COMMISSION MEMBERS 

Private Citizens 

Abraham D. Beame. ACIR Chairman, New York. New York 

Bill G. King. Alabama 

Mary Eleanor Wall, Illinois 

Members of the United States Senate 

Lawton Chiles. Florida 

William V. Roth, Jr., Delaware 

James R. Sasser. Tennessee 

Members of the U.S. House of Representatives 

Clarence J. Brown, Jr., Ohio 

L. H. Fountain, North Carolina 

Charles B. Rangel, New York 

Officers of the Executive Branch, Federal Government 

Moon Landrieu. Secretary, Department of Housing and Urban Development 

James T. McIntyre, Director. Office of Management and Budget 

G. William Miller, Secretary, Department of the Treasury 

Bruce Babbitt, Arizona 

John N. Dalton. Virginia 

Richard W. Riley, South Carolina 

Richard A. Snelling. Vermont 

Mayors 

Thomas Bradley. Los Angeles. California 

Richard E. Carver, Peoria, Illinois 

Tom Moody, Columbus, Ohio 

John P. Rousakis. Savannah, Georgia 

State Legislative Leaders 

Fred E. Anderson. President, Colorado State Senate 

]ason Boe, President. Oregon State Senate 

Leo McCarthy. Speaker, California Assembly 

Elected County Officials 

William 0. Beach, County Executive. Montgomery County. Tennessee 

Lynn G. Cutler. ACIR Vice-Chair, Board of Supervisors. Black Hawk County, Iowa 

Doris W. De&man, Freeholder Director. Somerset County, New Jersey 
Reducing Unemployment: 

Intergovernmental Dimensions 

of a National Problem 

ADVISORV tOYYIssIO* on lllTLnOOVsnYYs*TAL IISUT,OWS 

Washington. DC ‘BJ575 - February 1982 

A-80 
Preface 

T he Advisory Commission on Intergovernmental 

Relations was established by P.L. 380, which was passed 

by the first session of the 86th Congress and approved 

by the President on September 24, 1959. [Section 2 of 

the act] sets forth the following declaration of purpose 

and specific responsibilities for the Commission: 

Sec. 2. Because the complexity of modern life 

intensifies the need in a federal form of government for the fullest cooperation and coordination of activities between the levels of government, and because population growth and 

scientific developments portend an increasingly complex society in future years, it is 

essential that an appropriate agency be 

established to give continuing attention to intergovernmental problems. 

It is intended that the Commission, in performance of its duties, will: 

(1) bring together representatives of the federal, state, and local governments for the consideration of common problems . 

(5) encourage discussion and study at an 

early stage of emerging public problems that 

are likely to require intergovernmental coop 

eration. 

(6) recommend, within the framework of the 

Constitution, the most desirable allocation of 

governmental functions, responsibilities, and 

revenues among the several levels of governmerit 

ii 
Pursuant to its statutory responsibilities, the Commission has from time to time been requested by the Congress or the President to examine particular problems 

impeding the effectiveness of the federal system. Section 

145 of the 1976 extension legislation for General Revenue Sharing (P.L. 94-488) mandated that the Commission: 

study and evaluate the American federal 

fiscal system in terms of the allocation and coordination of public resources among federal, 

state, and local governments, including, but 

not limited to, a study and evaluation of: (1) 

the allocation and coordination of taxing and 

spending authorities between levels of government, including a comparison of other federal 

government systems (5) forces likely to 

affect the nature of the American federal 

system in the short-term and long-term future 

and possible adjustments to such system, if 

any, which may be desirable, in light of future 

developments. 

The study, The Federal Role in the Federal System: The 

Dynamics of Growth, of which the present volume is one 

component, is part of the Commission’s response to 

this mandate. Staff were directed to: (a) examine the 

present role of the federal government in the American 

federal system; (b) review theoretical perspectives on 

American federalism, the assignment of functions, and 

governmental growth; and (c) identify historical and 

political patterns in the development and expansion of 

national governmental domestic activities. This case 

study on the federal role in unemployment policy is one 

of seven prepared by Commission staff pursuant to this 

assignment. 

Abraham D. Beame 

Chairman 

111 
Acknowledgments 

T his report was prepared by the Government 

Structure and Functions section of the Commission staff under the supervision of David B. Walker, 

assistant director, and David R. Beam, project 

manager. Responsibility for research and writing was 

shared by Timothy J. ConIan, senior resident, and 

David R. Beam, senior analyst. The manuscript was 

ably typed by Delores Dawson and Martha Talley. 

Other members of the Commission staff, including 

Cynthia C. Colella, Charles Richardson, and Carl 

Stenberg, reviewed the initial draft and made useful 

comments. Helpful criticisms also were provided by 

Roger H. Davidson, John A. Garraty, Eli Ginzberg, 

Sar A. Levitan, and Randall B. Ripley. 
Contents 

Chapter I Reducing Unemployment: 

The Changing Dimensions of National Policy ......... 

Unemployment as a Federal Concern ...................... 

Program Definition ................................... 

A Continuing Problem ................................. 

Chapter 2 Or$in in the Great Depression. .................... 

The Search for Recovery: Unemployment and the New Deal. .... 

An Activist Thrust .................. ......... 

The Directions of Policy. ...................... 

The Political Foundations ..................... 

Income Maintenance for the Unemployed. ............ 

Temporary Work Relief. ...................... 

Mixed Assessments. .......................... 

The Enactment of Unemployment Insurance .......... 

History .......................................... 

The Depression Years. .............................. 

Postscript 1979: A Permanent Commitment. ............. 

New and Continuing Issues .......................... 

Chapter 3 The Employment Act of 1946 ..................... 

Spending and Debt in the New Deal ....................... 

Roosevelt’s Rejection of Keynes. ...................... 

Passing the Employment Act ............................ 

A Broadened Commitment. ............................. 

Chapter 4 The Sixties: Antipoverty Politics 

in the Decade of Prosperity ....................... 

1 

1 

63 

6 

7 

9 

9 

11 

12 

13 

13 

16 

18 

19 

20 

23 

24 

29 

29 

30 

31 

35 

39 
Two Perspectives on the Sixties. ............................... 

Rediscovering the Poor .................................. 

TheGNPGap ......................................... 

Structural Unemployment ................................ 

Economic Development Legislation ............................ 

Senator Douglas and the ARA ............................. 

Post-ARA Policymaking: Expansion, Diffusion, 

andconfusron ......................................... 

Area Development: An Assessment ............................ 

Manpower Policy: The Politics of Initiation ...................... 

Origins and Passage of the MDTA .......................... 

1%3 Amendments to the MDTA ........................... 

Formulation of the Poverty Program ........................... 

The Manpower Component of the War on Poverty: 

Programs and Their Origins. .............................. 

Administrative Structure of the Poverty Program. .............. 

Congressional Passage ................................... 

Chapter > Implemeatation of Manpower Programs: 1965-69. .......... 

Implementing the MDTA .................................... 

Implementing the Employment Programs of the Economic 

OpportunityAct ........................................... 

The Neighborhood Youth Corps ........................... 

The Work Experience and Training Program. ................. 

TheJobCorps ......................................... 

Congress and the Poverty Program: 1%5-69. ..................... 

Problems and Performance: An Overview ....................... 

Incremental Efforts Toward Manpower Reform ............... 

Chapter 6 The Quest for Comprehensive Reform of Manpower Policy. ... 

The Struggle for Comprehensive Reform: Round One ............... 

Senate Consideration .................................... 

Compromise in the House ................................ 

The Failure of Reform ................................... 

Epilogue to Failure. ..................................... 

Breakthrough: The Passage of the Comprehensive 

Employment and Training Act ................................ 

Five Years’ Experience with Comprehensive 

Training Legislation. .................................... 

Chapter 7 Establishing a New Approach: Public Employment. ......... 

Background of Public Service Employment ...................... 

The Emergency Employment Act .............................. 

Countercyclical Employment Programs: Another Policy 

Innovation.. ............................................. 

The CETA Title VI Temporary Employment Assistance 

Program .............................................. 

Countercyclical Public Works: 1962-74 ...................... 

The Struggle for Countercyclical Public Works: 1975-76 ......... 

Expansion of Countercyclical Programs: Carter’s 

Economic Stimulus Package. .............................. 

39 

40 

41 

41 

42 

43 

47 

52 

53 

53 

54 

55 

57 

58 

59 

63 

63 

65 

65 

66 

66 

67 

69 ’ 

71 

75 

76 

77 

78 

78 

79 

79 

82 

89 

89 

90 

91 

92 

94 

95 

97 
Public Employment: Implementation and Renewal. ................ 97 

Substitution ........................................... 98 

Otberlssues ........................................... 99 

Program Alterations .................................... 99 

Subsequent Developments ................................ 100 

A Diluted Initiative: The Full Employment and Balanced 

Growth Act of 1978 ........................................ 101 

Congressional Passage ................................... 101 

Chapter 8 The Dynnmics of Federal Involvement in Unemployment 

Policy: An Overview ................................. 105 

Political Actors and Processes ................................ 105 

Forces and Rationales. ...................................... 109 

Constraints on Federal Involvement. ........................ 110 

Graphs, Tables, Figures, Map and Chart 

Graphs 

1. Public Views on the Importance of Economic 

Problems, 1955-78 ....................................... 2 

2. Selected Unemployment Rates, 1960-79. ...................... 5 

3. Public Assistance and Earnings of Persons 

Employed Under Federal Work Programs, 1933-39 .............. 15 

4. Gross National Product and Unemployment Rates, 1955-68 ....... 41 

Tables 

1. Federal Outlays for Unemployment Programs, 1978-80. .......... 3 

2. Work Relief and Public Works Programs, 193243 .............. 14 

3. Unemployment Benefits Under State Laws, 1940-77 ............. 23 .. 

4. Congressional Voting on Redevelopment Legislation, 

1956-61 ............................................... 45 

5. The Proliferation and Growth of Federal Manpower 

Programs, FY 1963-69 .................................... 68 

6. The Manpower Training Maze: Summary of Selected Program 

Services, Eligibility Standards, and Administrative 

Arrangements, 1969. ..................................... 70 

7. CETA Appropriations, FY 1974-78 .......................... 85 

8. Countercyclical Stimulus Programs .......................... 92 

Figures 

1. Principal Federal Unemployment Legislation, 1933-78. ........... 4 

2. Principal New Deal Measures, 1933-38. ....................... 10 

3. Is Federalization Desirable?. ............................... 25 

4. A Changing Declaration of Policy ........................... 36 

Map 

1. The Spread of Regionalism, 1965-79 ......................... 

Chti 

1. Transfers to the Proposed Department of Community 

Development ........................................... 

50 

5 1 

vii 

Chapter I 

Reducing Unemployment: 

The Changing Dimensions of 

National Policy 

UNEMPLOYMENT AS A 

FEDERAL CONCERN 

M anaging the economy to achieve low levels of unemployment and inflation is a preeminent 

responsibility of the national government. Indeed, in 

the economics literature, the stabilization ofemploymeat and prices is often described as one of the 

primary functions of a central government.’ Political 

scientists agree, and point out that Presidents devote 

more time and energy to “aggregate economics” 

than to any other concern of domestic policy.’ Furthermore, the general public seems to evaluate its national representatives rather heavily according to 

their success in lowering unemployment and inflation 

rates. (Graph I shows the relative priority attached to 

economic performance during the 1955-78 period.) 

Changes in economic conditions seem to be translated directly into drops or rises in Presidential popularity and may influence election outcomes.’ 

Yet, it has not always been so. Prior to the 193% 

unemployment was not widely regarded as a governmental concern, and most of the major federal programs in this field have originated during the past 

two decades. Moreover, although unemployment issues have become a major focus of national politics, 

the actual operation of unemployment programs has 

always been-and continues to be-heavily intergovernmental. As in many other domestic fields, the federal government does not act on individuals, either 

alone or directly. Although Washington provides fi1 
Graph 1 

PUBLIC VIEWS ON 

THE IMPORTANCE OF ECONOMIC PROBLEMS, 1955-78* 

90 

60 

70 

60 

50 

40 

30 

20, 

10 

0 

1 

/” --( \ 

/ t 

/ 

\ 

966 64 67 66 59 60 61 62 63 64 66 66 67 68 69 70 71 72 73 74 76 76 77 78 

i 

lI- 

‘Question: “What do you think is the most important problem facing the country today?” 

SOURCE: Public Opinion, May/June 1979, pp. 30-31. 

I_ 

t 

i90 

80 

70 

60 

50 

40 

30 

20 

10 

0 
nancial assistance, state and local governments have 

major administrative responsibilities. These have increased in pace with the evolving national commitment to aid those who are jobless. 

PROGRAM DEFINITION 

No precise definition of federal employment-related programs is possible. Given the complex linkages of the components of the modern economy and 

the size of the public sector, it must be said that “any 

legislation that influences economic activity will indirectly cause unemployment to rise or fall.” This includes most legislation in most fields, especially those 

involving large-scale public works facilities 

(transportation, defense, environment, housing) and 

income transfers. The effect of public actions in these 

areas on local or national employment conditions is 

bften Considered in the course of political debate. 

A narrower definition might include only those 

federal activities bearing most directly on the special 

Table 1 

FEDERAL OUTLAYS FORU;E;PLOYMENT PROGRAMS 

(dollars In mllllons) 

1978 1979 199cJ 

Major Mlssions and Programs Actual Estimate Estimate 

Training and Employment 

General training and employment programs $ 2,393 $ 2,644 0 2,432 

Private sector program - 50 150 

Public service employment 5,764 5,465 4,930 

Youth programs 1,475 2,242 2,131 

Older workers 134 210 219 

Work incentive program 364 372 376 

Federal-state employment service 653 745 762 

Subtotal, Training and Employment 10,764 11,729 i 1,002 

Unemployment Compensation* 11,769 10,296 12,410 

Area and Regional Development 

National Development Sank (proposed) - 4 195 

Rural development and business assistance 516 666 475 

Economic development assistance 326 348 431 

Local public works 3,057 2,051 319 

Inland energy impact - - 76 

Coastal energy impact f. 11 54 

Indian programs 746 782 730 

Regional commissions 372 400 412 

Other programs 127 150 134 

Offsetting receipts - 295 - 350 - 353 

Subtotal, Area and Regional Development 4,850 4,062 2,473 

TOTAL+ $27,403 $26,087 $25,885 

‘Includes outlays from both federal and state sources. 

“$500 thousand or less. 

‘Totals may not add due to rounding. 

SOURCE: Office of Management and Budget, The Budget of-the United States Government: Fiscal Year 1990, 

Washington, DC, U.S. Government PrintingOffice, 1979, pp. 195,211,251. 

3 
needs of the unemployed themselves. Among these 

are: (a) training and employment programs, including temporary public service jobs; (b) unemployment 

compensation; and (c) area and regional development programs to create jobs in economically depressed areas. Total outlays for these three sets of 

programs, as indicated in the U.S. budget, totaled an 

estimated $25.9 billion dollars in FY 1980, as shown 

in Table 1. Training and employment programs, 

along with unemployment compensation, account 

for more than four-fifths of these funds. Regional 

development, in comparative fiscal terms, remains 

“small potatoes.” 

In keeping with this narrower definition, this case 

study excludes from consideration programs of a 

broad educational nature (including vocational education), as well as programs aimed specifically at narrow clienteles (such as veterans and the physically 

disabled), even though neither is entirely irrelevant. 

It also omits many regulatory programs that bear on 

what may be termed the “conditions” of employment, including collective bargaining legislation, the 

minimum wage, wage and price controls, antidiscrimination policies, protective legislation for 

women and children, occupational safety and disease 

laws, and so forth. 

As defined here, therefore, federal unemployment 

policy includes some I6 major enactments since 

1933.’ (These are listed in Figure 1.) Two bursts of 

activity are apparent: one during the New Deal 

(1933-35), the other associated with the New Frontier 

and Great Society (1961-65). Each period established 

important new national commitments to aid the unemployed. 

The chief legacy of the former period is the system 

of unemployment insurance that now provides coverage to about 97% of all wage or salary employees. 

The latter initiated a substantial network of manpower (or employment and training) programs, with 

outlays rising from about $81 million in 1963 to over 

$11 billion in 1980. Because of the need to reauthorize, refine, reform, or supplement past programs, as well as the generally poor performance of 

the national economy, unemployment-related legislation also has appeared regularly on the nation’s 

political agenda since 1970. 

More broadly, there have been four general overlapping stages in the development of federal unemployment policy. Each, through a ratchet-like process, established new continuing commitments. In 

general terms, these policy stages were: 

. “alleviative” policies, 1933-present; 

4 
Graph 2 

SELECTED UNEMPLOYMENT RATES, 1960-79 

PERCENT (Seasonally Adjusted) 

I” 

8 

: 

0 / I I I I I I I I 

1968’ ‘1970’ ‘1972 

I I I I I I 1 

1960, 1962 1964 1966 1974 1976 1978 

‘The iixed-weight unemployment rate is construded under the assumption that the composition of the labor force 

with respect to seven demographic groups remains unchanged over the period since 1956. 

Note. Shading indicates periods of accelerating wages. 

SOURCE: Council of Economic Advisers, Economic Report ot the President: 1979, Washington, DC, U.S. Government Printing Office, 1979, p. 64. 
. “fiscal” policies, 1946-present; 

. “structural” policies, 1961-present; and 

. “public employment” policies, 1971-present. 

Each stage will be described in turn in the course of 

this case study. 

A CONTINUING PROBLEM 

Federal unemployment policy remains a highly 

complex and controversial field. Despite a host of 

policy initiatives, the nation has not achieved the 

stable economic performance that had been intended 

and expected. Graph 2 illustrates the trend in 

unemployment over the period 1960-79. Only between 1966-69 did the official unemployment rate dip 

to the 4% level, which is widely accepted as a 

desirable target. Furthermore, since 1973 the nation 

has also experienced excessive rates of inflation. 

As Graph 2 also suggests, unemployment rates 

have differed for various segments of the labor 

market. Since 1960 the rate for experienced workers 

with continuous labor force attachment, such as 

males aged 25-54, has been considerably lower than 

that of the labor force as a whole.’ The burden of 

contemporary unemployment, then, is highly differentiated, falling much more on some groups (and 

geographic areas) than others. In December 1978, the 

unemployment rate was 5.9% for all workers, 2.5% 

for married men, 16.5% for teenagers, and 7.7% for 

female heads of families. For black teenagers, the 

rate was about 35q0.~ Many economists believe that 

the expansion and changing composition of the labor 

force, including the growing number of young people 

and married women seeking jobs, has contributed to 

the excessive level of unemployment overall.’ 

The failure to attain widely accepted national objectives has been a serious jolt to the political system 

and-by no means less so-to the economics profession. Established theories and policies have been increasingly challenged, eroding the consensus of the 

late 1960s. Some critics contend that recent problems 

are exacerbated by weaknesses in federal unemployment programs or related domestic policies. The confidence that marked this academic discipline in the 

1960s has given way to confusion and condemnation. 

The professional experts, according to one of their 

colleagues, now “make the oddest statements and 

promulgate undue quantities of faulty prophecy and 

policy prescription.“’ Other economists state their 

analytical concerns with greater delicacy, but also admit to shortcomings or unanticipated consequences 

in past federal actions.s 

On the other hand, expectations are greater than 

they were in the past. There certainly are important 

areas of long-run progress. The nation has not seen a 

repetition of the Great Depression of the 1930s. and 

unemployment now is cushioned by a variety of systems for income maintenance. Altogether, a record 

level of 59.1% of the population holds jobs, up from 

54.9% in 1960.10 This improved performance seems 

to owe much to the development of new public sector 

programs and new theories of economic policymaking initiated in the New Deal years and thereafter. 

FOOTNOTES 

‘Wallace E. Oates, Fixu~Federa/ism, New York. NY, Harcourt 

Brace Jovanovich. Inc., 197.7, pp. 3.32. 

‘Thomas E. Cronin, 7% State of rhe Presidency, Boston, MA, 

Link, BrownandCompany, 1975. pp. 14-15. 

‘See Bruno S. Frey, “Keynesian Thinking in Politico-Economic 

Models,” Journd of Post Keynesion Economics, I, Fall 1978, 

p, 78; and Edward R. Tuftc. Polifical Control of Ihe Economy, 

Princeton, NJ, Princeton University Press, 1978. 

‘John A. Garraty. Unemploymenr in Hiwry: Economic 

Though, and Public Policy, New York, NY, Harper & Row, 

Publishers, 1978. p. 8. 

‘Council of Economic Advisers, Economic Report of the President: 1979. Washington. DC, U.S. Government Printing Office. 

1979. p. 63. 

aIbid., pp. 217-B. 

‘For a discussion, see Eli Ginsberg, “The Job Problem.” 

Sciendfic American, November 1977, pp. 43-51. 

‘Robert N. Lekachman, Economists AI Bay: why the Experts 

WiNNever Solve Your Problems, New York, NY, McGraw-Hill 

Book Company, ,976, p. 2; see also Guy Routh, The Orizim of 

Economic Ideas, New York, NY, Random House, 1977. 

‘Robert M. Solow, “What We Know and Don? Know About Inflation,” Technology Review, December/January 1979. pp. 

3046; Arthur M. Okun, “The Great Stagflation Swamp,” 77te 

Brookings RuNerin, Fall 1977, pp. L-7; and Robert L. 

Heilbroner, “Reflections: Boom and Crash,” The New Yorker, 

August 28, 1978. pp. 52-73. 

‘Vouncil of Economic Advisers. p. 217. 

6 
Chapter 2 

Origin in the Great Depression 

T he origin of the federal role in dealing with the 

problem of unemployment can be traced largely 

to a single event: the Great Depression of the 1930s. 

Under crisis conditions, in which the rate of 

unemployment reached 25%, the national government sought to identify and initiate appropriate 

responses. 

This task was not assumed altogeaer willingly. 

Although from the contemporary perspective economic management may seem as essential and altogether natural a federal responsibility as national 

defense, this was not true five decades ago. The 

recognition that large-scale involuntary unemployment could occur, that it might also be prevented or 

ameliorated, and that the federal government had a 

crucial role to play, involved a slow but extensive 

“learning process” for professional economists, 

public officials, and the general public alike. Widespread consensus on these points was not attained 

until the end of the 1960s. 

To a greater degree than in most fields, then, the 

history of unemployment policy has been inextricably linked with academic theorizing. Ideas have been 

as important as interests, and probably more so. 

John Maynard Keynes-the principal contributor to 

the revolution in economic thought-once suggested 

that 

. the ideas of economists and political 

philosophers, both when they are right and 

when they are wrong, are more powerful 

than is commonly understood. Indeed the 

7 
world is ruled by little else. Practical men, 

who believe themselves to be quite exempt 

from any intellectual influences, arc usually 

the slaves of some defunct economist. . . I 

am sure that the power of vested interests is 

vastly exaggerated compared with the gradual encroachnient of ideas.’ 

Keynes’ own work provides an impressive case in 

point. 

It must be remembered that the principal contributors to classical economics-Smith (1776). Mahhus 

(1789). Ricardo (1817), Say (1803)-did not anticipate, and could not have explained, widespread 

joblessness. Such idleness as occurred was regarded 

as quite exceptional and more a personal than a 

social problem.’ Indeed, the term “unemployment” 

did not come into widespread use until 1890, and the 

first Encyclopedia B&mica article discussing the 

topic did not appear until 1911.’ This classical 

interpretation-although increasingly remote from 

reality as the nation became industrializeddominated economic thought until the social force of 

the Depression, and thereafter the intellectual force 

of Lord Keynes displaced it. 

