few more. Some of you were at that event.

Here is the scope of what the Great Society yielded: By 1980, health and medical costs were six times the 1950 costs in constant dollars. By 1980, public assistance costs were 13 times the 1950 costs. Social insurance costs were 27 times their 1950 level and housing costs were 129 times their 1950 costs. Do you recall last night, one of the candidates suggested we needed to spend more on housing?

So, what happened? The Great Society failed. The government expansion did not eradicate poverty. In fact, the reduction in the poverty rate, it was already coming down pretty fast, flattened out, and we ended up with 10% and it stayed there. The programs shackled Americans into dependence. Generally speaking, there was a terrible morning after effect, the fall of the Great Society binge. The economy began to flail as it never had before. We know that unemployment went towards 10%. We know that interest rates went past 15%. The high costs of labor under policies backed by the government did drive American companies to leave towns.

Grass did grow in Pittsfield just as Boulware had predicted, the profit. The great thriving center of Detroit did become the Rust Belt. And I write a lot about that in Great Society. The Dow Jones Industrial Average stayed below 1,000 for a generation. Today, younger Americans believe an ever-rising stock market is their birthright. They expect nothing else, so you want to stop and contemplate that duration from the mid '60s until the '80s, we, even in nominal terms with great inflation, we did not pass 1000. Imagine if today we had to wait till 2035 to get to the next barrier.

In my book, what I learned in writing it is that you don't have to be socialist all the way to do damage. Indeed, Boulware was right, even a little socialism does incredible damage. This is not Zeno's paradox. It's Hayek's road to serfdom. You do eventually get there and in fact, sooner than you think. And the whole while you can imagine Boulware who lived decades beating himself up about the failure of his effort at enlightenment.

But as you know, one figure was now enlightened and he did care. That was the actor Reagan and he decided to try politics. And in 1964, he took his standard GE speech out of the can or the desk drawer and gave it on TV, practically word-for-word. America had to choose socialism or not. This was what became known as the Time for Choosing speech. And then the actor ran for governor of California where he challenged the Great Society numerous times, including the legal department that came out of our poverty program. And he put the policies of GE into practice, government restraint, saving money, fighting expansion of welfare, personal dignity, support, respect for markets. And when he did run for president, he, and won, it was 1980 and it really was no longer the morning after effect of the Great Society. It could be morning in America.

The entire counter-revolution that Reagan brought that morning in America came out of those little Boulware pamphlets that Lem had so lovingly prepared. Boulware's long-term investment that no one remembered had paid off in a magnitude that is near unimaginable. Markets thrived and an era commenced in which we did get a strongly rising market.

I'll stop and just say there are several lessons from the Great Society. That's one of 12 chapters of this book. First of all, the lesson, the overarching lesson of the book is that government is rotten at planning. No matter how much it spends, you get a perverse outcome.

The second lesson is that a private project or a philanthropic project, one of ours, that looks like a complete goof or a failure in the short or medium-term may not turn out to be a complete failure in the end. Sometimes the project is just early and sometimes that earliness is good. Think of it from the point of view of the voters who learned about markets from GE when Reagan gave talks in the cafeteria of factories. Some of those tens of thousands of meetings between Reagan and GE did have an effect. Those voters understood what Reagan was saying when he spoke up as a politician. That there was another way for the American worker. They emerged in 1980 as Reagan's famous blue collar vote.

Another point more obvious, but worth mentioning is that the Great Society offers a lesson on trusting your own judgment. If you suspect that a program isn't good, it probably isn't. If you suspect a program might be good, invest in it. Think of the institutions that inspired you as a child and lay the plans for your own institutions. Much of the work that I do and the Manhattan Institute does, [Rye Hun 00:19:20] does is trying to plant these seeds. A theoretical seed can be the most fruitful seed.

A third and final point, individuals matter. Without Manhattan Institute scholars, individual scholars, there would have been no Broken Windows policy, without Boulware, no Reagan.

If you think your name, and now I'd like to raise a theoretical glass of wine, won't be remembered for doing this work that you may be wrong. I'm standing right here in Manhattan in 2019 with you three decades after the death of that obscure GE executive. And everyone in this room is raising a mental glass to Reagan, his public policy work, but also, most of all, we are raising a glass to the name of Lemuel Ricketts Boulware. Thank you very much.

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Photo by Mike Geissinger/LBJ Library via Wikimedia Commons

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