"When we got into office, the thing that surprised me most was to find that things were just as bad as we'd been saying they were." - John F. Kennedy
President John F. Kennedy or "Jack" became president on January 20th, 1961. Although his Presidency was unjustly cut short by his assassination, the measures he took to better the economy lasted long into the 60's. He adopted the presidency during the fourth giant recession since the Second World War. According to the Miller Center "Business bankruptcies had reached the highest level since the 1930's, farm incomes had decreased 25 percent since 1951, and 5.5 million Americans were looking for work." President Kennedy was faced with a huge recessionary gap, meaning that the Gross Domestic Product or GDP was lower than it would be at full employment. Consequently prices must drop in order to achieve balance.
“It is no contradiction – the most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.” – John F. Kennedy, Jan. 21, 1963, annual message to the Congress: “The Economic Report Of The President”
JFK’s administration adopted fiscal and monetary policies to close the recessionary gap. Economist John Maynard Keynes was a believer in Monetarism which is the theory that in order to stabilize the economy the government must lower or raise interest rates accordingly. Keynes also introduced the concept of aggregate demand which showed that full employment could be maintained only with government spending. JFK fully embraced this idea, he fueled the economy by investing in domestic, military, and space programs. This is also known as Kennedy's New Frontier. He proposed to give federal aid to education, medical care to the elderly, mass transit, as well as regional development in Appalachia which, in turn, would help the impoverished community for decades. President Kennedy signed the Housing Act of June 30th 1961 to aid middle income families as well as mass transportation users while also increasing urban renewal. Unfortunately, congressional support was limited therefore, his plans were downgraded by congress. JFK was a supporter of organized labor, he helped strengthen their rights with the Trade Expansion Act of 1962. The President also looked to increase minimum wages and signed a bill in 1961 which expanded the minimum wage to $1.25.
Congress and Kennedy
Regretably many of President Kennedy’s proposals were shot down by a conservative congress run by Republicans and Conservative Democrats. It is important to keep in mind that JFK won the electoral vote by 83 votes. Congress was more than reluctant to fund Kennedy’s liberal plans such as the funding of education and Medicare. President Kennedy was, however, able to sign legislation to raise the minimum wage and increase social security benefits – this was possible in part because of his Vice President L.B. Johnson’s extensive relationship with congress . On June 30th 1961 JFK signed a bill that would extend Social Security to over five million people.
"The largest single barrier to full employment of our manpower and resources and to a higher rate of economic growth is the unrealistically heavy drag of federal income taxes on private purchasing power, initiative and incentive." John F. Kennedy, Jan. 24, 1963, special message to Congress on tax reduction and reform
Kennedy's tax cut did not go into effect until after his assassination. The theory behind JFK's tax cuts was that when disposable income increases spending increases. This will directly affect aggregate demand. Fiscal expansion raises the demand for products. Increases in demand will lead to more output without changing the prices. Kennedy also introduced an investment tax credit meaning businesses can reduce their income taxes by 10% of their investment in a year. With increased spending and tax cuts, investments grew boosting aggregate demand. According to Andrew L. Yarrow author of Measuring America: How Economic Growth Came to Define American Greatness in the late 20th Century "...more evidence that Keynesian ideas, translated into policy, would further increase American growth and prosperity"(69). The government also purchased bonds to increase the supply of money while reducing interest rates.
"There are risks and costs to a program of action. But they are far less than the long-range risks and costs of comfortable inaction." John F. Kennedy
In the soundbite found below Kennedy addresses the Economic Club of New York and unveils his plan for economic recovery emphasizing the important role of tax cuts for the upcoming years. He sought to reduce the gap between those who saw tax cuts as means for purchasing and those who saw it as means for investing. President Kennedy wanted to increase investment in both the private sector and spending. These Proposals would become a part of his Tax Reduction Act which went into effect during the Presidency of L.B. Johnson.
When Kennedy's cuts went into effect the economy had already reached potential output. Instead of closing the recessionary gap the cuts pulled the economy into an inflationary gap. The push into an inflationary gap produced rising employment and a rising real GDP (see figure below). These tax cuts benefited President L.B. Johnson and many presidents afterward. During his presidency Kennedy had an annual change in real GDP of 3.56%, the second highest rate of change surpassed only by FDR. By the end of the decade the average American had an inflation adjusted income at their disposal higher than that of citizens in 2011.
"Anyone who is honestly seeking a job and can't find it, deserves the attention of the United States government, and the people." - John F. Kennedy
Kennedy's Economic Accomplishments
- Along with increasing GDP Kennedy lowered the poverty rate 2.9%, a huge accomplishment considering his short time in office.
- During JFK's presidency he matched President Eisenhower's inflation rate at 1.2 percent. His personal average savings rate was 8.3 percent.
- Industrial production rose by 13%.
- Unemployment went from 6.8 to 6.1 percent.
- GNP grew a total of 13% by the end of his presidency.
- Unused potential narrowed from 10% to 5%.
- Confidence in the dollar was restored; gold losses went from $1.7 billion dollars to less than $0.9 billion over from 1960 to 1961.
- As family income rose, customer spending extended $18 billion dollars.
- Construction and Business spending responded promptly to the economic recovery, by the end of the year they had risen by $8 billion.
- With the rise in imports exports were lowered by $1 billion dollars.
- To encourage domestic businessmen to become more apt to exporting JFK created an insurance program under the leadership of the Export-Import Bank. He also established trade centers abroad and worked with business firms on export opportunities through the offices of the Department of Commerce and the Small Business Administration.
The link below connects to a video of President Kennedy in his 1960 debate with Vice President Richard Nixon and his discussion of Fiscal Policy.