Consequently, throughout the 19th century the 

problem of unemployment was essentially indistinguishable from the problem of economic destitution. Following the example of the Elizabethian 

Poor Law of 1601, local public assistance in the 

United States sometimes took the form of work relief, either to test the “worthiness” of the applicant 

or to enhance self-respect. While the welfare rolls did 

rise and fall with periodic depressions, these did not 

prompt any clear distinction between “employment 

services” on the one hand and “charity” on the 

other.’ 

The first differentiation appeared with the creation 

of a public employment office (or employment exchange) by the State of Ohio in 1890. A number of 

other states and municipalities f&owed this precedent, particularly during the depression of 1914-15. 

Shortly thereafter, the need to allocate manpower resources during World War I led to the creation of the 

U.S. Employment Service within the Department of 

Labor. However, these funds were exhausted shortly 

after the armistice, and Congress rejected a proposal 

for continuing grants-in-aid to states for the operation of their employment offices. As a consequence 

both the Employment Service and state agencies 

“were generally dormant” until the 1930s.’ 

The need for a more vigorous governmental posture became clear only during the Great Depression. 

While the nation had suffered from repeated economic setbacks in the past, including several of considerable severity, the Great Depression was unprecedented in its force. 

Although the Depression is often described in 

terms of unemployment, that was only one of several 

dimensions. It laid waste the entire economy, affecting those who retained jobs-usually at reduced : 

wages-as well as the propertied and agricultural 

classes. In rough terms, it may be said that there were 

four forms of deprivation concentrated in (but by no 

means confined to) specific sectors: (a) the workin 

class, who lost their jobs; @) the upper class, who 

lost their investments; (c) the middle class, who losl 

their savings and homes; and (d) the farmers, who 

lost their hd. Directly or indirectly, nearly everyone 

suffered.6 Economic historian Robert L. Heilbroner 

has outlined the dimensions of the calamity in these 

terms: 

To begin with, Gross National Product fell 

precipitously from $104 billion in 1929 to 

$56 billion in 1933. Almost one dollar’s 

worth of final output out of every two disappeared. As a result, unemployment soared. 

In 1929, the unemployed had numbered 1 S 

million. By 1933 the number ray eightfold 

until one person out of every four in the entire national labor force was without a job. 

In the nation as a whole, residential construction fell by 90 percent; there were virtually no houses built. Nine million savings 

accounts were lost as banks closed their 

doors. Eighty-five thousand businesses 

failed. In Pennsylvania in 1932 it was 

reported by the state department of labor 

that wages had fallen to 5 cents an hour in 

sawmills, 6 cents in brick and tile manufacturing, 7.5 cents in general contracting. In 

Tennessee, women in mills were paid as little 

as $2.39 for a SO-hour week. In Kentucky, 

miners ate the weeds that cows ate; in West 

Virginia, people began to rob stores for 

food. In California, a child starved to death 

and was discovered to have been living on 

refuse.’ 

Like the event itself, the governmental response to 

the Depression was unprecedented. In the space of 

just five years, the search for economic recovery 

shattered long-standing Constitutional, economic, 

fiscal, and political commitments. From these four 

8 
perspectives-although perhaps not from a social 

standpoint-the New Deal was a revolution,’ as illustrated by the following quotations: 

The “great retreat” by the Supreme Court 

in the spring of 1937 marked the beginning 

of a new era in federalism. . . [I]t now 

seems indisputable that there has occurred a 

permanent enlargement in the extent of federal power. Entire new areas of sovereignty 

hitherto entrusted to the states or to no 

government at all are now the subject of extensive federal regulation and control. 

. “Dual federalism” is apparently dead 

beyond revivals 

It is clear that by the end of the 1930s the 

role of government in the economy had 

changed fundamentally. Not only had it increased as a result of efforts to get the 

economy out of the Depression; it had increased also on the assumption that the 

welfare of the society could be improved by 

government intervention to reorganize and 

reallocate resources in particular areas, in 

contrast to the way in which the markets 

would have allocated them.‘O 

Measured in terms of cash expended for 

federal grants to state and local government, 

the New Deal programs dwarfed anything 

that had been undertaken before. . . [T]he 

magnitude of the New Deal’s grant programs was far greater than is usually 

recognized. The dollar amount of payments 

for 1939 was not equaled again until the 

195Os, when gross national product was 

about three times as large as in 1939.” 

,In 1932 the country, in the midst of a 

Great Depression, used a demoralized and 

disorganized Democratic party to produce 

the greatest reversal of public policy in 

American history. . . The Democratic 

party in the 1930s became the reluctant instrument of a revolution that it did not plan 

and did not produce. It is hard to imagine a 

party less prepared for its new responsibilities than the Democratic party was at 

the time of Franklin Roosevelt’s first inaugural. The fact that the country used the 

Democratic party to produce the first party 

turnover in more than a generation contributed greatly to the development of a new 

concept of the party system, a renewed interest in the idea of party responsibility.” 

Each of these four interrelated revolutions left a 

permanent mark on the American system of government. In many fields, New Deal measures still provide the foundation for the nation’s public policy. 

From a long-run perspective, however, the more fundamental change was in the realm of ideas, not practice. Although this change occurred more slowly, in 

retrospect the national experience begun during the 

Depression clearly stimulated a dramatic change in 

the “paradigm” of political thought. These new 

ideas, in turn, legitimized a new, activist federal role, 

far beyond that of the New Deal itself. Arthur A. 

Ekirch, Jr., an historian of the Depression years, indicates 

In the slow process of social and economic 

recovery after the Great Crash of 1929, 

many of the historic postulates of the 

American dream underwent a drastic shift. 

Swept aside with the simple mass faith in the 

idea of inevitable progress were the easy 

shibboleths of the cult of prosperity set forth 

by a number of the leading business and 

political figures of the 1920s. In their place, 

the regulation and reform of the American 

economy, through the aegis of the federal 

government under stronger presidential leadership, became the new reigning&belief and 

political philosophy. . 

Whatever the final verdict of history, it 

seems likely that the New Deal will rank, and 

be remembered, as a revolutionary era in 

American thinking. . . . More than in any 

other comparable period of the American 

past, the years from 1929 to 1941 transformed the traditional values and attitudes 

of the American people, conditioning them 

to look, as never before, to the national state 

as the basic arbiter and fundamental factor 

in their lives.” 

In the final analysis, then, the real “New Deal” was 

in human minds. 

THE SEARCH FOR RECOVERY: 

UNEMPLOYMENT AND 

THE NEW DEAL 

An Activist Thrust 

Economic recovery-getting America “back to 

work” in the broadest sense-was the principal goal 

9 
Figure 2 

PRINCIPAL NEW DEAL MEASURES, 193348 

“Bank Holiday” 

Federal Emergency Relief Act, creating 

Federal Emergency Relief Administration (FERA) 

Agricultural Adjustment Act, creating 

Agricultural Adjustment Administration (AAA) 

Tennessee Valley Authority (TVA) 

Home Owners’ Loan Corporation 

National Industrial Relations Act, creating 

National Recovery Administration (NRA) 

Federal Deposit Insurance Corporation 

Civil Works Administration (CWA) 

March 1933 

May 1933 

May 1933 

May 1933 

June 1933 

June 1933 

June 1933 

November 1933 

Securities and Exchange Commission (SEC) June 1934 

Works Progress Administration (WPA) May 1935 

Wagner Act, creating National Labor Relations Board (NLRB) July 1935 

Social Security Act August 1935 

Public Utility Holding Company Act August 1935 

Bankhead-James Farm Tenancy Act, creating July 1937 

Farm Security Administration (FSA) 

Fair Labor Standards Act June 1939 

SOURCE: Bernard Bailyn.et. al., The Great Republic: A History ol the Americen People. Boston, MA, Llttle. 

Brown and Company, 1977, pp. lO&?,lG97. 

of the New Deal. The battle was fought on many 

fronts, and it included more than a dozen statutes of 

paramount significance as well as a host of lesser, but 

still important, ones. The frantic “100 days” following the inauguration of President Franklin D. Roosevelt on March 4, 1933, included 15 Presidential messages and the enactment of 15 major laws. A second 

wave of major legislation occurred in 1935, near the 

end of Roosevelt’s first term in the White House. 

(Figure 2 lists a number of the key economic measures.) 

None of this legislative activity followed any clear 

plan, theory, or design. The new President, like most 

other leaders at the time, had no ready solution to the 

nation’s economic crisis in mind. When he took office in 1933, Roosevelt certainly contemplated 

neither massive increases in federal spending and indebtedness nor the erection of a national welfare 

state, although many critics and ~supporters believe 

that both were the eventual outcomes of his teaure. 

On the contrary, Roosevelt’s election campaign had 

stressed the need for a balanced budget and economies ,in government-goals that were then very 

widely shared. Robert L. Heilbroner has noted, 

It is curious that the Roosevelt Adminlstration had little clear idea of how to remedy 

this situation when it fist took office. 

Neither. . . did the business community. Indeed, for nearly everyone, economists included, the only “remedy” for the Depression was thought to be a balanced budget for 

the government.” 

Yet the magnitude of his electoral landslide, the 

large Democratic majorities in the Senate and House, 

and the features of his own political personality gave 

Roosevelt unprecedented flexibility. Another eco10 
nomic historian, W.W. Rostow, observes that: “The 

Depression brought to power Franklin Roosevelt 

with an initial mandate to act in almost any direction 

he chose, so long as he lifted the nation from the 

trough of depression. “I5 Rostow adds that, “so far 

as unemployment was concerned, [Roosevelt] lacked 

a program,” although he formulated one quickly. I6 

By temperament and background a “doer,” as 

welJ as a superb leader, Roosevelt quickly devised a 

series of responses. “What set Roosevelt so sharply 

apart from his predecessor was his wilhngness to experiment with a great variety of schemes to achieve 

mis] goal. “I’ The new President 

. . .gathered around him in the executive 

branch-and released in the Congressional 

branch+very variety of activist, There was 

no national plan, but there was a competitive 

contest to apply every partial insight or national experience which seemed relevant to 

the nation’s crisis. Roosevelt’s first term was 

a climatic bringing together-an orchestration-of men, ideas, and policies formed 

over the previous half-century’s national 

debate, study, experiment, and experience.” 

The resulting social experiments brought the 

federal government into a host of new domains. Still, 

they did not represent a sharp break from the 

American reform tradition to which Roosevelt 

himself belonged. Many New Deal measures 

. . were essentially a broadening of those 

that had been developed in most of the major industrial states during the Progressive 

Era. Then, for the first time, serious efforts 

were launched to cope with such effects of 

industrial urban living as child and female 

labor, inadequate housing, low wages, esccssive hours, dangerous working conditions, industrial accidents, and lack of retirement benefits. Although no state provided 

solutions for these problems in this period, 

the attempts at least established precedents 

for more comprehensive measures in future 

yeam. ” 

Thus the “new” in New Deal described its nationalizing spirit, rather than its basic ideas or programs. 

The Directions of Policy 

Because of its diversity and pragmatic spirit, it rcmains difficult to characterize fully and accurately 

the programmatic thrust of the New Deal. However, 

political scientist Samuel H. Beer-once an aide to 

“brain-truster” Thomas G. Corcoran-believes that 

its programs clustered around the twin problems of 

economic concentration and economic insecurity.” 

An equally prominent younger scholar, Theodore J. 

Lowi, suggests that the significant policy changes 

moved from the more traditional subsidy (or distributive) programs toward newer ones involving 

economic regulation and income redistribution.” 

These views are not identical; still, although Beer is 

concerned with problems and Lowi with means, the 

two interpretations do have something in common. 

Chronologically, the New Deal legislation occurred in two major waves, often termed the “first” 

and the “second” New Deal. The principal measures 

of 1933 and 1934 .were aimed at reorganizing, 

through federal regulation, crucial ailing sectors of 

the economy: industry, agriculture, banking, home 

building, and the stock market. Other bills provided 

temporary emergency relief benefits. Although radical from the perspective of the traditional limits on 

federal activity, these measures were clearly intended 

to bolster the operation of the private enterprise 

system, not to revamp or replace it.” 

In formulating these measures, Roosevelt sought 

to draw on past experience, as he did in other policy 

areas. Yet the experience with the problem of economic management was quite limited. Only the 

World War I mobiliratfon seemed relevant. Hence, 

in devising his major regulatory measures, 

Roosevelt reached back to the last great national crisis the nation had faced, the First 

World War, and created the National Recovery Administration (NRA) on analogy with 

the War Industries Board.” 

Roosevelt hoped that negotiated price stability and 

wage increases would spur recovery. Had these rcgulatory measures worked, in historian Paul K. Conktin’s view, much of the later New Deal-including 

the major welfare and relief programs-“would have 

seemed unnecessary.“2’ But, based on a false 

premise, the fist New Deal failed, and probably 

slowed down the process of recovery:” 

By late 1934, NRA was a shambles, the victim of the businessmen’s self-serving codes, 

widespread violations of these same rules, 

and bitter criticism from almost every section of American society. The Depression 

refused to lift. Though unemployment had 

11 
declined since the darkest months of early 

1933, it was about as bad as it had been the 

day Roosevelt was elected. Net farm income 

was a dismal 50% of its level in 1929, and the 

food shortages caused by a cruel drought on 

the Great Plains accounted for most of the 

price increases since 1933. Only corporate 

profits were making strong gains in 1934.16 

Then, in 1935, the Supreme Court declared the NRA 

unconstitutional; early in 1936, it rejected the 

similarly constituted Agricultural Adjustment Act. 

If the first New Deal embodied Lowi’s “regulatory” policies, the second New Deal concentrated 

to a greater degree on “redistributive” measures. 

This altered the tenor of the political debate. 

Roosevelt clearly turned toward the left in 1935 and 

1936-to a certain degree in policy substance, and 

even more so in rhetoric. The failure to achieve 

recovery, and the President’s falling political stock as 

he faced reelection, encouraged this new direction. 

The most important policy outcomes were the 

greatly expanded system of relief under the Works 

Progress Administration, the Wagner Act creating 

the National Labor Relations Board, and especially 

the Social Security Act. All were signed in 1935. The 

latter, by creating a program of unemployment compensation, remains the New Deal’s greatest continuing legacy in the unemployment policy field. 

The’ new rhetoric appeared in 1936, fist in 

Roosevelt’s January State of the Union message, and 

even more so in his June renomination acceptance 

speech. Both were marked by attacks on the “economic autocracy,” the “men of entrenched greed,” 

the “economic royalists,” and the resulting “economic tyranny.“” Yet, while these speeches colored 

the Presidential election and historical memories of 

Roosevelt’s character, by that time the major 

legislative work of the New Deal had been largely 

completed. 

The Politkal Foundations 

There can be no doubt that Roosevelt responded to 

the concerns of the public in formulating his unemployment and recovery policies. Indeed, his election in 1932 and his reelection in 1936, reflected the 

popular discontentment with Hoover’s governmental 

leadership and the later endorsement of Roosevelt’s 

own. E.E. Schattschneider has written, 

In 1932 the country, in the midst of a great 

depression, used a demoralized and disorganized Democratic party to produce the 

greatest reversal of public policy in 

American history. . . . The election of 1932 

was much more than the defeat of a political 

party; it was something very much like the 

overthrow of a ruling class.” 

At the same time, Roosevelt did not simply follow 

public opinion or obey the electorate’s mandate. On 

the contrary, as Beer observes, 

. it is wholly uninstructive to hypothesize 

that the majority that swept Roosevelt into 

the White House in 1932 entertained a view 

of the general principles that were later embodied in the programes and policies of the 

New Deal.” 

.., 

How could they have? None of the major policies 

had been described during the course of the campaign. Although public opinion-mobilized by the 

demagoguery of Huey Long, Dr. Francis B. Townsend, and Father Charles CoughIindid encourage 

the “shift to the left” beginning in 1935, Roosevelt’s 

1936 reelection at most simply ratified his past 

energetic experimentalism. fn policy terms, it was 

another “blank check.“‘O 

Hence, it .must be said that tbe politiad party 

realignment which occurred in the New DeaI years 

was !‘elicited” from the electorate-to use Samuel. 

Beer’s careful phrasing-rather than created by it.” 

Intentionally or not, Roosevelt constructed a new 

Democratic coalition by his selection of policies: 

Laying a base for a new Democratic party 

mainly in the cities of the north, Roosevelt 

added to traditional elements, such as the 

south and certain ~bii. city machines, new 

strength from organized labow, farmers, recent immigrants, Negroes, old people, and 

intellectuals. It was a coalition which neither 

Roosevelt nor anyone else planned or even 

foresaw, but which came into existence in 

step with the various programes of the New 

Deal. Typically for each of the constituent 

groups there was a program or set of programes that not only favoured the interests 

of the group, but also often defined those interests in a way not previously conceived by 

the group and its spokesmen.” 

The political transformation of the New Deal, 

then, involved the interplay of programs and interest 

groups against a background of electoral pressure fqr 

12 
action-almost any action-and for strong Presidential leadership. The latter Roosevelt offered willingly. 

Some interest groups were better organized and more 

influential than others, however. According to James 

T. Patterson, lobbying was particularly important on 

Capitol Hill: 

. . when strong pressure groups such as 

farmers or veterans threatened the hapless 

Congressmen with electoral extinction. As 

one contemporary observer commented, 

Roosevelt’s chief difficulties with Congress 

in 1933 emanated from such pressure 

groups. The President, he said, could “do 

little more than keep order in the bread line 

that reached into theTreasury.“” 

The ties cemented between organized labor and the 

Democratic party were perhaps the most important 

political outcome. These were to be of great 

significance in shaping employment-related (and 

other domestic) legislation in later years. Largely 

because of the passage of the Wagner Act in 1935- 

the “Magna Carta” of organized labor-union 

membership jumped from 3.5 million in 1930 to 9 

million in 1940.3’ Simultaneously, and in reaction, 

the Republican party moved to better represent opposing conservative and business interests. The party 

system was realigned along a social class, rather than 

a sectional line of political cleavage, with the “scope 

of government” becoming the major point of contention. James L. Sundquist comments, 

It was in the New Deal era that tight bonds 

were formed between organized labor and 

the Democratic party, that ties equally close 

if less formal and overt were formed between 

business organizations and the GOP, and 

that partisan politics for the first time since 

1896 sharply accented class issues. An activist-conservative line of cleavage and a classbased rationale for the party system are two 

ways of describing the same structure, for it 

was the lower economic classes who wanted 

to use the powers of government for the 

relief of economic hardship and the reform 

of the economic system in their interests. 

The party conflict thus reflected at the same 

time a broad policy disagreement as to the 

role of government and a struggle between 

broad class and interest groups for the control of government.” 

Although the problem of unemployment was a major concern throughout this period, its principal victims were surprisingly politically quiescent, a fact 

noted in most novels and social surveys of the era.j6 

Few held government responsible for the problem, 

and the psychological pressures of unemployment 

discouraged, rather than stimulated, meaningful 

political activism. Deepening apathy and despair 

were common reactions. While protest activities were 

numerous enough to attract much attention and provoke concern and even fear,‘.by and large they also 

were 

. . . sporadic, unfocused, and to a considerable extent merely rhetorical. A Washington reporter described the American 

bonus marchers of 1932 as “the army of bewilderment,” their behavior marked by “a 

curious melancholy.” When, gathered eight 

thousand strong before the Capitol, they 

learned that the Senate had rejected the 

bonus bill, they meekly accepted the suggestion of their leader that they sing 

“America,” and straggled back to their pitifulshacks on Anacostia Flats.*’ 

The same was true in most European nations. 

“Nowhere,” Ciarraty writes, did the unemployed 

become 

. . . an effective pressure groap or an independent political force. Political activism 

was incompatible with joblessness. Insecurity caused the unemployed to be fearful and 

dependent. Fear and dependence eroded 

their confidence and destroyed hope. Lack 

of confidence and hopelessness undermined 

their expectations. Typically, when workers 

lost their jobs they had not suffered enough 

to become rebels. By the time they had suffered they had lost the capacity for militant 

protest.” 

INCOME MAINTENANCE 

FOR THE UNEMPLOYED 

Temporary Work Relief 

Several early New Deal programs sought to cushion the unemployed against financial hardship. These 

were “relief” programs, in the vernacular of the 

times, or “income maintenance programs,” as they 

are now usually termed. Aside from cash payments 

or direct relief-considered in a separate case study 

13 
Table 2 

WORK RELIEF AND PUBLIC WORKS PROGRAMS, 1932-43 

Nxvwa~e 

Peak Expenditures 

Dales of Enrollment (millions of 

Program Operation (thousands) dollars) 

State and local work relief under loans of July 1932- 1,970 $ 300 

ReconstructIon Finance Corporation April 1933 (March 1933) 

WC) 

Civilian Conservation Corps (CCC) April 1933- 505 2,966 

August 1942 (August 1935) 

Early work projects of Federal Emergency May 1933. 1,716 147 

Relief Admlnletratlon (FERA) November 1933 (August 1933) 

Clvll Works Administration (CWA) November 1933. 4,264 952 

May 1934 (January 1934) 

Emergency Work Relief Program of the April 1934. 2,446 1,195 

FERA (EWRP) December 1935 (January 1935) 

Works Progress AdminIstratIon August 1935 3,330 13,407 

(WPA; renamed Work Projects June 1943 (November 1936) 

Admlnlstratlon, July 1939) 

Natlonal Youth AdmInIstratIon (NYA; September 1935- 606 534 

Student Work Program and Out-of- June 1942 (March 1940) 

School Work Program) 

Public Works AdmInIstratIon (PWA; federal September 1933 541 4,500 

and nonfederal projects) June 1942 (July 1934) 

SOURCE: Jonathan R. Kesselman, “Work Relief Programs in the Great Depression.” in John L. Palmer, ed., Creating 

Jobs: Public Employment Programs and Wage Subsidies, Washington, DC, The Brookings 

Institution, 1978, p. 153. 

in this report-employment-related relief took two 

major forms: temporary and permanent. The temporary programs provided emergency employment 

opportunities in public jobs or public works projects. 

The major permanent program-“permanent” from 

the standpoint of the federal government, not the 

recipient-was the system of unemployment compensation or unemployment insurance created under the 

Social Security Act of 1935. 

Beginning in 1933, and continuing over the next 

decade, the federal government established a whole 

series of work relief programs, as Table 2 (and 

Graph 3) indicate. Upon assuming office, Roosevelt: 

. . . plunged the national government into 

the business of relief. The Civilian Conservation Corps (CCC) took thousands of unemployed young men offs the streets and out 

of rural slums and put them to work on 

reforestation and flood and fire control. The 

Public Works Administration (PWA) and 

the Civil Works Administration (CWA) provided employment for millions of citizens in 

vast public works programs created to stimulate depressed industries, especially construction. The National Youth Administration (NYA) provided part-time jobs for high 

school and college students so that they 

could earn enough money to complete their 

education. The Works Progress Administration (WPA) provided jobs for the unemployed, including artists, musicians, and 

14 
Graph 3 

PUBLIC ASSISTANCE AND EARNINGS OF PERSONS 

EMPLOYED UNDER FEDERAL WORK PROGRAMS, 1933-39 

300 A k 

, 

I TYI 

L 

-WA 

‘ES OF PUSLId ASSISTANCE 

0 

193s 1930 

1 ISUBSISTENCE 

PAYMENTS 

SOURCE: Joseph C. Brown, Public Relied: 19247%?S, NY, Henry Holt and Co., 1940, p. Y. 
scholars, suited to their skills and experience.” 

The new federal efforts supplanted the “work for 

relief” programs that had been instituted in many 

large cities in 1930-31. In that same period, several 

proposals were made for federal public works grants, 

but these had been resisted by President Herbert C. 

