The 1964 Kennedy-Johnson tax cut is often cited as the single most successful application of Keynesian stabilization policy. The author challenges this orthodox historical view by exposing the haphazard planning, simplistic economic theorizing, irreconcilable numerical projections, and partisan political influences on the Council of Economic Advisers.
The focus of the book is on the decisions, advice and actions of the three Chairmen of the Council during the 1960s: Walter Heller, Gardner Ackley and Arthur Okun. They were the authors of the ambitious and optimistic new economics that attempted to manipulate aggregate demand in the US economy to reach potential output. By 1965 this goal was achieved, but when Vietnam War spending and Great Society programs were added to the tax cut, the subsequent policy paralysis in the face of a surging economy clearly indicated a lack of symmetry in fiscal policy implementation. Much of the evidence for this revisionist view comes from the participants own statements in the form of White House memoranda and confidential reports as well as from counter-factual exercises that allow alternative policies or swifter responses.
This book will be of great interest to macroeconomists as well as to scholars and students interested in economic history and in the formulation and implementation of economic policy.
Martin F.J. Prachowny, Professor of Economics, Queen's University, Canada
Contents: Introduction 1. What Went Wrong? 2. Estimating the Output Gap 3. The CEA Model of Taxes and Aggregate Demand 4. The Macroeconomic Effects of the Tax Cut 5. The Inflationary Aftermath 6. Fiscal Drag and the Burden of the Debt 7. Taxes and Voter Welfare 8. Lessons to be Learned Bibliography Index