Hoover. When he left office, only a program of relief 

loans administered by the Reconstruction Finance 

Corporation was in operation.‘O 

Among the early New Deal relief programs, the 

most important was the Federal Emergency R&f 

Ad (FERA).” FERA funds, provided to state 

governments on a matching basis, could be used for 

either direct relief or work relief. The latter, 

however, was favored by both the President and 

FERA Administrator Harry Hopkins for psychological reasons: It helped to protect the recipient’s selfrespect.” The short-lived Civil Works Administration (CWA), in contrast, was a direct federal operation. Its workers-half drawn from the relief rolls 

and half from among the other unemployed-were 

on the federal government’s own payroll.” 

The largest of the work relief projects were those 

initiated under the Works Progress Administration 

(WPA), beginning in 1935. The WPA greatly expanded the work relief strategy of prior years. It increased tenfold the amount initially given to FERA, 

and absorbed about one-half of the government’s 

total expenditures.” Indeed, the $4.9 billion Emergency Relief Appropriation-“to be spent as Roosevelt saw fit”-was at that time 

. . the largest appropriation in American 

history and the largest accretion to the national debt. Roosevelt used it to consolidate 

and expand numerous early, temporary relief programs, which had served up to 30 

million people. About $l,5OO,OCO,OOO, the 

largest single block went to Harry Hopkins 

and to a new relief organization created by 

executive order, the huge Works Progress 

Administration (WPA). In turn, the WPA 

used most of its share, plus endless new appropriations, for work programs for the unemployed.” 

Large as it was, however, the WPA effort was considerably below the $6 to $10 billion scale some advocates had proposed.” 

WPA differed from FERA in a number of respects. It provided work relief, rather than cash, and 

was administered by federal, rather than state, officials. No specific amount of state matching was 

necessary, but states were required to bear the full 

cost of general relief payments to the “unemployable%” Thus the federal and state relief spheres were 

separated. The objective was the elimination of the 

bickering between the two govermental levels which 

had plagued FERA operations. Although a few 

Governors did object to the federal control of work 

relief funds, and many liberals felt that state relief efforts were wholly inadequate, the areas of tension 

were reduced considerably.” 

Mixed Assessments 

The WPA, in particular, was an “impressive 

achievement” as well as a “bold departure,” in the 

opinion of historian William E. Leuchtenburg.” He 

offers this partial listing of its many varied accompljshments: 

The WPA built or improved more than 

2,500 hospitals, 5,900 school buildings, 

1,000 airport landing fields, and nearly 

13,000 playgrounds. It restored the Dock 

Street Theater in Charleston; erected a 

magnificent ski lodge atop Oregon’s Mount 

Hood; conducted art classes for the’insane in 

a Cincinnati hospital; drew a Braille map for 

the blind at Watertown, Massachusetts; and 

ran a pack-horse library in the Kentucky 

hills.‘9 

In a similar vein, Donald R. McCoy identifies 

relief as the greatest success story of the New Deal’s 

“three R’s”: relief, recovery, and reform.‘O He notes 

that, 

The WPA’s Federal Theater Project gave 

work to jobless playwrights, actors, directors, musicians, and other show people. Its 

plays, musicals, variety shows, and circuses 

were performed all over the country, thus 

boosting public interest in the thespian 

art. . . . Similar accomplishments were 

achieved by the WPA’s Federal Art Project 

and Federal Writers’ Project. Out-of-work 

artists and writers were enabled to ply their 

crafts. . . The National Youth Administration was created to tend to the special problems of young people. . The NYA, during 

its seven years of existence, provided parttime work for more than 2,000,OOO high16 
school and college students and assisted another 2,600,000 youth with vocational training or work-relief jobs. . The Works Progress Administration contributed mightily 

to the reshaping of the face of America, 

which was shared in by the Public Works 

Administration and the Civilian Conservationcorps.” 

Even though they met a real need under emergency 

conditions, the work relief programs were “ever fully 

accepted. Roosevelt himself was of two minds on the 

matter. His goal was economic recovery, not a” expanded federal “dole.” In 1932 and 1933, Roosevelt 

was “frankly leery” of the idea of expanded public 

works, which was favored by a number of Congressional Democrats.” In the spring of 1934, he terminated the very popular Civil Works Administration out of alarm at its cost and in fear that it was 

creating a “permanent class of reliefers.“” Even in 

1935, hedeclared that, 

I am not willing that the vitality of our people be further sapped by the giving of cash, 

of market baskets, or a few hours of weekly 

work cutting grass, raking leaves, or picking 

up papers in the public parks. We must preserve not only the bodies of the unemployed 

from destitution but also their self-respect, 

their self-reliance and courage and determination.” 

“The federal government must and shall quit this 

business of relief,” he declared in his January 1935 

message to Congress. In his mind, the WPA-like 

the Federal Emergency Relief Act-was a necessary 

but temporary expedient under conditions of economic crisis, to be terminated as promptly as possible.” 

Criticism of work relief abounded, from both ends 

of the political spectrum. The American Federation 

of Labor (AFL) charged that the wage paid (about 

$50 a month) was undercutting union scales and advocated the use of the prevailing wage-a position 

adopted by many other liberals.‘6 Militant workers in 

some cities organized themselves into unions and 

protested against the government’s managerial practices, frequent dismissals, and failure to give work to 

all of the eligible unemployed.” 

In contrast, Roosevelt’s critics on the political 

“right” felt that a” outright dole would be less expensive and equally effective as work relief.” They 

objected to make-work “leaf-raking” and idleness 

on the job and expressed concern that the WPA was 

becoming a political patronage operation.‘P The term 

“boondoggle” was coined as an expression of derision: 

During a” aldermanic inquiry into New 

York City relief early in 1935-i” which it 

was discovered that money was being spent 

for the teaching of tap dancing and the 

manipulation of shadow puppets, and for 

such academic enterprises as “a study of the 

predominating nonprofessional interests of 

teachers in nursery schools, kindergarten, 

and first grade” and “a study of the relative 

effectiveness of a supervised correspondence 

course in elementary Latin”-one Robert 

Marshall testified that he was a “training 

specialist” who taught the reliefers “boondoggles,” explaining that this was a” old 

pioneer term for useful everyday tricks of 

handicraft such as making belts by weaving 

ropes. The strange term entranced “ewspaper readers, and presently the conservative 

press everywhere was referring to relief projects of questionable value as “boondoggling.“60 

Roosevelt responded to such criticisms with conviction, however, 

Some people in this country have called it 

“boondoggling” for us to build stadiums 

and parks and forests and to improve the 

recreational facilities of the nation. My 

friends, if this stadium can be called boondoggling, then I am for boondoggling, and 

so are you.*’ 

Still, it is true that the system of work relief was 

not altogether satisfactory. Although “magnificent” 

in principle, these extremely large programs did experience serious operational difficulties, and the 

quality of the jobs provided was often inadequate: 

Try as Hopkins and his aides might to make 

the work vital and prideworthy, the fact remained that it was made work, ill-paid, 

uncertain, undemanding of real quality of 

workmanship; and that the reliefers became 

perforce, by degrees, a sort of pariah class, 

unwelcomed by private industry, dwelling in 

a” economic twilight.6’ 

A recent economic analysis agrees that the work 

relief programs are best regarded “as primarily a 

17 
camouflaged form of direct relief” and beset with 

many operational inefficiencies and inequities. 

Although the “work programs furnished widespread 

income support to unemployed needy households,” 

Kesselman adds that, 

. payments were unrelated to the need of 

participating households and were more 

costly than direct relief. Because organized 

business and labor groups restrained work 

relief from competing activities, the projects 

yielded relatively few private consumption 

goods, the form of output having the most 

urgent value. Most output was in the enduring form of public works that have benefited 

generations less needy than the one that built 

them. The decision to maximize on-site employment undermined the efficiency of even 

the limited range of work relief projects. 

Relief employment provided substantial 

rents to workers with erratic or no employment in the private sector. Rationing the 

limited positions by certification and administrative devices imposed real resource 

and equity costs on the programs6’ 

Even on its own terms, the WPA fell short. As 

large as it was, the WPA “never came close to meeting Roosevelt’s goal of giving jobs to all who could 

work.” Of the some 10 million jobless, the WPA 

cared for not more than three million6’ As a counterrecessionary measure, work relief also was at best a 

gap-filler, ineffective in spurring national economic 

recovery. When the decade ended, 

. personal income in the United States 

stood at only $72,9oo,ooO,ooO in 1939, compared with $85,8OO,Oo,OOO in 1929, 

although the population had increased by 

more than 9,000,ooO. Almost 9,500,ooO people, or 17.2% of the labor force, were still 

unemployed in 1939, about three-quarters of 

those out of work in 1933. . . Of the 

world’s major industrial nations, the United 

States in 1936 was the least advanced toward 

recovery and by 1939 was the only one still 

seriously affected by depression6 

Still, whether effective or not, the ideas formulated 

in this period were to have a lasting impact on federal 

unemployment policy. Although the New Deal programs were suspended during the wartime years, 

public employment programs reappeared in the 1960s 

18 

and 1970s. New Deal experience provided the prototypes for these more recent initiatives in several cases. 

THE ENACTMENT OF 

UNEMPLOYMENT INSURANCE 

To meet some objections to his relief programs, 

and to provide a~more permanent form of assistance 

for the unemployed, Roosevelt sought and got a 

system of unemployment compensation, supported 

by unemployment insurance contributions.6b Created 

by Titles III and IX of the Social Security Act of 

1935, this was the only continuing program directed 

at the problem of unemployment to emerge from the 

New Deal. 

The act built on the foundations of the WognerPeyser Act, which had created the U.S. Employment 

Service in 1933. This agency became the federal administrator for unemployment compensation. Under 

the grant-in-aid program authorized by WognerPeyser, the number of states with local employment 

offices rose from 23 in 1933 (chiefly in the industrial 

states) to 35 by 1935.L’ 

Unemployment insurance (UI) differed from the 

earlier “relief” and current “welfare” programs in 

several respects. A clear philosophical distinction 

may be drawn between the noncontributory public 

assistance programs-among them Aid to Families 

With Dependent Children, Food Stamps, and Medicaid-and the contributory programs of social insurance-unemployment compensation, Social Security, and Medicare. In contrast to the relief programs 

of the New Deal, the newly emerging philosophy of 

social insurance stressed four principles: 

protection is provided as a matter of 

right, not as a “benevolence” of government; 

all citizens should be eligible for 

coverage, regardless of class or income 

level; 

benefits are closely related to an individual’s contribution to the economy 

as indicated by wage rates; and 

both employer and employee contribute 

to the costs of protection6’ 

Unemployment insurance, then, was part of a new 

wave in federal unemployment policy and-according to proponents-an improvement of, and supplement to the earlier relief strategy. Secretary of Labor 

Frances Perkins, in a speech describing the principles 
of the Social Security Act (%A), referred to 

unemployment insurance as a “substitute for haphazard methods of assistance in periods when men 

and women living and able to work are without 

jobs. “O She also termed it a 

. . . companion measure to the Works Relief 

Act which does undertake to provide immediate increase in employment and corresponding stimulation to private industry 

by purchase of supplies.” 

History 

In some respects unemployment insurance was the 

most innovative program established by the Social 

Security Act. At the time of its adoption, only a 

single state-Wisconsin-had enacted a UI program. 

In contrast, most of the other titles of the SSA built 

on preexisting state or federal laws.” It also is 

noteworthy that the UI program employed a seldom 

used form of fiscal incentive to assure state actionthe tax credit-rather than the more common grantin-aid. For this reason, the program is “an important 

chapter in the history of federal-state cooperation.“” 

Still, the concept underlying UI was comparatively 

old. The basic model was borrowed from European 

experience. In the 189Os, municipal governments in 

several nations had begun to subsidize trade union 

unemployment benefit funds; France, starting in 

1905, was the first nation to do so.‘* In 1909, Great 

Britain created a network of employment offices 

and, two years later, the first national unemployment 

insurance system financed through worker and employer contributions and state subsidies. Its provisions 

. . . established a compulsory system for 

workers in certain industries with high 

unemployment records; the total covered 

numbered about 2,250,COO. Contributions 

were required from employers and employees, and a state subsidy amounting to 

one-third of the sum paid by the two groups 

increased the total available for benefits. 

This tripartite system of contributions 

became the distinguishing characteristic of 

the British plan. Although the emphasis of 

the act was on compensating the jobless, 

relatively strict limitations prevented unnecessary benefit payments, and modest incentive provisions allowed workers and 

employers with good employment records to 

claim refunds (a provision that was dropped 

in 1920). . . . [Slubsidies were offered to 

trade unions. While it rejected prevention, 

the 1911 act was sound financially, limited, 

moderate, and based, insofar as possible, on 

insurance methods.” 

The British UI system-enacted along with a program of national health insurance-had a profound 

impact worldwide, serving as a point of departure for 

reformers elsewhere. By 1925 there were 15 national 

unemployment insurance systems-eight voluntary 

and seven compulsory. ‘I Within the United States, 

according to the historian Daniel Nelson, the adoption of the British system 

acted as a catalyst on American 

reformers. Suddenly the precedent for a 

workable long-term (unemployment insurance) program existed. In the following 

years there appeared in the United States 

numerous assessments of the Ghent and the 

British plans. Relatively few Americans, 

perhaps, changed their ideas about unemployment, but among the small groups of 

scholars and writers who were interested in 

unemployment, the British act I had a 

remarkable influence.‘6 

The emergent American version of unemployment 

insurance differed from its European predecessor, 

however. The European approach emphasized the 

worker and his needs, while the American emerging 

variant stressed the responsibility of the employer to 

reduce unemployment. This view affected both early 

private unemployment insurance plans and ultimately the federal legislation.” 

According to Nelson’s detailed historical account, 

the key leadership in developing the UI idea in the 

United States came from the American Association 

for Labor Legislation (AALL), founded in 1906. 

Modeled after similar European organizations, the 

AALL was a proponent of labor legislation in 

general and social insurance in particular. Its 

Practical Program for the Prevention of Unemployment, adopted at a 1914 meeting, called for the 

establishment of unemployment insurance, the creation of employment offices, the use of advance planning of public works, and the “regularization” of 

employment by individual employers. Both before 

and after World War I, AALL representatives 

worked for the enactment of labor legislation in 

19 
many states. Among the major figures in its membership of intellectuals, social workers, and reformers 

were John B. Andrew, Prof. John R. Commons, 

and Prof. Charles R. Henderson.” 

Organized labor, on the other hand, was a key opponent of unemployment insurance until 1932. Like 

many businessmen of the period, the American Federation of Labor generally adhered to the doctrine of 

laissezfaire, while protecting the worker through collective bargaining. One AFL resolution on the question stated that workers were 

. . being asked by the promoters of compulsory unemployment insurance in the 

United States to yield up their birthright, to 

practically surrender in their struggle for 

liberty, by enactment of legislation deliberately calculated to give the employers increased control over the workers.‘s 

It was not that the AFL membership or leaders 

were unconcerned about unemployment; quite the 

contrary. Their favored solution, however, was a 

shorter work week, which they believed would increase the demand for labor and lead to higher 

salaries. Although the AFL’s general antigovernmental posture softened somewhat after the First World 

War, labor movement support for unemployment insurance in the 1920s was confined to its radical 

wing.‘O 

A second stream of interest and support for UI 

came from progressive business circles, including the 

Taylor Society and the American Management Association. This new breed of “scientific managers” 

identified irregular employment and hi levels of 

turnover as important causes of business inefficiency 

and, hence, lower profits. As a result of this assessment, a handful of company-sponsored unemployment insurance funds were created between 1916 and 

1934.” 

The earliest federal involvement with the question 

appeared in 1916, when a recommendation of the 

U.S. Commission on Industrial Relations urged the 

development of unemployment insurance plans and a 

Congressional resolution proposing a national unemployment insurance commission was introduced by 

New York’s Socialist representative, Meyer London. 

However, any serious consideration of this proposal 

was barred by the “virulent attack” on compulsory 

social insurance (and socialism in general) by the 

AFL’s Samuel Gompers.” 

During the recession of 1920.22, the general idea 

was declared to be “worthy of the most careful consideration” by an expert Economic Advisory Council 

to the National Conference on Unemployment. That 

conference was organized largely by President Warren G. Harding’s Secretary of Commerce, Herbert 

Hoover. In the pre-Depression era, Hoover was an 

important representative of the new “scientific” 

business philosophy. Over the years, he endorsed in 

some form every item included in the AALL’s PraclicalProgrum.‘s But the national conference 

. .w*s an unprecedented event and 

Hoover’s greatest achievement in the field of 

unemployment policy. For the first time the 

outstanding American students of unemployment had been brought together under 

official auspices. Since Gompers and the 

AFL leadership, as well as most businessmen, opposed legislative programs to 

alleviate or prevent unemployment, there 

was no real possibility for a more advanced 

program. But the decision to establish a 

committee to study business fluctuations and 

unemployment problems indicated official 

interest in combating unemployment on a 

long-term basis.“ 

By the mid 1920s. this early interest had largely 

evaporated. America’s postwar prosperity reduced 

support for social welfare legislation in gegeral and 

unemployment insurance in particular. None of the 

some 20 bills introduced into state legislatures during 

the decade-generally by Socialist members-met 

with success. A similar fate befell the fist national 

unemployment insurance bill, introduced in the 

House of Representatives by Wisconsin’s Socialist 

Congressman, Victor Berger.” 

The Depression Years 

The onset of the Depression revealed the inadequacies of voluntary unemployment insurance 

schemes and other existing remedies and transformed 

public attitudes toward unemployment. The values 

of thrift and personal responsibility, grounded in an 

agrarian rather than industrial economy, were challenged and ultimately changed by the force of circumstances. At least from a long-run perspective, it 

may accurately be said that, 

. . the depression of 1932 . . .proved to 

even the conservation elements in America 

that the forces of economic competition and 

change were too inherent in our system of 

20 
political economy to rely upon prevention 

alone for the protection of our citizens 

against distress caused by loss of earnings. 

At long last, it was realized by many that the 

emphasis must shift, so far as the worker 

was concerned, to a system of benefits 

payablc,as a matter of right regardless of the 

degree to which the employer or the government succeeded in eliminating disastrous 

economic or physical hazards along the way. 

So many able, willing, and thrifty workers 

faced want and distress that the older concept of personal responsibility or blame for 

one’s dependency was no longer tenable, at 

least as a general principle.‘6 

Be that as it may, it also is true that the desirability 

of social insurance was not accepted quickly or 

universally. Between 1933 and 1935, “the strong 

suspicion of Americans toward any type of social insurance was a major obstacle” to UI. Furthermore, 

while the public at large was initially uncertain about 

the necessity of this new approach, its more ardent 

proponents were dangerously divided over its appropriate form. Many social reformers insisted on a 

strong national system like that in Britain, .but 

reform-minded busiriessmen were unwilling to accept 

this strategy, as were many members of both the 

Congress and-it appeared-the judiciary. The 

leaders of organized labor, on the other hand, were 

both “independent” and in some respects “uncommitted” on this crucial organizational question.” 

The political battle over UI began in earnest in the 

final years of the Hoover Administration. Sen. 

Robert F. Wagner @-NY), again introduced a series 

of unemployment-related bills based on the AAIL 

program, including, in 1931, a proposal for unemployment insurance. However, the newly created 

Senate Select Committee on Unemployment Insurance, chaired by Se”. Felix Herbert (R-RI), concluded that a federal system of unemployment insurance was both unconstitutional and unnecessary.” 

Forsaking his own earlier views, President Hoover 

also opposed Wagner’s various proposals. Federal 

unemployment insurance, he charged, would degenerate into a new federal dole. The rivalry between 

these two political leaders became intense, and 

Hoover-“irked by Wagner’s aggressive and, in his 

opinion, partisan tactics”-rejected whatever 

Wagner opposed, at some cost to his own reputation 

as a progressive business leader.lP 

The issue was debated simultaneously at the state 

level. In 193 1,X UI bills were introduced in some 17 

states, and the first was passed by Wisconsin in early 

1932. Advocates hoped that many other states would 

follow suit, but despite many proposals and several 

favorable study commission reports, no more state 

UI bills were adopted until 1935.90 State reluctance in 

many cases was rooted in the economic realities of interstate competition for business and industry, as 

well as the magnitude of anticipated costs. States 

held back in fear that an additional tax on employers 

would put them at a competitive disadvantage in relation to their neighbors.q’ This failure to act, of 

course, was an additional spur toward federal intervention. 

The 1932 election marked a dramatic shift in 

political alignment. The new President was a supporter of social insurance and had attacked Hoover 

on this score in his effort to secure a national reputation. Furthermore, the 1932 Democratic party platform had included a plank vaguely endorsing unemployment insurance legislation. Yet, as has already 

been indicated, Roosevelt turned toward other, more 

immediate relief and reform measures during his 

early months in office. In the first 100 days, 

“probably no issue of such potential significance [as 

UI] received less attention.“9z 

What little interest there was in unepployment insurance came from long-time reformers on Capitol 

Hill and, most importantly, from Se”. Wagner.93 

Two unemployment insurance bills were introduced 

in the Congress in 1933, and four in 1934.9’ Sen. 

Wagner did secure passage of the Wagner-Peyser Act 

establishing the employment office system in 1933,; 

eventually, this provided an administrative framework for the UI program. The WPgner-Lewis Act, 

introduced in 1934, foreshadowed the tax credit 

scheme, which was ultimately employed in the 1935 

legislation. Although President Roosevelt initially 

supported this bill, various criticisms led him to withdraw his endorsement and to caU instead for a more 

comprehensive study.s’ 

The Administration moved to the forefront on the 

issue in June 1934. In a message to Congress, President Roosevelt called for “some safeguards against 

misfortunes which cannot be wholly eliminated in 

this man-made world of ours.” He promised to devise a system that would “provide at once security 

against the great disturbing factors of life.“‘6 For 

this purpose, he formed a Committee on Economic 

Security (COES), composed of several Cabinet 

Secretaries, labor and relief experts, and external advisers. Over a seven-month period, the committee 

21 
prepared a comprehensive bill including four programs of public assistance (for the elderly, handicapped, disabled, and dependent children), as well as old 

age and unemployment insurance. A federal program 

of health insurance also was considered, but not advanced. 

From either a technical or political perspective. the 

committee had a difficult task. The multiplicity of 

views, the “suspicion” of many Congressmen, the 

“hostility” of the. courts, and Roosevelt’s own 

“indecision,” all were threats to its success. Given 

these constraints, the committee sought to minimize 

the opposition to its proposals by presenting “a program that would alienate the smallest number of p-eopie.“” 

The legislative climate on UI during the 1933-35 

period was influenced by the views of three groups, 

each of which favored the general concept in ahernative forms. Many businessmen and their intellectual allies sought a preventionoriented program 

tailored closely to the needs of each industry. The 

better managed industries, they believed, should not 

be forced to bear the costs of those experiencing 

higher rates of unemployment. This demand for flexibility ruled out any son of uniform national program. In contrast, a group of social workers, intellectuals, and reformers desired a European-style national system with uniform benefit standards and 

widely shared costs. The third group, working within 

the Roosevelt Administration, took a pragmatic approach on these particulars, hoping to find a compromise position that would be acceptable to both 

sets of advocates.” 

Within the COES, debate on unemployment insurance centered largely on the nature of federal and 

state roles. The committee’s executive director, Edwin E. Witte-previously the head of Wisconsin’s 

unemployment compensation agency-personally 

favored a national system based on the British 

model. He was a political realist, however, and 

worked for the success of a middle-of-the-road proposal.” 

Roosevelt’s personal position-although he was no 

expert on the technical questions-was apparently 

similar. The President once said that he favored a 

system of “cradle to grave” social insurance against 

unemployment, old age, and illness, operated by the 

national government itself “through the post offices.” Yet he rebuffed proposals of this kind as impossible under the existing political and judicial 

climate: “We cannot,” he told advocates, “eat the 

whole cake at one meaI.“~OO 

A key feature of the COES proposal, taken from 

the earlier Wagner-Lewis bill, was its use of a tax 

credit (or tax offset) system. As ultimately enacted, 

the federal government kvkd a uniform payroll tax 

of 3% on employers with eight or more workers, but 

provided for a credit of 90% of this tax to employers 

contributing to a state unemployment compensation 

system. The uniform tax encouraged states to provide unemployment benefits without eroding their 

competitive economic advantage, and also permitted 

them a great deal of flexibility in determining the 

amount and duration of benefits.“’ To Witte and 

others, ,this approach was appealing because it 

seemed likely to be acceptable to the Supreme 

Court-a similar device had been tested in a previous 

case-and because it held out the hope of satisfying 

both groups of reformers. As a result; the Roosevelt 

bill included no benefit standards and almost no provisions for state compliance. It aimed at flexibility 

and a limited national role for reasons of both 

political and legal strategy.r”’ Secretary of Labor 

Perkins explained this outcome in the following 

terms: 

Federal ,legislation was framed in the 

thought that the attack upon the problems of 

insecurity should be a cooperative venture 

participated in by both the fcderb and state 

governments, preserving the benefits of local 

administration and national leadership. It 

was thought unwise to have the federal 

government decide all questions of policy 

and dictate completely what the states 

should do. Only very necessary mlniium 

standards are included in the federal 

measure leaving wide latitude to the states. 

While the different state laws on 

unemployment insurance must make all contributions compulsory, the states, in addition to deciding how these contributions 

shall be levied, have freedom in determining 

their own waiting periods, benefit rates, 

maximum benefit periods, and the like.‘O’ 

Although this ploy proved successful in the end, it 

also provoked much criticism. Roosevelt’s bill was 

favored by many moderate political and economic 

groups, but it created little enthusiasm among the 

most concerned narties. Many social workers and 

of the Roosevelt program as a betrayal. The business 

community, on the other hand, was becoming increasingly disenchanted with the New Deal and the 

22 
growing promise of increased taxes and more governmental and union interference in business affairs. 

The APL, pushed by its radical elements and rankand-fde membership, had ended its opposition to 

unemployment insurance in 1932, but it was a passive 

supporter at best and of little help during the Congressional struggle.‘0’ 

With a bill in hand, however, Roosevelt became insistent. The act was one of several items of “must” 

legislation urged by the President in June 1935. 

&Mets inchded the Wagnet act la&w proposal, the 

banking bill, a public utility holding company 

measure, and a “soak the rich” tax proposal.) Striking out in a new direction-endorsing the Wagner 

act, for example, which he had previously 

disapproved-Roosevelt 

. . . summoned House leaders to a White 

House conference and, thumping his desk 

for emphasis, told them Congress must pass 

his entire program before it could go home. 

Thus began the “Second Hundred Days.” 

Over a long torrid Washington summer, 

Congress debated the most far-reaching 

reform measures it had ever considered. In 

the end, Roosevelt got every item of significant legislation he desired.lO’ 

Congressional treatment of unemployment insurance is perhaps best described as “cautious.” The 

UI system adopted by it was much like that proposed 

by the COES, although it offered much more restrictive coverage than the Administration had requested. lo6 But in the end, the omnibus Social Securify Acr passed both the House and Senate with ten-toone majorities, becoming laws on August 14, 1935.1°’ 

Given the strength of federal financial incentives, 

it is not surprising that most states moved quickly to 

join the new system. The few holdouts entered after 

the Supreme Court ruled in Steward Machine Co. v. 

Davis (1937) that both the tax on employers and the 

grants to states for administrative costs were Constitutionally permissible methods of promoting the 

“general welfare” and did not infringe on states’ 

rights. 

Postscript 1979: 

A Permanent Commitment 

‘With the passage of unemployment insurance 

legislation in 1935, the federal government made a 

perm(uunu commitment to “do something” about 

the problem of unemployment and the persomd suffering and economic losses it produces. From that 

date on, the unemployed were not solely on their 

own, nor was there any longer the assumption-so 

common in the past-that personal failings, rather 

than national economic performance, was at the root 

of their distress. Temporary financial aid had become a matter of “right,” rather than a handout or 

an act of benevolence. 

Ig fiscal terrnsr this new commitment has proven to 

be quite substantial. UI outlays rise and fall considerably with economic conditions, as Table 3 

shows, but grew from $519 million in 1946 to $12,995 

million in 1977. In the recession year 1975, peak outlays (from both state and federal sources) of nearly 

$18 billion were recorded. 

I~~ 

Table 3 

UNEMPLOYMENT BENEFITS 

UNDEFtSS;;LAWS, 

(dollars In millions) 

1940 $ 518.7 

1945 572.5 

1950 1.407.8 

1955 * 1,466.g 

1966 2,887.1 

1965 2,283.4 

1970 4.183.7 

1971 6,143.7 

1972 6,043.2 

1973 4,534.7 

1974 6,928.7 

1975 17,933.B 

1976 16,169.B 

1977 12,994.5 

SOURCE: social security aulleNn, February 1979, p. 2f 

In large measure, this fiscal growth reflects 

periodic expansions of worker participation. 

Coverage under UI has grown substantially since 

1935. The program initially exempted the employees 

of smaller firms (less than eight workers), private 

household workers, agricultural workers, and 

governmental employees. But benefits were extended 

by Congress to returning servicemen after World 

War II, to federal employees and some other workers 

in 1954, and to many other sectors-including very 

23 
small firms-in 197O.‘O’ In 1977 the employees of 

state and local governments and some farm and 

domestic workers were also made eligible, providing 

coverage to some 97% of all wage and salaried 

employees.‘O’ 

Over the years, the duration of UI benefits also has 

increased. Initially, these payments were limited to 15 

weeks, beginning after a three-weelt waiting period. 

But in 1977, the potential duration for claimants was 

running about 24 weeks, and the waiting period had 

been reduced or, in some states, eliminated. ‘I0 

This expanded coverage reflects the polidcal 

popularity of social insurance in general, as well as 

that of IJI in particular. In this respect, it may be 

contrasted with the much more controversial. programs of public assistance to the poor, which also 

were established under the Social Security Act. Alice 

M. Rivlin, who is now the director of the Congressional Budget Office, once pointed out that after 

1935, 

. . . the strategy of social insurance won acceptance and for the next 35 years a 

dedicated group of people worked to improve the system by increasing benefits, extending coverage, and adding to the list of 

disasters that people were insured against. 

. . The combined result of demographic 

changes and amendments to the social 

security, unemployment compensation, and 

railroad retirement programs is that we now 

have a comprehensive social insurance 

system whose outlays come to well over $60 

billion a year or close to a quarter of the 

federal budget. 

The amazing thing is that--except for 

Medicare . . .the extensions and liberalizations of the social insurance system generated little controversy.“’ 

New end Continuing Issues 

Few governmental programs may be judged unambiguously to be either successes or failures: the 

record is seldom altogether clear, and neither expert 

nor public opinion is ever unanimous. This is as true 

of unemployment insurance as it is of every other 

social welfare program. Various aspects of the program’s operation are criticized. Some of the issues 

are old ones, identical to those involved in the 

political debate of the 1930s; others reflect more recent experience. 

First, it must he said that UI’s record is distinctly 

better than that of many other programs of ai? ‘0, the 

jobless. One expert, Joseph M. Becker, describes UI 

as “easily the most important” of these &UO~MUS 

and also as “immensely successful.““’ :.&other 

policy analyst, Daniel S. Hamermesh, notes that 

“only unemployment insurance (IJI) was commented 

on approvingly by all who mentioned it” in discussions of employment and welfare programs at the 

1974 White House Conference on Inflation.“’ Still, 

several features of the UI program have produced 

continuing criticism since its inception. Marty of the 

objections involve perceived inequities and inefficiencies in the highly decentralized federal-state 

system of policymaking and administration. 

In 1966, Haber and Murray offered this mixed 

review: 

Unemployment insurance has become an accepted part of the American scene. Strongly 

opposed by many before its enactmmt, 

hardly anyone bow suggests its repeal. Yet, 

although it helps millions of workers every 

year, hardly anyoix is content with it. 

Organized labor is critical of its inadequacies 

in coverage dnd benefits. Labor blames the 

program’s shortcomings largely on ex-~ 

perience rating, which’ often @es the 

employers a direct interest in holding down 

benefit payments. While most labor representatives would prefer a federal system, 

they urge that there should be at least minimum federal standards to assure an adequate program in every state. Most management representatives are also critical of the 

program, maintaining that h is not sufficiently “tight” in its eliglbilhy and disqualification provisions. In management’s 

opinion, too many are being paid benefits 

for unemploymmt for which the employer is 

not responsible. There is a general public impression that the program is surrounded with 

a great deal of abuse. This is often based on 

isolated cases or on the reading of a crhical 

newspaper or magazine article. But on the 

whole, in spite of the serious qualms held by 

many, unemployment insurance is widely accepted and taken for granted.“’ 

Similar concerns remain today, and arguments continue to be made for and against the “federalization” 

of the program. Many of these are summarized in 

Figure 3. Unequal treatment of claimants is a major 

24 
Figure 3 

IS FEDERALIZATION DESIRABLE? 

Good arguments have been raised on both federalizes the UI system it will probsides of the issue of federalization of the UI sys- ably set benefit standards that will intern. Some of the arguments in favor of the es- sure that no one, even in the most genertablishment of uniform federal benefit stan- ous states, will be worse off than under 

dards and a single system of experience-rated the old system. This will mean that in altax rate schedules are: most all states, costs for UI benefits will 

1. It would assure an adequate level of increase dramatically and work incenbeneflts for all workers, especially tives, as a result, could be substantially 

those who currently reside In states weakened. 

which may offer inadequate benefits in 2. The current system provides incentives 

an effort to keep their UI tax rate low for individual states to keep their UI 

and thereby attract industry to the state. costs low through careful policing of 

their programs and avoidance of pro2. It would force all states to share the un- fligacy in the establishment of benefit 

employment risk. The incidence of un- levels, duration, and eligibility criteria. 

employment is uneven, Inequitable and Since low costs enable a state to levy a 

largely uncontrollable by individual low tax on employers, interstate camps 

states or resident employers, and its tltlon for industrial expanslon will 

cost, therefore, should be natlonally encourage Individual states to run their 

shared. programs as efficiently as possible. 

3. It would impose tighter benefit eliglblli- 3. Most of the problems facing the UI systy crlterla in states which are now ex- tern can be remedied without actually 

cessively lenient. federalizing the system. More federal 

standards can be imposed, such as reHowever, the arguments agalnst any federali- quiring each state to pay beneftts equalzation of the system are very strong and, to date ling 60% of the state’s average weekly 

at least, have prevailed with policymakers. Out- wage. Thls will allow the system to be 

side of the administrative problems of disband- as responsive as posslble to dlfferent 

Ing or restructuring the 50 state agencies which: economic conditions in each state, 

now run the program and establishing a federal while the federal government insures 

network to operate the federalized system, that no individual suffers undue hardsome of the other important objections that are ship during his Involuntary unemploy 

ralsed are: ment. 

1. Federal programs tend to provide more SOURCE: Janice Halpern, “The Performance on 

generous benefit amounts than those the Unemployment Insurance Program 

legislated at the state level. If Congress 

In the 1970s.” New Englend Economic 

Review, March-April 1978. p. 49. 

problem, with critics-including the U.S. General 

Accounting Office-calling upon Congress to establish uniform eligibility and benefit standards.” 

Contemporary political rhetoric on this issue 

sounds much like that of the New Deal period. Proponents invoke “national responsibilities” and opponents the claim of “states’ rights” on behalf of 

their positions. A news analysis in mid-1977 described these conflicting views on federalization: 

Rep. James C. Corman, a liberal California 

Democrat and chairman of the House Ways 

and Means subcommittee on public assistance and unemployment compensation, 

contends that “unemployment is not a 

unique state problem-it’s a national problem” and that, accordingly, there ought to 

be uniform standards. 

Others argue that disparities among the 

states are unavoidable because living stan25 
dards vary from state to state. Rep. William 

Steiger (R-WI) believes minimum benefit 

standards would unduly inflate benefit 

amounts in some states. He also holds that 

the unemployment compensation system is 

“a federal-state partnership, and it would be 

disrupted if you control the benefit 

amounts.” . Rep. William Frenzel (RMN), who opposes a single set of federal 

benefit standards, believes disparities are 

purely questions for the states to decide: . 

“If New York wants to set their benefits too 

low, that’s their business, and the District of 

Columbia too high, that’s their business.““6 

Despite these continuing disputes-and repeated 

Presidential proposals for minimum benefit 

standards-many analysts believe that Congressional 

acceptance of federalization is unlikely. This shows 

the continuing utility of the pragmatic political 

balance struck more than four decades ago. In the 

opinioin of the Brookings Institution researcher John 

Palmer, “It’s 50 years down the road before we have 

federal standards.““’ 

A second continuing issue revolves around 

methods of administration, and the sometimes highly 

publicized problems of fraud and abuse. Although 

the federal government pays 100% of their administrative costs, the actual administrative responsibility 

rests with state employment agencies, which have a 

great deal of autonomy in setting and enforcing program standards.“’ Many critics find UI administration to be too lax, but others contend that it is too 

strict. Given the highly diverse state practices, accurate nationwide estimates of program fraud and 

abuse are not available.“9 

During the 1975-76 recession, the cost of the program’s operation and its fiscal soundness, became a 

new concern. UI has normally maintained solvency 

by incurring a surplus in expansionary periods and 

running a deficit during a recession. But between 

1970 and 1975, the Congress provided for an extension of benefits from 26 to 39 weeks, to 52 weeks, 

and ultimately to 65 weeks. Although the federal 

government paid part of the bill, the result was that 

the UI trust funds of 22 states and areas became insolvent, necessitating loans from the federal unemployment account. These events have resulted in a 

number of proposals for reform, again including 

federalization.‘10 

A final major issue involves charges that UI may, 

to some degree, exacerbate the problem it was intended to solve. Most economists have viewed the 

program as an automatic economic stabilizer, in that 

it tends to sustain higher levels of consumer spending 

in periods of recession. But in the view of such critics 

as Martin Feldstein, changes in the nature of 

unemployment and the labor market since the Great 

Depression indicate a need to revise the UI program. 

Much contemporary unemployment is of short 

duration and job turnover is very high. bnder these 

conditions, Feldstein has concluded, unemployment 

compensation has reduced the incentive to search for 

a new job, and may actually have increased the aggregate level of unemployment by as much as 

1.25%” 

FOOTNOTES 

‘J.M. Keynes, The General Theory of Employment, Infererl and 

Money, New York, NY, HarcouR, Brace, and World, Inc., 

1936, P. 383. 

‘John A. Garraty, Unemployment in History: Economic 

Thowhr and Public Policy, New York, NY. Harper & Row, 

Publishers, 1978, pp. 57.73. 

‘Ibid., PP. 4-5. 141. 

*Frank R. Breul. “Early History of Aid to the Unemployed in the 

United States.” in Joseph M. Becker, ed.. In Aid of the 

Unemployed, Baltimore, MD, The Johns Hopkins University 

Press, 1965, pp. 6-14. 

‘Ibid., p. 15. 

‘A graphic description of the impact of the Depression appears in 

Frederick Lewis Allen, Since Yesterday: The 192% in America, 

New York, NY, Harper Br Row. Publishers, ,939, ,972. 

‘Robert L. Heilbroner, The Making of Ecomxnic Society, 

EnglewoodCliffs. NJ, Prentice-Hall, Inc.. 1962, p. 143. 

‘It cm be argued, particularly from a radical perspective, that the 

impact of the New Deal was profoundly conservative in its 

thrust, in that it propped up the “failing machinery” of the 

“capitalist class system.” This view is expressed by Edward S. 

Greenberg, Understanding Modern Government: rite Rise and 

Decline of the American Politico/ Economy, New York. NY, 

John Wiley&Sons, Inc., 1979, pp. 70-88. 

‘Alfred H. Kelly and Winfred A. Harbison, The Am&on Constitution: Ifs OriginswdDevelopmen1,5th ed., New York, NY, 

W.W. Norton&Company, Inc., 1976,pp. 74748. 

‘ODouglas C. North, Growrh and Welfare in the American Paw: 

A New Economic Hi%wy, Englewood Cliffs, NJ, PrenticeHall, Inc., 1%6, p. 174. 

“Harry N. Schciber, The Condilion o/American Federa,#sm: An 

Hicforian’s View, a study submitted by the Subcommittee on Intergovernmental Relations to the Committee on Gowrmnent 

Operations, U.S. Senate, 89th Congress, 2nd Sew, 1%6. 

reprinted in Mavis Mann Reeves and Parris N. Glendening, 

Controversies of Slate and Local Polidcol Systems, Boston, 

MA, Allen and Bacon, Inc.. 1972, pp. 6492. The quotation is 

fromp. 74. 

“E.E. Schattschneider. The Semi-Sovereign People; A Realist’s 

View of Democracy in America, New York, NY, Hok, Rinehart 

and Winston, ,960, p. 86. 

26 
“Arthur A. Ekirch, Jr., Ideologies o”d Utopiac The Impact of 

the New Lko, on Amwkm Tboughr, Chicago. IL, Quadrangle 

Books, I%9, pp. vii-viii. 

‘~Heilbroner. p, 163. 

LIW.W. Rostow, Polifb wd the Stops of Growth, New York, 

NY. Cambridge University Press, 1971, p. 27.0. 

“Ibid. 

“Bernard BaiIyn, et. a,.. The Orea, Republic: A History of the 

Amtiiro‘n People, Boston. MA, Little, Brown and Company. 

1977, p. 1078. 

“Rostow, pp. 200.21. 

“John D. Buenker, Urban Liberalism o”d Progressive Reform, 

New York, NY, W.W. Norton and Company, Inc., 1973, p. 42. 

%muel H. Beer, “Two Mod& of Public Opinion: Bacon’s 

‘New Logic’ and Diotima’s ‘Tale of Love,’ ” Political Theory, 

May 1974. P. 175. 

“Theodore J. Lowi, “Europeanization of America? From United 

Stats m United State,” in Theodore J. Lowi and Alan Stone, 

eds., Norionaliring Government: Public Policies in America, 

Beverly Hills, CA, Sage Publications, Inc.. 1978, p. 17. 

“ROS1OW, p. 222. 

1aPaul K. Conkin, TheNew Dad, 2nd ed., Arlington Heights, IL, 

AHM Publishing Corporation, 1975, D. 22. 

“Rostow, p. 222. 

“Bernard Bailyn,~ et. al.. p. 1084. 

“Beer, “Two Models,” p, 176. 

“Schattschneider, p. 86. 

“Beer, “Two Models,” p. 174. 

‘oDonald R. McCoy, Coming of Age: The United Stales During 

Ihe 19ZO’sand 1930’s. Baltimore, MD, Penguin Bwks, 1973. p. 

268. 

“Beer. “Two MO&IS,” p. 174. 

“ibid., pp. 174.75. 

lsJamcs T. Patterson. Congressionu! Conrervalirm and the New 

Lkd: The Growth of rhe Conservrrfive Coalition in Congress. 

1933.1939, Lexington, KY, University of Kentucky Press, 1%7. 

pp. 3.5. The “contemporary observer” quoted is political scientist E. Pendleton Herring. 

‘~Heilbrcncr, p. 160. 

“James L. Sundquist, Dynamics of the Parry System: AIig”me”t 

wd Realignmenr of Political Parties in the United Stales, 

Washington, DC, The Brookings Institution. 1973, pp. 202-3. 

%Garraty,pp. 177-87. 

“Ibid., pp. 182-83. 

“Ibid., 9.187. 

“Walter 1. Traftner, From Poor Law fo We/fore Smre: A H&tory 

of&ckd W’elfom in America, New York, NY, The Free Press, 

1974. PP. 235.36. 

‘“Jonafhan R. Kesselman, “Work Relief Programs in the Great 

Depression,” in John L. Palmer, ed., Creating Jobs: Public 

Employment Progrrrms and Wage Subsidies, Washington. DC, 

The Brwkings Institution, 1978. p. 157. 

“For a more complete discussion of FERA, see Advisory Commission on 1ntergovemmenta.l Relations, Public Assirronce: The 

Growth of a Federal Function, A-79, Washington, DC, U.S. 

Government Printing Office, 1980, pp. 23-26. 

“Kesselman, p. IM). 

“William E. Leuchtenburg, Fronkli” Roosevelt and the New 

Dal, New York, NY, Harper&Row, Publishers, ,963, p. 1.21. 

wailyn, e,. e,. , p. 1085. 

“Conkin, p. 56. 

“Kasehnan, p, 162. 

“James T. Patterson, The New Deal and the States: Fedendkm in 

Trwsirio”, Princeton, NJ, Princeton University Press, 1969, 

pp. 74-80. 

“Leuchtenburg. pp. 129.30. 

“Ibid., pp. 125.26. 

‘*McCoy. p. 306. 

“ibid., pp. 230-32. 

“Kasehnsn, PP. 157.159. 

“Leuchtenburg. p. 122. 

“Kessebnan, P. 204. 

“McCoy, pp. 229-32. 

“Leuchtenburg, p. 124. 

“Basil Rauch, The Hirfory of the New Deal: 1933-1938, New 

York, NY, Creative Age Pm%, 1944. PP. 16445. 

“McCoy, P, 229. 

“Leuchtenburg, pp. 269-70. 

“A”en. pp. L42-43. 

‘lRauch, p. 250. 

“Alle”,pp. 14,X?. 

“Kesselman, p. 217. 

“Leuchtenburg, p. 130. 

6’McCoy. P. 308. 

“Leuchtenburg. p. I30. 

“Leonard P. Adams, “The Public Employment Service,” in 

Becker. cd., PP. 193-94. 

“*J. Douglas Brown, “The American Philosophy of Sacial, In- 

~urance,” in Oeorge F. Break and Bruce Wallin, eds., Torctio”: 

Myths and Realides, Menlo Park, CA, Addison-Wesley 

Publishing Company, 1978. pp. 10203, reprinted from Social 

Service Review, March 1956. 

“Franc-a Perkins, “The Principles of Social Security.” in 

Howard tin. ed.. New Deal Thowhr. Indianawlis. IN. 

Bobbs-Merrill.‘Co..‘lnc., ,966. p. 275. - 

‘“lbid.. p. 279. 

“Trattne,. p. 239. 

,‘Jane Perry Clark, The R&e of a New Federallism: Federal-Slate 

Cooperotio” in the United States, New York, NY, Russell Br 

Russell. Inc., 1965, I). 261. warrat;, p. i31. 

“Daniel Nelson, u”employme”f Innrrance: The America” Erprience, 1915.1935, Madison, WI, The University of Wisconsin 

press, 1%9. pp. 9-10. A 

“Garrsty, pp. 13940,147. 

“Nelson, P. 1 I. 

“ibid., 9. viii. 

‘*Ibid., pp. 13, 16.19. 104. 

V.0. Key, Jr., Politics, Pa&s, u”d Pressure Group, 5th ed.. 

New York, NY, Thomas Y. Crowell Company, 1964. PP. 58-59. 

‘“Nelson, pp. 6$,73,79. 

“Ibid., pp. 32.36,47. 

“Ibid., p. 20; and William Haber and Merrill 0. Murray, 

Unemploymenr Insurance in Ihe America” Economy. 

Homewood, IL. Richard D. Irwin, Inc., 1966, p. 70. 

“Nelson, P. 130 

“Ibid., p. 39. 

Ibid., pp. 27. 130; and Haber and Murray, p. 91. 

lsJ. Douglas Brown, “The American Philosophy of Social InSUI~C~,” in Break and W&in, eds., p. 101, reprinted from 

So&d ServiceReview, March 1956. 

“Nelson, PP. 195.%. 

“Haber and Murray, P. 71. 

“Nelson, PP. 135. 137. 

‘OHaber and Murray, pp. 67-59 

“Clark. OD. 261.62. 

“Nelson, pp. 164,192, 197. 

“Ibid., p. 197. 

“Haber and Murray, P. 72. 

“Ibid., pp. 72-73. 

‘?ratmer,p. 238. 

“Nelson. D. 205. 

“Ibid., pp. 192.%. 

“Ibid., pp. 206,212. 

“%arraty, p. 214. 

“‘Perkins, pp. 277,279. 

‘O’Nelson. pp. ,99,206,207,212 

21 
'O'Pcrkins, p, 278. 

vJ&0”, pp. 214.17,152-61. 

‘“‘William E. Leuchtenburg, Pmnklin D. Roosevelt and the New 

&a,: ,932.,940, New York, NY, Harper 8 Row, Publishers. 

1963. p. 150. 

“*“aber and Murray, pp. 87.89. 

‘“‘Tra,,ner, p. 238. 

“‘U.S. Depanmerd of Labor, “The Unemployment fnsumnce 

System: Past. Present, and Future,” Employment and Training 

Report oftbe President: 1976. Washington, DC, U.S. Govanmeru Priming Office, 1976. pp. 36-38. 

“‘Joseph A. Hick% “Unemployment insurance Covers Additional 9 Million Workers,” Monthly Labor Review, 101, May 

1978, p. 14. 

“‘Joseph M. Becker, “39, 52, 65. Hike: The Lengthening Weeks 

of KJnanolo~ment Insurance.” Acm the Board. 14, February 

1977, p. iI. 

“‘Alice M. Rivlin, Social Policy: Abernrrre Strategies for Ihe 

Federal Covernmenr, K288, Washington, DC, The Brookings 

Institution. 1974, pp. 6-7. 

“‘Becku, p. 28. 

“‘Daniel S. Hamermesh, Jobless Pay and the Economy, Baltimore. MD, The Johns Hopkins University Press, 1977, p. I. 

“‘Haberand Murray, p. 487. 

“‘Comptroller General of the United States, Unemployment 

Insurance-Need to Reduce Unequal Treofmenl of Ckdmonls 

and Impmve Benefit Payment Contmh and Ter Collertons, 

Washington, DC, U.S. General AccountingOffice, 1978. 

“lAnnette Kornblum, “lob Insurance’s Growing Pains,” The 

Wmhinglon Port, August 14, 1977, P. B4. 

“‘Ibid. 

“‘See Hsber and Murray, chapter 20. 

“‘Baker. pp. 31-32. 

‘zoIbid.. p. 28; and Janice Halpern, “The Performance of the 

Unemployment Insurance Program in the 197%” New England 

EconomicReview. March-April 1978, pp. 32.33,43-48. 

“‘Martin Feldstein, “Social Insurance.” Public Policy, 25. Winter 

1977,pp. 104.5. 113. 

28 
The 

Chapter 3 

Act of 1946 

SPENDING AND DEBT IN 

THE NEW DEAL 

U nemployment relief costs money-and a very great deal of money, by pre-Depression standards. In a single decade, federal outlays rose from 

$3.1 billion in 1929 to $4.6 billion in 1933, and on up 

to $8.8 billion in 1939. Much of the increase was 

financed by borrowing, because although the budget 

had shown a modest surplus in 1929, it was some $3.9 

billion in deficit ten years later.’ These were dramatic 

changes, given traditional norms of fiscal frugality in 

the public sector. 

Despite these sizable expenditures, Roosevelt 

never embraced a deliberate strategy of economic 

pump priming or, in contemporary terms, the use of 

fiscal policy. Most of the spending increases were in 

temporary emergency programs and were matters of 

felt necessity rather than personal preference. The 

President was as firmly committed to the traditional 

principles of sound finance and fiscal conservatism 

as his predecessor, Herbert Hoover-whom he once 

accused of overseeing “the greatest spending Administration in peace time in all our history”-and, 

according to Robert Lekachman, never 

. . fully comprehended or completely sympathized with unbalanced budgets, deficit 

spending, or a larger national debt. The 

“great spender” was in his heart a true 

descendant of thrifty Dutch Calvinist 

forebears.’ 
Even as late as 1937, Roosevelt sought to cut back 

relief outlays, with results that (to any modern 

economist) were quite predictably disastrous.’ 

Hence, while Roosevelt’s spending policies were a 

source of political controversy, and caused heated attacks, in retrospect this issue looks like 

. . . an empty debate. At its peak, the annual 

deficit never touched $4 billion, and federal 

government purchases never contributed 

more than 6% to Gross National Product.’ 

New Deal fiscal policies were only “a holding operation and not an operation of growth.” Furthermore, 

they did not work. In 1939, there were still 9.5 

million people (17% of the labor force) out of work.’ 

Roosevelt’s Rejectlon 

of Keynes 

Nothing indicates Roosevelt’s highly conventional 

attitude on fiscal matters more strikingly than his rejection of the advice and theories of John Maynard 

Keynes, the economist whose ideas were to revolutionize his discipline. In The General Dteory of 

Employment, Interest andMoney, published in 1936, 

Keynes explained how economic recessions, including the Great Depression, could occur-something 

most other economists were quite unable to do. Still 

better, he suggested a governmental solution where, 

in the past, trial-and-error had been the guiding principle. 

Keynes’ basic analytical insight, and his policy 

prescription, centered on the role of investment by 

private and public sources. These have been described by John Kenneth Galbraith in the following 

terms: 

Previously it had been held that the 

economic system, any capitalist system, 

found its equilibrium at full employment. 

Left to itself, it was thus that it came to rest. 

Idle men and idle plant were an aberration, a 

wholly temporary failing. Keynes showed 

that the modern economy could as well find 

its equilibrium with continuing, serious unemployment. Its perfectly normal tendency 

was to what economists have since come to 

call an underemployment equilibrium. 

The ultimate caus.e of the underemployment equilibrium lay in the effort by individuals and firms to save more from income 

than it was currently profitable for businessmen to invest. What was saved from income 

must ultimately be spent or there will be a 

shortage of purchasing power. Previously 

for 150 years such a possibility had been excluded in the established economics. . . 

From the foregoing came the remedy. The 

government should borrow and invest. If it 

borrowed and invested enough, all savings 

would be offset by investment at a high, not 

a low, level of output and employment6 

A single sentence, which was included in a letter from 

Keynes to President Roosevelt in 1933, summarized 

his policy position neatly: “I lay overwhelming emphasis on the increase of national purchasing power 

resulting from governmental expenditure which is 

financed by loans. . . .‘I’ 

This analysis proved to he a real theoretical 

breakthrough, a paradigm-shattering reformulation. 

The General Theory accounted for the problem of 

unemployment and also pointed the way toward its 

elimination. The book was of major political importance as it came to be understood and accepted, first 

by younger professional economists and later by. 

public officials. 

In the short run, however, Keynes’ ideas had little 

immediate impact on governmental policy. President 

Roosevelt met once with the British professor, but 

came away unimpressed. He seemed, in Roosevelt’s 

view, to he a “mathematician rather than a political 

economist.“’ The story was much the same worldwide. In part, this neglect was a consequence of the 

economist’s sarcastic personal style and exaggerated 

claims, which offended many of his academic colleagues as well as public figures. But the extremely 

difficult and “counterintuitive” nature of his ideas 

was the major obstacle. Keynes’ views, as Garraty 

notes, 

. were at variance with conventional 

wisdom; indeed, his analysis of the causes of 

unemployment appeared to fly in the face of 

common sense. With millions living in 

straitened circumstances, with governments 

struggling to reconcile shrinking revenues 

with escalating relief expenditures, with 

everyone fearful of the future, the natural 

reaction was to economize, conserve, hold 

out. When Keynes said . “Whenever you 

save five shillings you put a man out of work 

for a day, ” and when . he wrote that “in 

contemporary conditions, the growth of 

wealth, so far from being dependent on the 

abstinence of the rich . is more likely to 

30 
be impeded by it,” he was denying the practical virtue of thrift as well as outraging conventional morality.9 

Galbraith has made this same point, recollecting his 

personal experiences as a young economist in 

Washington: 

To spend public money to create jobs might 

be necessary. But it was not something you 

urged out of choice. And to urge that a 

budget deficit was a good thing in itself-the 

heart of the Keynesian remedy-seemed insane. Men of sound judgment were repelled. 

Even one’s best friends, if in positions of 

responsibility, were cautious in the presence 

of such heresy.” 

What was to settle the theoretical question in the 

end was neither the debate of economists, nor the 

practical experience of New Deal policy, but the 

wholly unintended impact of the Second World War. 

Threats directed at the survival of democracy required extremely large increases in deficit spending. 

Between 1940 and 1945, federal expenditures 

mounted from $9 billion to $93 billion-a factor of 

ten-and the annual budget deficit increased from $3 

billion to $47 billion, producing a sixfold rise in the 

total national debt.” The result was plain enough: 

With this unprecedented rise in expenditure 

came an equally swift rise in GNP. By 1945, 

our Gross National Product had risen by 70 

percent in real terms over 1939, and unemployment had dwindled to the vanishing 

point. The “demonstration” that public 

spending could impel the economy forward-indeed, could lift it beyond all previously imagined bounds-was unmistakable. 

So was the fact that a government could 

easily carry an enormously much larger 

debt-a debt which now towered over $250 

billion-provided that its Gross National 

Product was also much larger.” 

According to John Kenneth Galbraith, “the conclusion was inescapable: what would work in war would 

work in peace. The Keynesian victory was now 

assured.“” 

PASSING THE EMPLOYMENT ACT 

Following the war, enthusiasm for the new theory 

of economic instability spread from academic to 

policy circles. Nation after nation came to regard the 

elimination of unemployment as an achievable objective. In the United States, the adoption of the 

Employment Act of 1946 (P.L. 79-304)“-proposed 

initially under a grander title, “The Full Employment 

Bill of 1945”~was the most important step toward 

governmental institutionalization of Keynesian doctrine. This pathbreakiig legislation declared that it 

was the “policy and responsibility of the federal 

government” to “promote maximum employment, 

production and purchasing power.” It instructed the 

President to prepare annually an Economic Report 

reviewing the conditions affecting employment in the 

United States, and to propose a program for remedying any deficiencies. Toward this end, the act created 

a Council of Economic Advisers to assist him, as well 

as a Joint Cornmitt& on the Economic Report in the 

Congress. 

The Employment Act thus enlarged substantially 

the governmental commitment to help the unemployed. For the first time, it encouraged actions that 

were as much preventative as ameliorative, necessitating an ongoing process of economic management 

by the executive and legislative branches. Heilbroner 

describes the statute as “one of the truly historic 

pieces of economic legislation.“” To J.R.T. Hughes, 

the law was “revolutionary,” 1Jing “outside the 

tradition,” because “unlike the New Deal legislation, 

the Employment Act accepts direct federal responsibility for the level of employment and economic 

growth.“‘6 

The Employment Act rested upon a three-legged 

stool: Keynesian economics, wartime experience, and 

the New Deal precedent of aid to the unemployed. 

Many economists feared that the Depression would 

resume with the return of peace and the dissolution 

of the great wartime military; some anticipated that 

the spring of 1946 would find eight to ten million 

unemployed.” Postwar planning thus became a major ccmcern both inside and outside Washington, involving in 1944 some 33 federal agencies. When the 

Pabst Brewing Company sponsored an essay contest 

on this subject, it received almost 36,ooO manuscripts, some by leading economists.” The initial 

development of the Employment Act of 1946 was a 

direct outgrowth of these economic worries. 

The full story of the passage of the Employment 

Act has been recorded in a very influential and widely 

read analytical case study, Congress Makes A Law, 

by political scientist Stephen K. Bailey.19 Bailey’s 

book, published in 1950, provides a thorough interpretive history, drawing on available documentary 

31 
sources as well as some 400 interviews with key participants. 

Yet Bailey’s highly regarded legislative case study 

holds out no easy lesson. On the contrary, he found 

that the policy process on Capitol Hill 

. . .is almost unbelievably complex. 

Legislative policymaking appears to be the 

result of (I conjluence of factors streaming 

from on almost endless number of tributaries: national experience, the contributions 

of social theorists, the clash of powerful 

economic interests, the quality of Presidential leadership, other institutional and personal ambitions and administrative arrangements in the Executive Branch, the initiative, effort, and ambitions of individual 

legislators and their governmental and nongovernmental staffs, the policy commitments of political parties, and the 

predominant culture symbols in the minds of 

both of leaders and followers in the Congress. 

Most of these forces appear to be involved 

at every important stage in the policymaking 

process, and they act only within the most 

general limits of popular concern about a 

specific issue.‘0 

What Bailey offers in the above paragraph might 

be termed the “Great Lakes” theory of public 

policymaking. A major statute--like a major body 

of water-is viewed as the confluence of an “endless 

number of tributaries,” rather than the product of 

one or two primary “causes” or “forces.” His treatment of the major political variables-public opinion, the Presidency, interest groups, and Congressillustrates the complexity and multiplicity of factors 

that produced the Employment Act. 

First, Bailey concluded that public opinion was not 

of principal importance in explaining the adoption of 

P.L. 79-304. It was widely accepted that the national 

government should “do something” to maintain employment levels: two-thuds of the population in a 

1944 survey agreed with the proposition that “the 

federal government should provide jobs for everyone 

able and willing to work, but who cannot get a job in 

private employment.“” But this general attitude was 

difficult to relate to the Employment Act in particular, or to the disputes about its provisions. 

Although there was no nationwide poll on S. 380, a 

survey in one Illinois Congressional district found 

that only 8% of the population had heard of it and 

had some idea of what it was. Bailey observes that, 

. . it is fair to hazard that if 81% of the 

people in a Congressional district in the 

heart of Chicago knew nothing about the 

Murray Full Etiployment Bill in July 1945, 

the nonurban population was at least equally 

ignorant.” 

What was noteworthy about public opinion, then, 

was the “lack of sustained, intense, and widespread 

interest” in a measure of great national political and 

economic importance.” 

Although Presidential leadership had been an important ingredient in the passage of much of the New 

Deal social and economic legislation, this was not the 

case with the Employment Act. In commenting on 

Bailey’s analysis, political scientist Richard Hofferbert observes that, 

. . the President is scarcely visible 

throughout Bailey’s study. The Presidential 

role is compounded historically, of course, 

by Roosevelt’s death and Truman’s awession in the very midst of the struggle over the 

Full Employment bill. But little weight is attached by Bailey to the role of the President 

in the gestation period of the bill, axcept insofar as the New Deal created fertile soil for 

its introduction and insofar as FDR as President was the chief architect of the New Deal. 

The role of the President as pictured by 

Bailey appears minor indeed from the vantage of the 1970s.” 

It cannot be said that Roosevelt was “soft” on 

unemployment, of course, and his general public 

position favored new national initiatives. In 1943, the 

President transmitted to the Congress a report by the 

National Resources Planning Board advancing a 

“New Bill of Rights, ” including the right to work, 

the right to fair pay, the right to security, the right to 

live in a free enterprise system, and others concerned 

with employment opportunities.” Roosevelt proclaimed that veterans “have the right to expect full 

employment” for themselves and all others who 

wanted work, and the Democratic platform on which 

he ran in 1944 specified that the party wished to 

“guarantee full employment and provide prosperi0.“‘6 

Yet, these views were unremarkable. Indeed, there 

was little to distinguish between the two parties or 

candidates on this score. Thomas E. Dewey, in his 

32 
acceptance speech at the Republican national convention, also stated that, 

. : . we Republicans are agreed that full 

’ employment shall be a fust objective of na- 

,tional policy. And by full employment I 

mean a real chance for every man and 

woman to earn a decent living.* ‘,, 

In point of fact, Dewey forced Roosevelt’s hand. The 

Democrats had hoped simply to portray FDR as a 

great war leader.2’ In 1944, Roosevelt was preocenpied by his dreams of a United Nations organization, and he hesitated to risk additional political conFoversy on the full employment issue. He followed 

t&is .“hands off” policy until his death in &ril 

lp45.‘9 

Although he ..was not familiar with the “Full 

Employment Bill” when he assumed office, Harry S. 

Truman tried to play a more forceful role. In August 

1945, on the day following the sudden ending of the 

war with Japan, the President declared the “Full 

Employment Bill” to be “must” legislation. Consequently, a Senate recess was cut short, and hearings 

on the bill were scheduled for the following week.*@ 

Yet Truman unwisely conceded to many features of a 

much weaker House substitute biU in a desire to 

assure some sort of Congressional action,.” Although 

.he tried to recoup his losses when the legislation went 

to the conference committee, a dispute among officials within his Administration and his failure to 

provide a substitute bill of his own reduced his infhtence markedly.” 

All in all, as Bailey comments, President Truman 

“cannot be held responsible” for the 1946 act. 

Although he attempted to provide a measure of 

political leadership, “the forces which shaped and 

modified the legislation were far beyond his con- 

‘tiOl.“f’ 

Political interest groups also were of secondary importance in the passage of the bill, although the basic 

idea had originated with the legislative representative 

for the National Farmers Union (NFU), Russell 

Smith. The key fact is that Smith, during a stay in the 

hospital, prepared notes for an extensive federal 

postwar employment and economic planning program. This proposal was the nucleus of the 1946 act. 

,Howevcr, Bailey describes the NFU as only one of 

several ‘:inteUectual middlemen” between Keynesian 

theorists on the one hand and practical politicians on 

the other.” The group exercised Little political clout. 

A broader coalition of labor and liberal groups 

(the “Lib&&lobby”) was eventually assembled on 

behalf of the act, but its substantive contributions to 

the drafting and passage of the bill were only 

“meager,” in Bailey’s judgment. While these organizations served as channels of communication 

and information among participants, and raised the 

level of interest and concern about unemployment 

policy, 

. . . it would be difficult to demonstrate that 

the direct pressures of the Lib-Lab lobby 

changed a single Congressional mind. By 

and large, the members of Congress who 

listened with any semblance of receptivity 

were friends of the liberal cause to begin 

with. Most of those against S. 380 had little 

or nothing to fear from the Lib-Lab lobbyists, whose power was largely confined to 

the urban-industrialcenters of America.” 

Conservative groups working against the billincluding the National Association of Manufacturers, various Chambers of Commerce, the Committee for Constitutional Government, and the 

American Farm Bureau Federation-were somewhat 

more influential. Bailey judges that “through educational campaigns, testimony, and diiect and indirect 

pressures on Congress, the conservative lobby made 

its weight felt. “‘6 Yet he thinks ihat the weU 

established conservative predispositions of many 

members of the Congress-“previously conditioned 

by the climate of values assiduously ~cultivatad by 

these conservative pressures”-were substantiaUy 

more important than any of the short-run lobbying. 

He indicates that many members voted according to 

their own conscience, but their consciences had been 

shaped by the very effective educational campaign 

which these groups had supported for several 

decades.” 

Who or what determined the outcome of the 

debate on the “Full Employment Bill,” then? The 

most important political actors, as is suggested by the 

very title of Bailey’s study, were individual members 

of the Congress, many of them holding chairmanships of key committees or subcommittees. The principal proponent was Sen. James E. Murray (D-MT), 

a lawyer and wealthy financier as weU as an ardent 

champion of liberal social legislation. Bailey indicates that, 

. the basic policy decisions which led up to 

the writing and introduction of the FuU 

Employment Bill were Murray’s. Fundamentally, it was his spark of will which 

33 
transformed an idea into a specific legislative 

proposal.” 

These “sparks of will” came freguedy to the 

Senator from Montana. In the 194Os, he “sponsored 

more far-reaching social legislation than any other 

Senator on Capital Hill,” including bills concerned 

with national health, social security, aid to education, aid to small business, minimum wages, and the 

Missouri Valley Authority, as well as full employment.j9 

Murray was inspired initially by the National 

Farmers Union proposal which, as he saw it, “placed 

the full employment issue on a new plane of permanent federal obligation, far transcending the limited 

reconversion concepts which had dominated the 

thinking of most of Congress. . .“‘O His acceptance 

of a federal full employment policy stemmed from 

three interrelated beliefs in his personal social and 

political creed: 

1) we need big government to cope with big 

business: 

2) federal legislation can go a long way toward 

correcting the evils of society; and 

3) the reconversion legislation with which he 

was forced to deal as chairman of the War 

Contracts Subcommittee did not go to the 

heart of the postwar problem.” 

The draft legislation, titled “The Full Employment 

Act of 1945” and introduced as S. 380, was actually 

written by Bertram hf. Gross, the staff director of 

Murray’s War Contracts Subcommittee. Gross 

worked out the specifics in frequent meetings with a 

small group of civil servants, as well as Russell Smith 

of the NFU and Ken Borchardt of the War Contracts 

Subcommittee. The views of prominent economists 

in Washington, including Alvin Hansen and Leon 

Keyserling, also were sought. All of the participants 

in these sessions 

. . * had a burning interest in postwar 

employment problems, and . . . shared in 

the belief that the compensatory fiscal ideas 

stemming from the Keynes-Hansen analysis 

were basically sound.” 

Gross and other staff members also were to play a 

vital strategic role in getting the legislation enacted. 

Indeed, according to Bailey, 

. . the staff became the central mechanism 

for mobilizing widely dispersed intelIectua1 

resources and a coalition of pressures, public 

and private, behind the legislation.” 

Major roles also were played by several other wellplaced Senators. These included Robert Wagner @- 

NY)-the chairman of the Senate Banking and Currency Committee to which S. 380 was. referredwhom Murray and Gross had obtained as a co-sponsor. Wagner, of course, had enormous prestige in 

social policy, and one close observer thought ‘his efforts were “the most important single factor” in winning Senate passage of the legislation.” 

Crucial support also was provided by such leadiwg 

Republicans as Senators Robert A. Taft (OH) and 

Arthur H. Vandenberg (MI), who advocated passage 

once certain provisions had been tempered. Vanden~ 

berg even compared the bill with one he had introduced in 1928, which lhld proposed advanced 

planning of public works to cushion recessions.” 

And, although it is unusual for a speech on the floor 

of Congress to swing many votes, the dramatic rhetoric and economic expertise of Senator Joseph C. 

O’Mahoney (D-WY) did influence many of his colleagues.‘” 

The relationships among the Senators interested in 

full employment legislation were compethlve as well 

as cooperative, however. Bailey notes that there was 

an “unbelievably confusing struggle” anbmg Senators Joe M. Kilgore ,(D-TX), Murray, and Walter 

George (D-GA) during late 1943 and early 1944 for 

the control of postwar reconversion policy.” In 

selecting co-sponsors for hi bill, Murray sought both 

to aid its passage and “take out insurance against 

competition” from the others interested in the question.” 

On the House side, the leading roles were played 

by Congressman Wright Patman (D-TX), who introduced the “Full Employment Bill”; Carter Manasco 

(D-AL), who chaired the Committee on Expenditures 

in the Executive Departments, to which the bill was 

referred; and William Whlttington (D-MS), who 

drafted a substitute for the Senate version of the 

legislation. This House-passed substitute was 

substantially weaker than S. 380. Indeed, it “emasculated” (or “Manasco-1ated”) it by 

. . . rejecting the fundamental principles of 

the Senate bill. It eliminated the declaration 

of the right to employment opportunity, of 

federal responsibility for fuIl employment, 

the pledge of all federal resources, including 

financial means to that end. and the safe34 
guard against international economic warfare.” 

The 12 members of the joint conference commlttee, which was convened to resolve the differences 

between the Senate and House versions, were deemed 

so important to the outcome that ~Bailey devoted an 

entire chapter to the discussion of their backgrounds 

and personaiities. “In a study of policymakii,” he 

explains, 

. . . it is not enough that we’understand influences external to the policymaker. Constitutions and statutes, public opinion and 

pressures, facts and arguments, parties and 

patronage-these are factors which are important only as they reach and are interpreted by men’s minds and prejudices. Like 

the action of light on variegated surfaces, externai factors are absorbed, refracted, or reflected, according to the peculiar qualities of 

the minds they reach.‘0 

In short, a comparatively small number of 

individuals-working within a favorable but extremely “permissive” environment of public 

opinion-must he regarded as the real architects of 

federal full employment legislation. In making policy 

decisions, these individuals were guided more by 

their personal values and beliefs than by any external 

political “forces.” Few of the most important deliberations took place on the floor of Congress or in 

the White House. Instead, the key meetings involved 

a small group of employment specialiits, who drafted 

the initial legislation; discussions among the sponsors 

of the Murray bill;” and a series of committee hearings and a few days of closed committee sessions. 

Because of the multiplicity of demands on the time 

and attention of individual Congressmen, Bailey 

comments that the “fate of an issue depends to a 

shocking extent upon a handful of men who take special interest ln the pending legislation in committee.“” 

Bailey expressed concern that the legislative process is in fact quite “irresponsible” from the standpoint of the general public. He argued that “the 

American voter could not and cannot hold any recognizable group, interest, or individual responsible for 

the Employment Act of 1946.“” The Congressmen 

who played leading roles were accountable only to 

their own small, narrow constituencies. They 

. . . were not representatives of national 

political parties based upon national programs. They were representatives of the 

dominant interests and culture symbols of 

tiny geographic areas which, even if taken in 

the aggregate, do not give a fair quantitative 

weighting to the sentiments and expectations 

of a national popular majority. Furthermore, the committee system in Congress 

means that key representatives may have an 

inordinate amount of individual power in 

the shaping of national destinies, even when 

those key representatives are effectively accountable only to a tiny economic and political junta in one Congressional district.” 

For these reasons, he stressed the de&ability of 

strengthening the Presidency and the political parties, which he termed “the only two instruments in 

our political life which have an inherent responsibility to the nation as a nation.“‘” 

A BROADENED COMMITMENT 

Although in retrospect the Employment Act of 

1946 is rightly regarded as landmark legislation, the 

bill did not make an unambiguous commitment to 

the use of Keynesian fiscal policy. This developed only gradually, with the passage of time. It was in the 

196Os, not the 1940s or 195Os, that%he use of compensatory spending became accepted widely. Then, 

in the 197Os, the earlier emphasis on balanced budgets was renewed. 

The final wording of the Employment Act was an 

amalgam of phrases taken from the Murray draft, 

the Senate bill, the House substitute, and the 

deliberations of the conference committee. Both 

rhetorically and substantively, the bill was watered 

down, with the very term “full employment” stricken from its title and declaration of policy, as Figure 4 

reveals. Although this term had been used originally 

as a matter of drama and political style, it drew 

heated criticism, in part because it was so difficult to 

define. Senators Taft and George L. Radcliffe (KMD) both attacked it, and it was deleted from the 

substitute bill approved in the House. In the end, the 

conference committee agreed upon a reference to 

“maximum” rather than “full” employment, an 

alternative phraseology that seemed satisfactory to 

all of the concerned parties.” 

Another major change was the elimination from 

the Senate bill of its reference to “federal investment 

and expenditure as may be needed. . .to achieve the 

objective of continuing full employment.” This pro35 
Figure 4 

A CHANGING DECLARATION OF POLICY 

Full Employment Act 01 lB45 

(Murray Bill) 

Decemkr 18,1844 

Sec. 2(a) “Every American able to work and 

willing to work has the right to a useful and 

remunerative job In the industries or shops 

or offlces or farms or mines of the nation.” 

Sec. 2(b) “It is the responsibility of the Qovernment to guarantee that right by assuring 

continuing full employment.” 

Employment Act of 1948 

P.L. 79.304 

Sec. 2 “It is the continuing policy and responsiblllty of the federal government to use 

all practicable means consistent with its 

needs and obligations and other essential 

considerations of national policy, with the 

assistance and cooperation of industry, agriculture, labor, and state and local governments, to coordinate and utilize all its plans, 

functions, and resources for the purpose of 

creating and maintaining, in a manner caloulated to foster and promote free competitive 

enterprise and the general welfare, conditions under which there will be afforded 

useful employment opportunities, including 

self-employment, for those willing, and seeking to work, and to promote maximum 

employment, production, and purchasing 

power.” 

SOURCE: Stephen K. Bailey, Congress Makes a Law: The Story Behind the Employment Act of 1946, New York, 

NY.VlntageBooks.1950,pp.57,228. 

vision, which had been. condemned by nearly every act was acceptable to them, that the Senate 

conservative opponent, was replaced by a more gen- managers had given in at every important 

eral pledge “to coordinate and utilize [federal] plans, point, and that the conference~bill was, to all 

functions, and resources.” Although some liberals intents and purposes, the House substitute. 

contended that the new phrasing was even stronger, Cochran and Patman backed the conference 

since “resources” included “expenditures,” the con- bill as one which the liberals could support 

servatives took it as a victory for their position. with good conscience. Some of the strong 

“Conceivably,” Bailey suggests, “they were both phrases were missing, they admitted, but the 

rigbt.““’ meat of the original bill was still there.59 

A third feature, adopted from the House version, 

was a provision creating a three-member Council of 

Economic Advisers to assist the President in the 

preparation of his annual economic report. The 

Senate bill had left these administrative arrangements 

to the discretion of the President, but Rep. Whittington and other critics preferred the creation of a 

permanent body of experts known by and hence, in 

some degree, accountable to, the public at large.” 

On the other hand, some adherents of both political 

idealogies felt they had cause for dissatisfaction: 

In summary, the final language was weak in comparison to the initial Murray draft or the Senate bill. 

But it was also susceptible to multiple interpretations, as the lopsided final vote of 320 to 80 in the 

House might suggest. Many liberals and conservatives felt that their own view had prevailed, as Bailey 

points out, 

Bender claimed that the conference bill was a 

fake, that it was not a full employment bill, 

but that he would support it reluctantly as a 

muve in the right direction. Hoffman and 

Church also called the bill a fake, but 

vehemently protested its passage on the 

grounds that it represented unnecessary 

duplication of existing powers, and would 

lead to nothing constructive.l’ 

Whittington and Manasco reported that the 

In retrospect, however, it appears that the new 

policy commitment was substantial. “Symbols and 

beginnings” proved to be important, in the view of’ 

such commentators as Robert Lekachman. The Economic Report and the Council of Economic Advisers 

36 
institutionalized a concern with employment and 

spending close to the Presidency and provided a 

source of policy advice. More subtle but fundamental 

has been the fact that, 

. . . each national administration since 

World War II’s end has tacitly accepted a 

vital political proposition: the public will not 

maintain in office a President and a Congress who permit unemployment to rise very 

high Andy last very long. This recognition is 

far more significant than any possible piece 

of legislation, for it converts into activists 

even conservative Presidents and old-fashioned Congressmen. The debate over S. 380 

and the Employment Act of 1946 which 

resulted from it in their way helped to create 

this political fact of life. In the end it is the 

electorate and their expectations, more than 

the theories of economists or the personal 

prejudices of politicians, which determine 

the shape of national economic policy.6’ 

What happened in political terms was that public 

officials have gradually assumed responsibility for 

the operations of the economy, including the 

maintenance of low levels of unemployment and inflation. The President in particular has added the 

role of the nation’s “chief economist” to his many 

other duties. The tax cm of 1964, more than any 

other single event, marked the completion of the 

Keynesian revolution, and demonstrated (as Walter 

W. Heller commented) the acceptance: 

. in fact what was accepted in law 20 years 

ago (in the Employment Act of 1944). 

namely, that the federal government has an 

overarching responsibility for the nation’s 

economic stability and growth.6’ 

By the end of the decade, if not before, President 

Johnson’s proclamation, “I do not believe recessions 

are inevitable,” had ceased to be controversial. By 

that time, Arthur Okun wrote, recessions were 

“generally considered to be fundamentally preventable, like airplane crashes and unlike hurricanes.“o’ 

This confidence has been badly shaken by the 

“stagflation’! of the 197Os, and policies based on 

traditional Keynesian conceptions have been questioned increasingly. Some skeptics now believe that 

the relief that fiscal policy has offered from the ills of 

unemployment has been more symbolic than real. 

Political scientist Richard M. Pious argues that the 

usual counter-recessionary measures: 

. . . demonstrate concern for people who are 

suffering, provide relief for those fortunate 

enough to obtain scarce jobs, and provide 

benefits to various corporations participating in the programs. But . . . their net 

fiscal impact is small, and the stimulus they 

provide does not affect the overall timing or 

magnitude of recovery in the business cycle:’ 

Similarly, economic journalist Robert J. Samuelson 

has declared that, 

. . . it’s doubtful that either economic 

poticies or the course of the economy would 

have differed very much if the country had 

lacked a President or the President, economists. In practice, Congress shaped the 

tax cuts, and the basic propellant bf 

economic growth-a consumer boom fueled 

by inflationary expectations and the maturing of “baby boom” children-existed independently.6’ 

Presidential pronouncements and programs, he 

believes, have been “self-defeating” because they 

strengthen 

. . . popular-and umeahstic-expectations 

that the government can concoct a cure for 

every ill. In turn, such expectations augment 

pressures to devise such cures (which usually 

don’t work and, often, make some other 

problem even worse) while distracting attention from more severe economic afflictionsL6 

Yet these are minority views, in both economic and 

political circles. The eventual consequence of the 

Great Depression, the New Deal, the Second World 

War, and the analytical insights of Lord Keynesassembled into law by Congress in the Employment 

Act of 1946-has been the assumption of federal 

responsibility for the performance of the American 

economy. Neither individual failings nor the natural 

cycles of a free enterprise system now are blamed 

when unemployment (or prices) soar. In the modern 

political economy, as President Truman himself has 

said, when things go wrong, “the buck stops here.” 

FOOTNOTE5 

‘Council ofEconomic Advisers, Economic Report of the prerident: 1978, Washington. DC, US. Government Printing Office. 

1978, p. 340. 

37 
‘Robert Lekachman, The Age of Keynes, New York, NY, 

McGraw-Hill Book Company, 1966, pp. I K-14. 

‘John A. Garraty, Cnemplovmpnt in Xistor~? Economic 

Thought ond Public Policy, New York, NY, Harper & Row, 

Publishers, 1978, p. 227. 

‘Robert L. Heilbronn, The Making of Economic Society. 

Englewood Cliffs, NJ. Prentice-Hall, Inc.. 1962, p. 167. 

‘Ibid, 

‘John Kenneth Galbraith, The Age ofllncerloinly, Boston, MA, 

HoughtonMifflinCompany, 1977,~~. 216-17. 

‘Ibid., p. 214. 

‘Garraty, p. 226. 

‘Ibid,, p. 225. 

‘DGalbraith, p. 218. 

“Council of Economic Advisers Economic Report of the Presidew 1978, Washington, DC, U.S. Government Printing Offii, 

1978, pp. 337,340. 

“Heilbraner, p. 168. 

“Galbraith, p. 223. 

“60 Statute 24, February 20.1946. 

“Heilbroner, p. 168. 

‘vanathan R.T. Hughes, The Governmenfal Habit: Economic 

Conrrolr /mm Colonial Times lo the Present, New York, NY, 

BasicBooks, Inc., 1977,~. 197. 

“Stephen K. Bailey, Congrerr Makes A Law: The Story Behind 

the Empbyment Act of 19% NW York, NY, Vintage Books, 

1950, p. 106. 

“Ibid., pp. 9-10. 

‘*Ibid. 

“Ibid.. D. 236. Emohasis added. 

“Ibid., p. 9. 

“Ibid., P. 181. 

“Ibid. 

“Richard I. Hofferbert, The Study of public Policy, Indianapolis, IN, Bobbs-MerriUCo., Inc.. 1974. pp. 101.02. 

“Bail&, p. 271. 

‘<Ibid., p.41. 

“Ibid,, p, 4%. 

“Ibid., P,P. 42-43. 

‘Vbid., P, 16,. 

‘OIbid., p. 106. 

“Ibid,, pp. 162. 177. 

“Ibid., pp. 221-22. 

“Ibid., P. 237. 

“Ibid., pp. 20-37. 

“Ibid., p. 97. 

‘&Ibid., p. 148. 

“Ibid., pp. 14849. 

“Ibid., p.41. 

“Ibid., p. 39. 

*OIbid., p. 38. 

“Ibid., p. 40. 

azIbid.. pp. 4546. 

“IbId., p. 78. 

&*Ibid.. p. 101. 

“Ibid., pp. 125-26. 

“Ibid., pp. 119-M. 

“Ibid., p. 30. 

“‘IbId.. p. 55. 

.‘Ibid., pp. 16667. 

‘*Ibid.. pp: 218-19. 

“Ibid., p. 57. 

“Ibid.,p. 100. 

“Ibid., p. 231. 

“Ibid.,p.238. 

“Ibid., p. 239. 

“Ibid., pp. 46,225. 

“Ibid., p. 225. 

“Ibid.. DD. 167-69.226, 

191bid., p. 233. 

‘OIbid. 

“Robe, Lclachman, The Age o, Keynes, New York, NY, 

McGraw-HiJ Book Company, 1966, p. 175. 

6’Walter W. Hellcr, New Dimensions ofPoIirica/ Emnomy, New 

York, NY, W.W. Norton, L%7, PP. 1-2. 

6’Arthur M. Okun, T/m Politicrrl Economy o/ pm*nrily, 

Washington, DC, The Brookingr Insfitution. 1970, p. 33. 

‘&Richard M. Pious, The Americcrn Presidency. New York, NY, 

Basic Books, Inc., 1979, p. 318. 

“Robert J. Samuelson, “Short-Sighted E&omics,‘s,” Nadonal 

Journal, May 5.1979, P 746. 

“Ibid. 

“For a modestly positive appraisal of major fiscal policy actions. 

see Congressional Budget Office, Understanding F&a/ Policy, 

Washington, DC, U.S. Government Printing Office, 1978. 

38 
Chapter 4 

The Sixties: Antipoverty Politics 

in the Decade of Prosperity 

TWO PERSPECTIVES ON 

THE SIXTIES 

H istorians concerned with political trends 

remember the 1960s principally for the declaration of a national “War on Poverty.” Initially formulated during the Kennedy regime and legislated into reality by the forceful leadership of President tyndon B. Johnson, the federal government in 1964 

mounted an extensive series of new efforts intended 

to eradicate poverty from the land. The pursuit of 

this objective required expanded federal efforts in an 

extensive range of public policy fields: An entire new 

arsenal of programs was unleashed against the “cycle 

of poverty.” Unemployment-related programs were 

among those affected heavily. Indeed, the contemporary conception of federal “structural” unemployment policy-centering on job training and area 

economic development-dates from this period. 

Unlike past unemployment programs, most of 

those initiated in the 1960s were intended to be 

curative, not just alleviative. This policy distinction 

rests on a differentiation between the type and duration of the employment problems that different individuals face: 

Probably the most useful distinction is 

between the unemployed who need only income maintenance and those who need 

something more. The first class consists of 

the regular members of the labor force 

whose unemployment is expected to be 

39 
relatively short and who will find their way 

back to employment without a major change 

in themselves or in their environment. All 

that these workers require is a temporary, 

and usually partial, replacement of lost income, Programs to aid these unemployed 

may be called allevrotrve programs. 

The other class of the unemployed consists 

of those who require a change either in their 

environment or in themselves in order to 

achieve reemployment. This class consists 

chiefly, though not entirely, of the very longterm (over six months) unemployed. . . 

Some unemployed live in depressed areas, to 

which new jobs must be brought or from 

which the unemployed must migrate. Others 

experience more than the normal unemployment because of their persona) characteristics. Two chief categories make up this 

latter group of the unemployed: those who 

are poorly educated, among whom the 

young and the nonwhite are noteworthy 

subgroups, and those whose skills have lost 

their relevance in a changing labor market, 

among whom the near-old constitute a 

special problem. Programs to aid these 

unemployed may be grouped under the 

heading of curative programs.’ 

Unemployment compensation, the backbone of 

federal unemployment policy, relied on the alleviative approach. The new programs of regional 

development and job training launched in the 196% 

however, were intended not simply to replace lost income, but also to provide the hard-core unemployed 

with access to permanent, well paying jobs. “Rehabilitation, not relief” was a slogan of the Kennedy Administration; economic “opportunity” became the 

watchword under President Johnson’s Great Society. 

The economic historian, in surprising counterpoint 

to his politically minded colleague, recalls the 1960s 

in images of abundance rather than deprivation. The 

decade was not one of unusual hardship. On the contrary, throughout the 1960s America enjoyed “unparalleled, unprecedented, and uninterrupted economic expansion.” Even the business cycle which 

had long plagued the economy seemed by 1969 to 

have become “obsolete;“’ The policy revolution of 

the War on Poverty, then, was not touched off by 

massive social, economic, and political strains, as 

was that of the New Deal. It was, instead, a result of 

the confident politics of affluence. 

This discrepancy between economic and political 

concerns was apparent at the time. In 1965 Miller and 

Rein observed that, 

, . the War on Poverty begins at a time of 

unprecedented prosperity, with Gross National Product approaching two-thirds of a 

trillion dollars. It is aimed at helping a 

minority of the population, not the majority. Indeed, it is hard to see why the year 1964 

saw a declaration of “War on Poverty.“’ 

Furthermore, they pointed out, there was very little 

political pressure for the new antipoverty initiatives. 

To be successful, they added, the antipoverty campaign would have to attract supporters a&r the fact 

of its initiation. 

Rediscovering the Poor 

Basic statistical data illustrate the economic 

unreality of the poverty problem in the early 1960s. 

The proportion of consumer units with an income of 

less than $3,000 (in 1954 dollars) stood at 2S% in 

1961. Although this represented a quarter of the 

population, it was well below the 63% of the population that had been similarly situated in the depths of 

the Depression, the 41% in poverty in 1941, or even 

the 31% poor in 1951.’ The postwar trend had been 

one of steady improvement. Never before had so 

many fared so well. Overall national economic performance also was comparatively good. Although 

there was a series of brief recessions-in 1949, 1954, 

1958, and 1961-these were neither as deep or longlasting as those of the past.’ 

Still, there were too many people left behind, 

despite the rising trend of prosperity. Indeed, it 

seems quite clear that the continuing presence of 

poverty in the nation’s economic backwaters seemed 

increasingly unacceptable because of the rising affluence. This view was suggested by an influential 

book by John Kenneth Galbraith. In The Affluent 

Society, published in 19S8, Galbraith observed that 

poverty had at that time ceased to be of much interest 

to both politicians and economists. As the poor had 

become less numerous, they also had become politically irrelevant. Yet the time had come, Galbraith 

believed, when the nation could well afford to eliminate poverty-a task deemed impossible when the 

number of poor was very large. Furthermore, he 

argued, simply providing more adequate public 

services-particularly educational and health 

40 
- Graph 4 even though federal taxes were being reduced. “We 

GROSS NATIONAL PRODUCT AND 

cannot and need not wait for the gradual growth of 

the economy to lift this forgotten fifth of our nation 

UNEMPLOYMENT RATES above the poverty line.” the President proclaimed. 

I 1955-66 “We know what must~be done, and this nation of 

BilllO”S 0‘ 198 ddhrs abundance can surely afford to do it.“’ 

,,.tka *cw 

-ld-------A 

,esa 1985 we8 

SOURCE: Arthur M. Okun, The Political Economy of 

Prosperity, Washington, DC, The Brookings 

The GNP Gap 

It also must be said that some observers thought 

that the American economy faced serious problems 

beneath its surface sheen. These concerns. also influenced federal policy. Although rising, economic 

output was not what it might have been, and between 

1951 and 1964, the unemployment rate continually 

exceeded 5%. with the average hovering around 6%. 

Excessive unemployment indicated that some of the 

nation’s economic resources were idle or wasted: the 

“gap” between the potential and actual Gross National Product (illustrated in Graph 4) was a significant issue. Most professional economists, including 

those in the Kennedy Administration, thought the 

gap could be reduced, that a 4% (or even lower) unemployment rate was a reasonable national target.To 

a few, the sluggish economic growth in the late 1950s 

was even a portent of danger. At that time, real GNP 

had risen at a rate well below that of Ihe Soviet Union 

and every other industrial nation. The famed 

Swedish sociologist Gunnar Myrdal identified “economic stagnation” in America as “the world’s 

greatest problem.” Robert Theobald predicted (quite 

erroneously, as it turned Out) that, 

. . . unemployment rates must . . be expected to rise in the sixties. This unemploy1 Institution, 1869, p. 42. 1 ment will be concentrated among the unskilled. the older worker and the youngster 

services--would help to break the intergenerational 

cycle of self-perpetuating poverty. Hence, both the 

necessary resources and the necessary means were 

now at hand. And the motive was s&ong,,in Galbraith’s view, for the continuation of economic 

deprivation in the prosperous United States was quite 

simply “a disgrace.“6 

entering the labor force. Minority groups 

will also be hard hit. No conceivable rate of 

economic growth will avoid this result.’ 

Structural Unemployment 

Why was there this economic shortfall, thii GNP 

gap? Two views were offered. Most economists, consistent with the by-then traditional Keynesian 

framework, thought that what ailed the economy was 

insufficient spending-too low a level of “aggregate 

demand.” Federal stimulation was their remedy. 

But some analysts believed the problem was more 

fundamental, inherent in the changing structure of 

A Galbraithian-style diagnosis in fact undergirded 

the antipoverty strategy of the mid-1960s. President 

Johnson’s 1964 Economic Report, which announced 

the War on Poverty, also stressed the “$100 billion 

expansion” during 1961-63, for which there was “no 

parallel in our peacetime economic annals.“’ This 

fiscal dividend made possible major new programs, 

41 
the economy itself. In their view, automation-the 

“cybernetic revolution”-was the joker in the deck. 

The modern machinery and production techniques 

that had fueled the material progress of most of the 

nation’s citizens seemed to cause injury to others. 

Labor market expert Charles C. Killingsworth, for 

one, argued that an automated economy tended to 

generate a shortage of highly skilled white-collar 

workers and an unemployable surplus of unskilled 

and blue-collar workers at the same time.‘O Progress 

thus wore the face of Janus, looking in two directions 

simultaneously. 

Such “structural” unemployment, as it was called, 

reflected three main problems, according to a massive report prepared in I%0 by the Senate Special 

Committee on Unemployment Problems. Simply 

stated, these were that, 

Some of the unemployed live in the wrong 

place-in areas lacking job opportunities. 

Some have the wrong skill, or none at all. 

And some are the victims of discrimination 

-because of race, sex, or age.” 

The structural analysts contended that Keynesian 

macroeconomic measures were not enough to maintain a high level of employment in a changing 

economy. Furthermore, they believed that overstimulation could lead to rising wages and prices in 

the “shortage” occupations and areas. These could 

spread throughout the economy, loosening a general 

inflation without eliminating joblessness. 

For these reasons, structuralists advocated new 

public policies to “sop up” the pools of “excess” 

labor. The policies enacted took three principal 

forms. Where the supply of workers was excessive, 

programs of regional development assistance aimed 

at attracting potential employers were advocated and 

adopted. For those individuals lacking necessary 

skills, new job training programs were created.** 

And, although it is not considered in detail here, the 

problem of discriminating-the third facet of structural unemployment-also was addressed. The 

monumental Civil Rights Act of 1964 included, at 

Congress’ initiative, the first national equal employment opportunity standards.” 

The emerging theory of structural unemployment 

was initially most appealing to “a fairly odd assortment of bedfellows, ” including a number of sociologists and lawyers, as well as some fiscal conservatives 

upset by standard pro-spending Keynesianism.” But 

it attracted few academic economists, for two 

reasons. First, classical theory suggested that high 

levels of localized unemployment were quite impossible. The standard view was that, 

. . . such unemployment was selfliquidating. It was assumed that as economic 

activity in a community declined wages 

would be depressed. This was supposed to 

attract new employers to these localities and 

at the same time stimulate the outmigration 

of workers who would search for employment elsewhere.” 

Second, there seemed to be little objective foundation for the concern about the effects of automation. 

Many economists failed to find convincing evidence 

that structural unemployment actually was rising.“ 

Not until a&r the War on Poverty was announced, 

Henry J. Aaron asserts, did the thesis of the “structuralists” gain widespread acceptance.” 

The theory of structural unemployment was more 

popular with Congressmen than academicians, however. Elected politicians have good reason to take an 

interest in the condition of local labor markets. 

Economists’ claims about the long-run efficiency of 

market forces are not very impressive to Congressmen with two-year terms and political fates tied to 

regional, rather than national, economic conditions. 

Proposals to facilitate the relocation of the jobless 

found little favor for, as one member remarked: 

“Sir, are you asking me to vote for abpropriations to 

help my constituents to move to some other 

district?“” What legislators wanted was some more 

direct means of aiding their distressed constituents. 

For this purpose, both regional development and 

employment training programs were ideally suited. 

ECONOMIC DEVELOPMENT 

LEGISLATION 

The potential political virtues of new programs 

aimed at the problem of structural unemployment 

are apparent in the case history of the Area 

Redevelopment Act of 1961 (ARA).” This innovative and controversial measure authorized total 

expenditures of $394.5 million for three major forms 

of aid to designated redevelopment areas: loans for 

industrial and commercial projects, loans and grants 

for public facilities, and technical assistance in the 

form of studies and expert advice. 

The ARA also provided funds for the operation of 

vocational training programs and trainee subsistence.” However, this-the nation’s first “man42 
power” program--was quickly overshadowed with 

the adoption of the Manpower Development and 

Training Act in the following year. 

Despite its limited funding and short life-the 

ARA was abolished in 1965-the program left an enduring mark on federal unemployment policy. As 

one analyst has commented, 

the act was the first major implementation of the 1946 Employment Act’s dictum 

that employment levels would be a continuing concern of the federal government. And 

it was the first substantial recognition by 

Congress of the problem of long-term structural unemployment. . The list of [subsequent] enactments directed at this problem is 

a veritable map of economic thinking in the 

1960s: the Manpower Development and 

Training Act of 196.2, the Vocational Education Act of 1963, and the Economic Opportunity Act of 1964, not to mention the 

debates over the impact of tariff adjustments 

and automation. Many of these lines of 

policy debate were fist marked out during 

the depressed areas debates of the 1950s. 

In this light, the construction of a coalition for [the] Redevelopment Act may be 

seen as part of a larger movement toward na- . 

tional policy consensus in one policy area.” 

Senator Douglas and the AM 

Congressional, rather than Presidential, leadership 

characterized most of the unemployment legislation 

enacted in 1961-63. Manpower expert Garth L. 

Mangum recalls that, 

. despite having narrowly won an election 

on the slogan of “get America moving 

again,” the Kennedy Administration was 

remarkably ill-prepared to get into motion. 

There were many hypotheses but no consensus on what was wrong and what needed to 

be done. The Administration entered with 

no preconceived program and little disposition to invent one. . . . 

Since the Kennedy Administration was not 

prepared to move, the initiative lay by 

default with Congress. Senators and Congressmen tended to see the world from the 

vantage points of their own constituencies 

and to be influenced by the popular press 

rather than the professional journals. Structural unemployment best represented the 

level of detail at which they were prepared to 

operate: Who is unemployed from what past 

job in my district?** 

The Area Redevelopment Act (ARA) can be 

regarded as an exceptionally striking instance of 

Congressional policy initiation. Indeed, the program 

was 

. largely a product of one man, Senator 

Paul H. Douglas, of Illinois. He formulated 

the intellectual underpinnings of the program and played a leading role in the shaping of the coalition which supported the 

legislation. It was largely due to his perseverance that the act survived two Presidential vetoes and was finally signed into 

law under a friendly Administration in 

1961.” 

Of course, Sen. Douglas (D-IL) needed allies in 

Congress, and ultimately in the White House as well, 

to realize his objective. Securing these required some 

substantive changes in his original bill and made the 

end result not the sole responsibility of any single individual. Furthermore, Douglas’* bill-like most 

statutory enactments-built on what had gone 

before. In particular, it drew very heavily on legislation proposed by President Truman and Sen. James 

Murray (D-MT) in 1949. Truman’s economic message of January 1947 had indicated the need for 

governmental assistance to communities with a 

chronic labor surplus. The Murray bill, the “Economic Expansion Act of 1949,” was defeated in committee, but it provided useful ideas for incorporation 

in Douglas’ proposal.” 

As a respected economist and former professor at 

the University of Chicago, Sen. Douglas was of 

course unusually aware of the problem of unemployment and its possible governmental solutions. Yet his 

sponsorship of the ARA appears to have stemmed 

more from his political than academic experience. Indeed, in 1952 he had published a book urging governmental frugality, and stating that federal intervention 

in the economy was unwarranted unless the unemployment rate topped 8%. However, the recession of 

1954 and a reelection tour of areas with hard-core 

unemployment problems in southern Illinois led him 

to change his view. Local leaders in the Rend Lake 

Water Conservancy District indicated their need for a 

water-and-power project to attract industry. 

43 
Douglas’ humanitarianism, and his recognition of 

the relative immobility of labor and the large capital 

investment in existing community facilities, suggested the need for federal “seed money” loans to 

encourage a process of economic expansion. This notion was advanced through a package bill drawn up 

by his staff in 1955, which included eight separate 

assistance programs for depressed areas. A “Depressed Areas Administration” was proposed to 

coordinate these aids.” 

Douglas’ bill was a federal counterpart to the local 

economic development programs that had become 

increasingly common in the postwar years. Many 

communities offered tax concessions, financial assistance, free land, rent-free buildings, and other inducements to prospective industrial firms. Some 

states also engaged in industrial promotion, with 

Pennsylvania’s Industrial Development Authority, 

created in 1956, being one of the most successful examples.z6 

The process of legislative success was a lengthy cxercise in coalition building, according to the detailed 

analysis prepared by political scientist Roger H. 

Davidson. Although “at first, [Douglas] was all 

alone,“” eventually he garnered the support required to see his proposal enacted into law. 

Some ready allies were found among Congressmen 

from other depressed industrial areas. These included 

members of both the Democratic and Republican 

parties. But to increase the number of supporters, it 

was necessary to increase the number of potential 

beneficiaries. This was the key to the political 

coalition-building task. At the time of the final 

House vote, Davidson comments, the “story was 

told eloquently by the large map placed by the bill’s 

sponsors in the Speakers lobby, just off the House 

floor.” The map showed Congressmen exactly “how 

many of their districts would be in line for federal 

help.‘“’ 

The major strategem centered on providing aid to 

rural as well as urban areas of “underemployment.” 

Douglas’ initial bill, aimed at dealing with areas of 

industrial decline in the north and east, was modified 

in response to the concerns of members from the 

south that their poverty areas also required 

assistance. Hence, a revision provided loans to some 

300 poverty-stricken rural counties. (Subsequently, 

these funds were expanded further.y These changes 

were politically decisive, in that they made large inroads against the “conservative coalition” of Republicans and southern Democrats that had thwarted 

many other social welfare measures.‘O 

Despite a near miss in 1956, the path from drafting 

to approval was a tortuous one, requiring some six 

years to complete the essential steps of committee action, floor votes, and signature. The start was 

auspicious, however. At the time the bill was introduced in 1955, the nation was enjoying general 

prosperity. Backed by testimony from local Chambers of Commerce, and in the absence of organized 

opposition, many Senators found it difficult to vote 

against a modest bill assisting areas with chronic 

unemployment. After 30 minutes debate, the Senate 

adopted the Douglas bill by a 60-30 margin.” As in 

later years, members of the Democratic party were 

far more supportive than the Republicans. 

Never again were matters so simple, as the voting 

results in Tub/e 4 indicate. After 1956 the opponents 

were better organized, mofe articulate, and more 

numerous. The intense political controversy they 

generated revolved around philosophic issues. While 

advocates accepted the notion of federal responsibility for aiding areas with chronic unemployment, the 

opponents did not. Sen. Barry Goldwater (R-AZ) regarded industrial relocation and economic change as 

inevitable in a free enterprise system. No federal involvement was required. Other Republican opponents argued that there was sufficient private capital 

available to finance desirable projects. Fuythermore, 

thLy argued that the $200 million Douglas proposed 

was just a “drop in the bucket,” given the billions of 

dollars that were invested privately. For this reason, 

critics feared that the “Douglas program represented 

only the proverbial camel’s nose” and would lead to 

ever greater federal outlays and further “interference” in market operations.” 

There were also important pecuniary and political 

interests at stake. Some Congressmen feared that 

federal aid would encourage their local industries to 

relocate in the aided areas. Sen. James W. Fulbright 

(D-AR), for one, favored a $2 billion national community facilities program, but apparently thought 

that the Douglas bill would work against the long-run 

economic interests of the south.” Since he was the 

chairman of the Banking and Currency Committee, 

Sen. Fulbright’s views were extremely important. 

Despite the controversy, the redevelopment bill 

was approved by both chambers in the 85th and 86th 

Congresses. The White House was the real obstacle. 

Administration opposition prevented the measure 

from coming to a vote in the House in 1956, and 

President Dwight D. Eisenhower vetoed it twice, in 

1958 and 1960. 

It appears that partisan competition, rather than 

44 
Tab/e 4 

CONGRESSIONAL VOTING ON REDEVELOPMENT LEGISLATION, 

1956-61 

Senate House 

Percent Percent 

For For 

Congress Vote Total Dem Rep Vote Total Dem Rep 

64th 1956 60-30 66% 94% 37% - - - - 

1957 - - - - - - - - 

65ih 1956 46-36 56 71 41 216-159 57% 76% 34% 

1959 49-46 51 80 12 - -~ - - 

66th 1960 - - - - 202-184 52 72 17 

67th 1961 83-27 70 81 48 251-167 80 83 26 

SOURCE: Based on Randall 6. Ripley, The Politics of Economlcandtfuman Resource Development. Indlanapolis. IN, 

The Bobbs-Merrill Company, 1972, p. 25. 

substantive differences on policy, was at the root of 

this political battle. President Eisenhower was by no 

meam wholly unsympathetic to the problem of local&d unemployment. Indeed, in 1955, when Sen. 

Douglas began work, the President asked his Council 

of Economic Advisors (CEA), to devise an Administration program. In its 1956 report, the CEA 

reversed a position taken the previous year and 

declared that “the fate of distressed communities is a 

matter of national as well as local concern.” The Administration’s own legislative proposal, introduced in 

January, differed in important detail, but not in principle, from Douglas’ own: it provided less money 

($50 million, rather than $396 million); less federal 

participation in loans; higher rates of interest; and 

was to be administered by the Department of Commerce, rather than a new independent agency.” 

Despite their shared objectives, rivalry rather than 

cooperation marked the relationship between the 

Democratic Senator and his allies and the Republican 

President from the very first. Neither wished to allow 

the other party to claim credit for aiding depressed 

areas. The magnitude of these competitive relationships had little to do with the substance of the issue. 

Indeed, Davidson notes that, 

. though the Eisenhower and Douglas 

bills came to resemble one another 

somewhat more closely as the controversy 

progressed, the partisan camps hardened 

their opposition to the alternative bill and 

made passage of any bill at all virtually impossible.” 

The major interest groups involved also line up on 

rather predictable party lies. Organized labor is 

generally viewed as the backbone of the Democratic 

coalition, as business is of the Republican. Lobbying 

on the Area Redevelopment Act was consistent with 

this traditional pattern. 

Support for the Douglas bill came from an APLCIO-backed organization, the “Area Employment 

Expansion Committee” (AEEC). With labor 

funds-and about a dozen contributing membersthis organization supported a Washington staff man 

who developed fact sheets on unemployment issues 

and secured endorsements from major union leaders, 

state-local labor organizations, and other groups.‘6 

Another line of advocacy was provided by the “urban lobby,” particularly the American Municipal 

Association, as well as state and local officials from 

Pennsylvania, one of the important industrial states 

that expected to benefit from the legislation. Several 

major farm organizations enthusiastically backed the 

bill after rural coverage was included, as did Indian 

welfare groups when reservations were made eligible. 

45 
A variety of other liberal organizations lent their 

prestige to the campaign, although they probably 

swung few votes.?’ 

The principal organized opposition came from the 

business community. Aftcr 1957 both the national 

Chamber of Commerce (despite early support from 

some local chambers in depressed areas) and the National Association of Manufacturers took stances 

against both the Douglas and the Administration 

bills. 

The ultimate fate of the ARA was influenced more 

by electoral politics than by these group pressures, 

however. Three times, James L. Sundquist notes, 

. both parties took their cases to the 

voters. . . In doing so, they magnified 

relatively minor differences of degree into 

major differences of principle. The 

Democrats, eagerly backed by organized 

labor, were able to convert area redevelopment into a powerful political issue in the affected areas, which symbolized-in their 

oratory-the contrast between Democratic 

compassion and Republican unconcern. The 

Republicans sought to recoup by using the 

bill as an example before the country at large 

of Republican fiscal prudence contrasted to 

Democratic profligacy.” 

The Democrats found the issue to be useful at the 

polls. In 1956, Democratic candidates stressed the 

Administration’s opposition to House action on the 

bill as the key factor in preventing passage, and national standard-bearers Sen. Adlai E. Stevenson (DIL) and Estes Kefauver (D-TN) publicized the issue 

when campaigning in distressed areas. Two years 

later, at least some members of the landslide 

Democratic “class of 1958” could attribute their new 

seats to the political impact of Eisenhower’s untimely 

veto.js With rates of unemployment exceeding 7% in 

the summer and fall that year, the 1958 

. . . Congressional campaign centered on 

bread-and-butter issues, with unemployment 

playing a paramount role. It is therefore 

probably no accident that Congressional districts with depressed areas, which would 

have been eligible for assistance under the 

vetoed Douglas bill, accounted for the bulk 

of the Democratic sweep-Democrats won 

48 seats held by Republicans and lost only 

one seat to a Republican. About four out of 

five Congressional districts where Democrats won Pepublican seats were located in 

depressed area~.‘~ 

Not surprisingly, the 86th Congress convened with 

redoubled enthusiasm for area redevelopment legislation. 

In the final analysis, however, it was the Presidential election of 1960-coupled with the high rate of 

unemployment then prevailing-which assured enactment of the ARA. Se”. John F. Kennedy’s campaign strategy, aimed at demonstrating his popular 

appeal, took him to West Virginia for the state’s 

primary election in May 1960. Although the Senator 

had been a cosponsor and strong supporter of the 

Douglas bill from the first, the appalling poverty he 

found in the mine fields-and his subsequent electoral victory-deepened his commitment. Thereafter, throughout his campaign, he was to stress the 

issue of hard-core unemployment.” 

Vice President Richard M. Nixon, the Republican 

nominee, was clearly at a disadvantage in dealing 

with the issue. Although the COP platform pledged 

an expansion of development and training programs, 

the two Eisenhower vetoes and the smaller funding 

sought by the Administration bill gave the appearance of indifference to the needy. While Republican spokesmen contended that their proposal 

actually offered more aid to the most’ seriously 

depressed communities, “this reasoning was somewhat technical for a political campaign.” When Nixon charged, in the third national television debate, 

that the Democratic proposal was “pure pork,” Kennedy responded by noting Labor Secretary Mitchell’s 

statement of approval of the bill just 24 hours before 

Eisenhower had vetoed it.” 

Kennedy’s victory in November I960 assured quick 

approval of some sort of area development bill. Even 

before he took office, the President-elect appointed a 

task force on economic growth, chaired by Sen. 

Douglas and drawing six of its ten members from the 

State of West Virginia. The principle of federal participation was settled. Only questions of funding 

levels and administrative procedures remained. 

On one issue Douglas was forced to give ground. 

The Senator had consistently favored the creation of 

a new independent agency to administer his program. 

On the other hand, business opinion, as well as that 

of the Secretary of Commerce under Eisenhower, 

was that the Department of Commerce should be 

made responsible. This view eventually prevailed 

within the Kennedy White House, and Douglasdespite his concern about excessive “business in46 
fluence” and his antipathy to the Department’s new 

Secretary-found himself outflanked. The result 

was that the Area Redevelopment Administration 

(ARA) was lodged under Commerce’s wing. 

Douglas’ bill, introduced as S. 1 by the Senator and 

some 44 cosponsors, was signed into law on May 1, 

1961. Sii years of effort had produced what Douglas 

regarded as his own greatest legislative achievement. 

It also became the first tangible product of President 

Kennedy’s New Frontier. 

Post-ARA Policymaking: 

Expansion, Diffusion, and Confusion 

In a book written in 1962, political economists 

James M. Buchanan and Gordon Tullock described 

what they termed the “spiral effect” in public 

policymaking. They argued that the provision of a 

governmental benefit to a particular population 

group usually encourages other groups to seek 

similar benefits for themselves as well. According to 

their cost-benefit theory, the reason is that, 

. other functional or interest groups, 

observing the SUCCESS of the first, will now 

find it profitable to invest resources (funds) 

in political organization. The pressure 

group, as such, will rapidly become a part of 

the political decisionmaking process. Moreover, because of the activities of such 

groups, the range and the extent of collective 

action will tend to be increased. As more and 

more groups wme to recognize the advantages to be secured by special political dispensation, this organizational process will 

continue. The ultimate “equilibrium” will 

be reached only when all groups have become fully organized.” 

As a hypothetical example, Buchanan and Tullock 

offered an area development program much like the 

ARA: 

Suppose that the issue confronted should 

be that of providing some federal funds to 

aid the depressed coal-mining area of West 

Virginia . [I]t is relatively easy to see 

that, if such aid is to be financed out of general tax revenues, a veritable Pandora’s box 

may be opened. Depressed fishing villages 

along the Gulf Coast, depressed textile 

towns in New England, depressed automobile production centers in Michigan, depressed zinc-mining areas in Colorado, etc., 

may all demand and receive federal 

assistance.” 

This bit of political forecasting has stood the test 

of time far better than most. Buchanan and Tullock’s 

spiral effect approximates the actual trend in this 

policy field. Over the years, the addition of new programs and a broadening of eligibility requirements 

has dramatically shifted the character of federal area 

development aid. Although the initial Douglas tiill 

was regarded as “sectional” legislation, the same 

cannot be said of existing programs. On the contrary, 

. . as more areas of the Nation have been 

able to qualify for inclusion in regional commissions or in EDA qualified areas, virtually 

the entire country has been included in areas 

eligible for development assistance under 

one criterion or another. This has removed 

the “special” assistance aspects of the program.” 

This tendency was apparent before the ARA was 

enacted, and it continued during its implementation. 

Davidson concluded his case study by noting that, 

. . . once launched, the Area Redevelopment 

Administration was subjected tb a variety of 

pressures for designating a large number of 

communities as “depressed areas” eligible 

for aid. Farm and labor interests, as well as 

legislators who had voted for the act, 

viewed the program as a new form of the 

traditional pork-barrel. As a result, no less 

than 1,035 counties--one-third of the national total and containing one-sixth of the 

nation’s population-were eventually declared eligible for aid.‘6 

Yet, ARA itself was short-lived. More important 

by far was the precedent it set for later programs aimed at relieving localized structural unemployment. 

The current set of area and regional development 

programs was first adopted in 1965. The principal 

agencies involved are the Economic Development 

Administration (EDA), the successor to the ARA; 

the Title V multistate regional action planning commissions; and the Appalachian Regional Commission. All were created in 1965, the first two under the 

Public Works and Economic Development Act 

(PWEDA),“ and the latter under the Appofachian 

Regional Development Act (ARDA).” 

47 
THE EDA 

The PWEDA was drawn up in response to attacks 

on the ARA and the defeat of a reauthorization bill 

in the House of Representatives. Although the ARA 

had been created with a four-year life, it began to run 

short of funds early in 1963. In response, President 

Kennedy proposed legislation to increase its reso”rces. 

By that time, however, much of the fledgling agency’s political support had melted away. Criticism of 

the ARA’s operational performance abounded. 

First, the agency had been too slow in getting under 

way; later, it was charged with poor choices and even 

political favoritism in the selection of projects. Businessmen feared that their competitors would receive 

government support, and some labor spokesmen felt 

that the ARA was supporting a movement of firms to 

low wage, nonunion areas. All these objections echoed in the halls of Congress-especially in the House, 

where the ARA’s opponents were particularly articulate and vigorous. By a vote of 204-209, Kennedy’s request was defeated. Thirty-nine of the Congressmen-20 Republicans and 19 Democrats-who 

supported the 1961 act had reversed their position.” 

Replacement legislation was drafted for the President by staff in the Bureau of the Budget (BOB). In 

response to Congressional criticisms, and consistent 

with their reputation as fiscal conservatives (the 

“green eyeshade boys”), BOB staffers also sought to 

restrict the pressures toward the “scatteration” of 

spending and proliferation of benefits. To this end, 

they proposed more careful economic development 

planning, with federal aid concentrated in major 

“economic development centers.” The Administration bill also created a new agency-the Economic 

Development Administration-to replace the ARA, 

and authorized the Secretary of Commerce to designate new multistate planning commissions at the request of the states. This legislation sailed through the 

Congress with only perfunctory resistance from the 

Republican leadership. 

Unlike its predecessor agency, the Economic 

Development Administration quickly found a secure 

niche within the federal bureaucracy. Although 

Presidential appropriations requests in the 1960s and 

early 1970s were modest-and usually cut slightly in 

Congress-they were not highly controversial.‘O 

Later reorganization threats to the EDA and other 

development agencies, discussed below, never got off 

the ground. 

Over time, the EDA’s mission-and its political 

constituency-has grown steadily. By 1974 nearly 

one-half of the 3,000 American counties had received 

some assistance under the ARA, the EDA, or both.” 

A series of amendments to the PWEDA had added 

programs for economic recovery aid in disaster areas, 

adjustment assistance for areas experiencing structural economic dislocations, and emergency assistance to areas with unusually high unemployment 

rates.” Furthermore, as a Congressional Research 

Service study noted, 

Eligibility requirements for participation 

in EDA programs have been liberalized over 

the years, and in 1976 the size of municipalities eligible for designation as redevelopment areas has been reduced from 

250,ooO to 25,060. The statement of purpose 

of the act has been amplified from “to create 

a climate conducive to the development of 

private enterprise in America’s economically 

distressed communities” in 1965, to the 1976 

amendment making assistance available to 

“both urban and rural areas” for “planning 

prior to actual economic rehabilitation 

where long-term economic deterioration has 

occurred or is taking place.“” 

L 

As of 1979, fully 84.5% of the nation’s population 

lived in the 2,230 areas designated to receive EDA 

funds. Of these, 823 areas did not meet current eligibility criteria, but could participate because of a 

legislative ban on “de-designation” instituted in 

1970. The agency is very popular with the Congress, 

with state and local governments, and with the businesses that benefit from its aid. The economic development approach also attracted the attention of the 

Carter Administration, which proposed a doubling 

of EDA’s budget (from $1.5 to $3 billion) in 

February 1980 as a part of its urban policy.” 

APPALACHIA 

The Appalachian program was established in 

response to a request by the Governors of nine 

neighboring states for federal help following serious 

flood damage to the Cumberland Valley in March 

1963.” In addition to the usual disaster relief, Kentucky’s Governor Bert T. Combs proposed the creation of a temporary federal-state study commission 

to prepare a comprehensive development plan for the 

region. President Kennedy responded by the appoint48 
ment of the President’s Appalachian Regional Commission (PARC) with Under Secretary of Commerce 

Franklin D. Roosevelt, Jr., as the chair and including 

14 federal agencies as members, along with the 

Governors. 

This proposal actually originated with John D. 

Whisman, the executive director of a 32-county 

regional development council in eastern Kentucky, 

several years before. Whisman was convinced that 

his region required the coordinated improvement of 

transportation systems, social services, and the 

natural resource base if it was to become attractive to 

investors. His idea caught the eye of Sen. John Sherman Cooper (R-KY), several Governors, and eventually President Kennedy. 

PARC’s membership responded to their charge 

with considerable enthusiasm. Both its state and 

federal members stood to benefit from a joint attack 

on Appalachian poverty: 

The states knew what they wantedhighways first of all to open the mountain 

valleys to the outside world, dams and reservoirs and other resource development projects, and preferential treatment in any other 

program area where the federal government 

might be willing to extend it. The federal officials had a Presidential directive to 

cooperate, and to each agency that became a 

directive to justify an expansion of its services wherever it could do so. Appalachia 

was “in” in 1963; a federal agency that 

could not find a way to help would have had 

to be singularly lacking in respect for its own 

importance. 

In every corner of the federal establishment, during the summer of 1963, ideas for 

the Appalachian program began to growusually in the form of regional addenda to 

agency budgets. The highway planners alone 

developed a regional network of access roads 

costing $1.2 billion, with the federal government to finance the major share.‘” 

Neither the Bureau of the Budget nor President 

Johnson was pleased with the scope of the budgetary 

commitments being made. The costs were too great 

and the planning too poor. Yet they found it impossible to exercise fiscal discipline over a joint federalstate commission, composed of high-ranking public 

officials and launched with considerable fanfare and 

publicity. In the end, the President gave his blessing 

to the commission’s proposals, and introduced a $1 

billion aid bill in the spring of 1964. 

Despite opposition charges of poor planning and 

regional discrimination, the Appalachia bill was 

readily approved in the Senate with a 45-13 margin. 

It never came to a vote in the House, but the Democratic landslide in November assured its ready acceptance. In the 89th Congress, the focus of attention 

was not the Appalachian program proper, but rather 

how similar assistance might be offered to the nortbem Great Lakes states, the Ozarks, and New 

England. In response, the Administration promised 

that the PWEDA, then being written, would provide 

general authority for the creation of additional commissions. With these assurances, the bill was approved 62-22 in the Senate and 257-165 in the 

House.” 

Appalachian Regional Development Act 

The (ARDA), together with Title V of the 

PWEDA, has encouraged the creation of a steadily 

growing network of multistate regional economic 

development commissions. Individual regions have 

also increased in size. By early 1979 nearly the entire 

coterminous United States was served by one of these 

organizations, as Map I indicates. 

The multistate commissions have proven to be extremely popular with the nation’s Governors, who as 

commission members largely determine the allocation of funds. Advocates defend the commission 

system as an innovative “partnership approach” to 

regional planning and federal-state development activities. Critics, on the other hand, charge that the 

planning efforts to date have been inadequate, that 

commission activities are poorly coordinated with 

other development programs and-in the instance of 

the Nixon Administration-that the commissions are 

an unnecessary additional level of governmental bureaucracy. Ia 

OTHER AGENCIES 

Although the EDA, ARC, and the Title V commissions are the principal agencies applying the area 

development strategy to unemployment problems, a 

number of other agencies are concerned with related 

questions of poverty and community development. 

Among the most prominent arc the Department of 

Housing and Urban Development (HUD), the Com49 
Map 1 

THE SPREALtg06F5 :EGIONALISM, 

Upper Great Lakes 

4/11/67 

SOURCE: Appalachia. March-April 1979, p. 10 

munity Services Administration (formerly the Office 

of Economic Opportunity), the Small Business Administration, and the Farmers Home Administration 

in the Department of Agriculture. An even broader 

set of agencies engage in activities that have some 

impact-though often unintended-on patterns of 

industrial development and location. Federal regulatory, tax, spending, and purchasing policies all affect 

the price and availability of factors of production 

(labor, capital, and resources), as well as the demand 

for goods and services. These influence both interand intra-regional patterns of economic development, though in ways that are not yet fully 

understood.‘P 

As the federal impact on economic development 

has increased, there has been a concern that there 

may be too many related programs, often working at 

cross-purposes. Better coordination and planning 

through some sort of national development plan has 

been advocated frequently. A statutory expression of 

this view appeared in Title VII of the 1970 Housing 

Act, which declared that, 

. . the federal government, consistent with 

the responsibilities of state and local government and the private sector, must assume 

responsibility for the development of a national urban policy . . Such policy shall 

serve as a guide in making specific decisions 

at the national level which affect the pattern 

of urban development and redevelopment 

and shall provide a framework for development of interstate, state, and local urban 

policy.60 

Yet, although a series of biennial urban growth 

policy reports has been written in response to this 

mandate, they have not provided an adequate foundation for the achievement of the intended objectives. 

The rising number of federal agencies and pro50 
grams impacting on local communities also has led to 

‘proposals for administrative simplification and 

reform. During the years of the Nixon Administration, economic development programs became embroiled in partisan controversy. Twice, in 1970 and 

1972, the President vetoed public works employment 

bills, and in 1973 be sought to abolish the agency by 

requesting no funding for its programs6’ In keeping 

with its philosophy of New Federalism, the Nixon 

Administration proposed a consolidated program of 

special revenue sharing for rural community development in January 1971. The proposal would have 

replaced some 39 area development programs with a 

$1.1 billion block grant to the states.6’ 

In the same year, the Administration also advocated the creation of a new Cabinet-level “Department of Community Development” @CD). Built 

principally around the Department of Housing and 

Urban Development, the DCD also would have administered the EDA and Appalachian programs, 

among others (see Chart I). While this proposal was 

received more favorably than the Administration’s 

three other departmental reorganization plans-and 

actually was approved in modified form by the 

House Committee on Government Operations-it 

fell before the combined opposition of agricultural, 

highway, and other organized interests. 

A similar proposal for a new agency, styled the 

“Department of Development Assistance,” was prepared by the Office of Management and Budget 

(OMB) early in 1979. The OMB staff analysis noted 

the splintering of economic development aid among 

12 programs in five agencies, and a similar fragmentation of funds for community facilities and development planning. OMB Dirctor James T. McIntyre argued that “the only way to streamline all of these 

Chart 1 

TRANSFERSTOTHEPROPOSED 

DEPARTMENT OF COMMUNITY DEVELOPMENT 

51 
fragmented programs is to have a full reorganization.“63 

The logic of this position was not persuasive to 

many in key positions on Capitol Hill, however, or 

even in the White House itself. Members of the 

House and Senate Committees on Public Works and 

Agriculture opposed the transfers, which would have 

eliminated major portions of their legislative jurisdicticm6’ A watering-down of the DDA proposal also 

was pressed by some of President Jimmy Carter’s 

aides, who 

. . objected that the plan would disrupt 

federal economic assistance programs in the 

short run-and probably not improve on the 

delivery of services even in the long run. 

And they raised substantial political objections, arguing that interest groups and 

members of Congress, having accommodated themselves to the bureaucracy as organized now, would oppose the changes.” 

In fact, many organized interests, including the “rural lobby” and big city Mayors, 

did feel that the new combined agency was a 

threat to their own policy objectives. 

In the end, President Carter proposed a far less 

ambitious plan to consolidate a handful of credit and 

loan programs in the EDA. This action, along with 

the rejection of a second proposal for a new “Department of Natural Resources,” “signaled the sputtering conclusion of one of Carter’s chief campaign 

themes.“66 

AREA DEVELOPMENT: 

AN ASSESSMENT 

Despite their obvious political popularity, it is extremely unlikely that area development programs 

have had more than a modest impact on local unemployment rates and the overall location of the industry. Community and regional development trends 

seem to be far more affected by national economic 

forces operating in the private sector than by federal, 

state, or local economic development programs, according to most studies. An.evaluation report prepared for the Economic Development Administration in 1972 concluded that, 

. . . the geographic impacts of the 42 programs analyzed, in the aggregate, are modest. They are largely confined to accelerating 

pre-existing trends toward economic concentration in metropolitan areas or curbing 

slightly prevailing trends of economic 

decline. Even with substantial modifications 

of priorities, funding levels, and administrative processes, the capacity of these 

programs to alter-and particularly to 

reverse-geographic patterns of economic 

development is extremely limited.6’ 

Similarly, Ralph M. Widner, the director of the 

Academy for Contemporary Problems and a former 

executive director of the Appalachian Regional Commission, has asserted that “the programs providing 

financial assistance to state and local governments 

for urban and regional development have had little if 

any significant impact” cm national development 

patterns. The federal government has been “least effective,” he adds, “when it has attempted to influence the location of population’and economic activity through grant-in-aid programs.“6’ 

It could be argued, however, that greater results 

could have been obtained with greater effort. Although federal area development funding has increased substantially since 1961, when the ARA was 

enacted, the total is still small in comparative terms. 

Levitan and Zickler noted in 1976 that, / 

. for every dollar that the federal government is spending this year to promote economic development in lagging areas, more 

than ten dollars are being spent in these 

regions to support workers forced into temporary idleness. Clearly, federal policy focuses on providing immediate and direct aid 

to those in need, and relatively little for 

preventive measures that would bolster local 

economies and therby reduce vast outlays 

for the unemployed.69 

Total outlays under the PWEDA and ARDA in the 

1965-75 decade, they comment, roughly equaled the 

cost of providing the District of Columbia with a new 

subwaysystem.‘OIn their view, 

. . . the story of federal aid to lagging areas 

is a tale of attempting to satisfy a Gargantuan appetite with Lilliputian doses. Fifteen 

years of experience with the Area Redevelopment Administration, the Economic Development Administration, and the Appalachian Regional Commission offer proof 

positive that it cannot be done.” 

52 
MANPOWER POLICY: 

THE POLITICS OF INITIATION 

Two fundamental streams of manpower training 

policy were developed in the 1960s. in addition to the 

manpower component of the ARA. Although they 

developed overlapping objectives as the decade progressed, each arose in response to a different problem, enjoyed a very different political environment, 

and operated through a separate administrative 

structure. Eventually, these two policy streams were 

consolidated with a public employment program to 

form the Comprehensive Employment and Training 

Act. 

The first policy stream originated in 1962 with the 

passage of the Manpower Development and Training 

Act (MDTA). Due to its size and status as the first 

national adult training program, the MDTA has been 

called the “foundation of federal manpower policy.“‘* Indeed, one authority states that: “until 1962 

this nation did not have a manpower policy.“” The 

MDTA was administered by the Departments of Labor and HEW and, like ARA, was directed at problems of structural unemployment. The concept was 

originally proposed in Congress in 1959 and 1960, 

which spurred Presidential action in 1961 and enactment of the law the following year. The program enjoyed broad, bipartisan support in Congress 

throughout its existence. 

The second policy stream arose in 1964 with the 

passage of the Economic Opportunity Act (EOA). 

This act, or “War on Poverty” as it was dubbed, 

consisted of a collection of programs ranging from 

community action to employment-related activities 

like the Job Corps, the Work-Study Program, and 

the Neighborhood Youth Corps. The focus on poverty was an executive branch initiative that became 

intensely partisan. Many of the constituent programs 

suffered politically by their identification with highly 

controversial poverty programs like community action. However, the EOA’s manpower programs were 

not entirely new; many were familiar to Congress 

when they were included in the poverty bill. They 

shared a new approach to intergovernmental relations, bypassing the established institutional arrangements of older state-oriented programs, using 

direct federal links to local community organizations, and serving new clienteles. 

Origins and Passage of the MDTA 

The Manpower Development and Training Act 

was developed in a context of concern about high 

unemployment and a changing economy. Rising during 1960 and 1961, unemployment reached a postDepression peak of more than 7%.” Views about the 

causes of this high rate of unemployment differed at 

the time, but prominent among them was the theory 

of structural unemployment discussed earlier. This 

concept regarded unemployment as the product of 

disfunctions in the structure of the economy-that 

certain regions of the country were in economic 

decline, that some industrial sectors were in decline, 

or that certain social groups were forced to operate in 

the labor market with special disadvantages. This interpretation contrasted with viewing unemployment 

as a cyclical phenomenon, primarily the product of a 

nationwide downturn in the business cycle.” 

Such interpretations were important since appropriate policy alternatives could differ greatly according to the nature of the problem. The structural interpretation suggested action focused on particular 

problem areas: special economic aid to disadvantaged areas or a program to retrain technologically 

obsolete workers. Problems in the general business 

cycle would call, instead, for macroeconomic responses. 

Congress began to explore these policy questions in 

1959. An AFL-CIO “Unemployment March on 

Washington” spurred creation of a special committee on unemployment problems to begin this task. 

With bipartisan support, the committee recommended expanding vocational education for adults 

displaced by automation, including a provision for 

support allowances during training. Also recommended were programs for area redevelopment, a 

“Youth Conservation Corps,” and social insurance 

reforms. Garth Mangum observed that these recommendations, “became the agenda for manpower 

legislation for the following three years,” and 

“presaged the bipartisan support to do something 

about unemployment.“‘6 

The concept of manpower training was pursued in 

1960 by the newly created Subcommittee on Employment and Manpower of the Senate Labor and Public 

Welfare Committee. Based on a small program in 

Pennsylvania, a bill expanding vocational education 

to include adult retraining was drafted for the subcommittee with the aid of vocational educators.” 

Another bill sought to strengthen the nation’s manpower planning system and called for an annual manpower report by the President. Both were sponsored 

by subcommittee chairman, Sen. Joseph Clark 

(D-PA). 

53 
As described above, President Kennedy made passage of the ARA his first legislative priority in the 

field of manpower policy. In contrast to area redevelopment, Mangum writes that the Kennedy Administration was originally divided over manpower training policy. On the one hand, a program of occupational retraining was supported by the Department of 

Labor (DOL) and the Budget Bureau, while the 

President’s Council of Economic Advisors supported 

any program likely to spend money and stimulate the 

economy. On the other hand, Congressional proposals to use the vocational education structure for 

adult retraining were viewed with disfavor because 

the vocational education establishment was considered to be outdated and unimaginative, still 

dominated by its traditional focus on agriculture and 

home economics. The Budget Bureau and Labor 

Department favored a program that stressed on-thejob training (OJT) under the direction of the U.S. 

Employment Service and DOL rather than the Office 

of Education.” 

The Administration finally introduced a bill in 

mid-1961 to provide “a positive answer to the challenge of technology.“‘g It contained a modified version of Sen. Clark’s manpower planning proposals, 

including a Presidential manpower report. And it 

proposed a four-year program of training focused on 

the adult unemployed. Both institutional and on-thejob training would be used in a comprehensive program of recruitment, counseling, placement, and 

relocation. Vocational education facilities would be 

used in cooperation with the Department of Health, 

Education, and Welfare (HEW), but the state/ 

education-oriented administrative structure of the 

vocational education program would be avoided. 

Participants would be eligible for 52 weeks of living 

allowances from the federal government while undergoing training. 

The Senate passed the bill in August 1961 after 

revising sections of the Administration’s proposal. 

The most important changes involved making the bill 

more acceptable to the American Vocational Association (AVA). As Mangum explains, 

The Senate subcommittee staff was fully 

aware of the strength of the American Vocational Association and knew that any training bill which lacked its support had no 

chance of passagea 

Several amendments supported by vocational educators were accepted by the Senate subcommittee. In 

particular, the roles of HEW and the states were 

strengthened. State matching of training allowances 

was required after two years, and relocation grants 

were eliminated. Youth participation was enhanced 

slightly, but the predominant focus of the bill remained unemployed adults, especially victims of 

technological change. The bill passed the Senate 

overwhelmingly with bipartisan support. 

In contrast to the Senate, the House of Representatives “played a limited role in the formulation of 

the act.“” The House Select Subcommittee on Labor 

held hearings on the Administration bill in l%l. The 

bill was reported by the Education and Labor Committee, but lacking AVA support, it was blocked by 

the Rules Committee. Replacement of the Administration bill with the Senate legislation attracted more 

Republican support, and the act was passed by the 

House 354-62.“’ A conference version of the bill was 

passed by both houses and signed into law by President Kennedy on March 15, 1962.” On signing it, the 

President said it was, “perhaps the most significant 

legislation in the field of employment since the 

historic Employment Act of 1946.“‘4 

In its final form, the MDTA consisted of three 

titles: 

Title I instructed the Secretary of Labor to 

oversee investigation of manpower problems in 

the United States, to plan for future manpower 

needs and to advise the President accordingly. 

The President was directed to make an annual 

Manpower Report to the Congress. 

Title II of the act dealt with manpower training programs. Under it, the Department of 

Labor was to develop a program for selecting 

persons age 16 and over who required retraining 

to secure full-time employment. Federal training 

allowances for up to 52 weeks were to be made 

available, primarily to unemployed adults. 

Training programs could include both on-the-job 

training-secured by project grants from the 

Labor Department, and institutional training in 

state vocational education facilities-secured 

through the Department of HEW. 

Title III of the MDTA enumerated various criteria for apportioning training projects among 

the several states, established requirements for 

state participation, and authorized spending up 

to $435 million through 1965. 

1963 Amendments to the MDTA 

Only one year after its initial passage, the MDTA 

54 
was substantially altered by Congress. The original 

purpose of the act was viewed somewhat differently 

by its various supporters-establishing a system of 

manpower planning, spending to promote economic 

stimulus, helping to alleviate shortages of skilled personnel. But the most visible aim of the program had 

been to retrain adult workers who had lost their jobs 

due to automation and technological obsolescence. 

As manpower authorities Sar Levitan and Garth 

Mangum described it, 

Despite the verbiage, it is clear that the 

[Manpower Development and) Training program was originally designed to retrain experienced, adult family heads displaced from 

established jobs by technological and economic change.” 

This focus was considerably changed in 1963. As 

many economists had argued earlier, technological 

obsolescence was not a leading cause of unemployment. A high rate of unemployment made it difficult 

for those who had lost their jobs through economic 

change to find new ones, but as the sluggish economy 

of the early 1960s began to improve, much of this 

problem dissolved. As the general rate of unemployment fell, however, the problems of youth and minority unemployment stood out in contrast. Both 

groups experienced unusually high rates of unemployment. For example, youths under 20 comprised 

28% of the unemployed, and while the general rate 

of joblessness declined, youth unemployment actually rose.‘6 

As it had passed in 1962, the MDTA was not 

equipped to deal effectively with this situation-for 

several reasons. While younger workers were eligible 

for training under the manpower act, the emphasis of 

the program was on older workers. The law stipulated that no more than 5% of the training allowances 

be spent on workers under 21 years of age, even 

though onequarter of the first year participants were 

in this category. Moreover, the act focused primarily 

on vocational education, whereas many of those 

most in need of employment training-including 

young high school dropouts and the educationally 

disadvantaged-were “functionally illiterate” and 

required remedial basic education in order to become 

employable. Finally, with its reliance on the U.S. 

Employment Service (ES) for participant selection, 

the administrative structure of the program contributed to the “creaming” of training applicants. 

Rather than helping those most in need, the program 

tended to select the most qualified applicants for additional training. This reflected the Employment Service’s established procedures of matching employers’ 

job requests with the best qualified applicants and its 

lack of an outreach recruitment capability that would 

enable it to seek out the most needy.” 

These difficulties in the program were quickly 

recognized. The problems facing young and disadvantaged workers were outlined in the 1%3 Monpower Report of the President.” In a Presidential 

message to Congress on “Civil Rights and Job Opportunities for Negroes,” the Kennedy Administration requested that additional focus under the 

MDTA be placed on minorities, youths, and the disadvantaged. It proposed strengthening literacy training in the program and increasing youth allowances. 

In contrast to 1962, the House Select Labor Subcommittee took the lead over the Senate on manpower reforms. With bipartisan support in both 

chambers of Congress, the MDTA was amended in 

1963: 

. to allow up to 25% of training allowances to be paid to youths under age 22; 

to permit needy participants to undergo 

literacy training in addition to occupational training; 

to raise the maximum length of participation in the program from 52 weeks 

to 12 weeks to accommodate literacy 

training; 

to ease program eligibility requirements; 

and 

to increase authorizations and delay the 

changeover from full federal funding to 

state matching for an additional year. 

The results of these amendments were twofold: 

they substantially altered the purpose and character 

of the MDTA program and enhanced its permanence. As Mangum observed, 

MDTA had taken a significant step away 

from being a temporary recession measure to 

aid the readjustment of displaced skilled 

workers toward becoming a permanent remedial program to alleviate serious inequalities in the competition for jobs.‘9 

FORMULATION OF THE 

POVERTY PROGRAM 

The Economic Opportunity Act of D64,90 

55 

The Man ower Component of Ihe 

b ar on Powrly: 

Programs and Their Origins 




62 
Implementation of 

Manpower Programs: 

1965.69 

IMPLEMENTING THE 

EMPLOYM$,;;;OGRAMS 

ECONOMIC OPPORTUNITY ACT 
The Work Experience and 

Training Program 
67 
THE PROLIFERATION AND GRDW$l&Fl&DERAL MANPOWER PROGRAMS, 

13 32 20 
PROBLEMS AND PERFORMANCE: 

AN OVERVIEW 
Table 6 

THE MANPOWER TRAINING MAZE: SUMMARY OF SELECTED PROGRAM SERVICES, 

ELIGIBILITY STANDARDS, AND ADMINISTRATIVE ARRANGEMENTS, IS68 


73 

ChOJter 6 

The Quest for 

Comprehensive Reform of 

Manpower Policy 
THE STRUGGLE FOR 

COMPREHENSIVE REFORM: 

ROUND ONE 


BREAKTHROUGW THE PASSAGE 

OF THE COMPREHENSIVE 

EMPLOYMENT AND 

TRAINING ACT 






86 
87 

mclmw 7 

Establishing A New Approach: 

Public Employment 

BACKGROUND OF PUBLIC 

SERVICE EMPLOYMENT 
THE EMERGENCY 

EMPLOYMENT ACT 
COUNTERCYCLICAL EMPLOYMENT 

PROGRAMS: 

ANOTHER POLICY INNOVATION 
TBDk 8 

COUNTERCYCLICAL STIMULUS PROGRAMS 

,o”tlays I” bIllIons, 


The Slruggle for Counlerc clical 

Public Works: 1975.7 Ii 

PUBLIC EMPLOYMENT: 

IMPLEMENTATION AND RENEWAL 

w 

A DILUTED INITIATIVE: 

THE FULL EMPLOYMENT AND 

BALANCED GROWTH ACT OF iS78 



The Dynamics -of 

Federal Involvement in 

Unemployment Policy: 

An Overview 

POLITICAL ACTORS 

AND PROCESSES 



FORCES AND RATIONALES 



THE FEDERAL ROLE IN THE FEDERAL SYSTEM: 

THE DYNAMICS OF GROWTH 

“Olwne I 

“d”me I, 

“o,“me 11, 

“o,“m? I” 

“ol”me Y 

“o,“me w 

“ohne “I, 

“able “ill 

“o,“me IX 

Volume x 

Ydume XI