AMSCO 8.4 Economy after 1945

Overview

AMSCO Topic 8.4, "Economy after 1945," covers the postwar economic boom and how it eventually faded, tracing the U.S. economy from Truman through Carter (1945-1980). The big story has two halves. First, pent-up consumer demand, the GI Bill, the baby boom, suburban growth, and federal spending created the highest standard of living any society had ever seen. Second, by the 1970s, foreign competition, new technology, and stagflation ended that golden run, and Americans faced a declining standard of living for the first time since World War II.

For the APUSH exam, you need two things from this chapter: the causes of postwar economic growth (private sector boom, federal spending, baby boom, technology) and the causes and effects of postwar migration (middle class to the suburbs, millions to the Sun Belt).

The Postwar Boom Under Truman (1945-1953)

Fears of a return to Depression-era hard times never materialized. Wartime work had raised per-capita income, but shortages meant there was little to buy, so Americans had stuffed money into savings. When 15 million veterans came home in 1945-1946, that pent-up demand for cars and houses, plus government roadbuilding and other projects, launched unprecedented prosperity.

Employment Act of 1946 and the GI Bill

Truman tried to extend FDR's New Deal approach, but a coalition of Republicans and conservative Southern Democrats watered down his program. Key results:

• The Employment Act of 1946 committed the government to promoting employment and created the Council of Economic Advisers to advise the president and Congress on the economy. (Truman wanted full employment; he got a weaker version.)
• The Servicemen's Readjustment Act of 1944 (GI Bill) sent more than 2 million veterans to college, gave job training to more than 5 million others, and provided over $16 billion in low-interest, government-backed loans for homes, farms, and businesses. A better-educated workforce plus a construction boom equals federal stimulus for the whole postwar expansion.

The GI Bill's benefits were not equal. Most Black veterans returned to the South, where most universities refused to admit Black students, and many banks refused them loans. The GI Bill grew the economy overall while widening the racial wealth gap. That tension shows up again in the early civil rights movement, covered in AMSCO 8.6.

Baby Boom, Suburbs, and the Sun Belt

Three demographic shifts define this chapter, and the AP exam loves all of them:

• Baby boom. Earlier marriages and bigger families added 50 million babies to the U.S. population between 1945 and 1960. The boom initially focused women on homemaking, but the trend of women working continued anyway. By 1960, one-third of married women worked outside the home.
• Suburban growth. William J. Levitt built Levittown on Long Island, 17,000 mass-produced, low-priced homes. Government-insured, tax-deductible, low-interest mortgages made suburbs affordable for modest-income families. In one generation, most middle-class Americans became suburbanites. But Levittown excluded African American families, and federal loan policies actively supported housing segregation. Meanwhile, inner cities from Boston to Los Angeles grew poorer and more racially divided.
• The Sun Belt. Warm weather, lower taxes, and defense-industry jobs pulled GIs and their families to states stretching from Florida to California. Cold War military spending effectively transferred tax dollars from the Northeast and Midwest to the South and West, shifting industry, population, and eventually political power. The Cold War context behind that spending is in AMSCO 8.2.

Inflation, Strikes, and the Republican Congress

Peace brought economic turbulence. When Congress relaxed Office of Price Administration price controls, inflation hit nearly 25 percent in the first year and a half after the war. More than 4.5 million workers struck in 1946 to make up for years of wage controls. Truman responded forcefully, seizing the mines and using soldiers to run them until the United Mine Workers backed down.

Angry voters elected Republican majorities to both houses in 1946. The 80th Congress produced:

• The 22nd Amendment (ratified 1951), limiting presidents to two full terms, a reaction to FDR winning four times.
• The Taft-Hartley Act (1947), a probusiness law passed over Truman's veto (he called it a "slave-labor" bill). It outlawed the closed shop, let states pass "right to work" laws banning the union shop, banned secondary boycotts, and gave the president an 80-day cooling-off period for strikes endangering national safety. Unions tried and failed to repeal it for years.

The 1948 Upset and the Fair Deal

Written off by everyone, Truman toured the country by rail giving "give 'em hell" speeches against the "do-nothing" 80th Congress. He stunned the pollsters, beating Thomas E. Dewey by 2 million popular votes and 303 to 189 in the Electoral College, even after the Progressive Party (liberals) and Dixiecrats (Southern conservatives) split off from the Democrats.

His Fair Deal (1949) proposed national health insurance, federal aid to education, civil rights legislation, public housing, and a new farm program. Conservatives blocked nearly all of it. What passed: a minimum wage increase (40 to 75 cents an hour) and expanded Social Security coverage. Still, Truman preserved the New Deal and made civil rights part of the liberal agenda.

Eisenhower and Modern Republicanism (1953-1961)

Eisenhower won 1952 in a landslide (55 percent of the popular vote, 442-89 in the Electoral College) over Adlai Stevenson, helped by his pledge to go to Korea and end the war. He governed with a businesslike, delegating style. His "modern Republicanism" meant fiscal conservatism plus acceptance of the New Deal as a fact of modern life.

What he did:

• Extended Social Security to 10 million more people, raised the minimum wage, built more public housing
• Created the Department of Health, Education, and Welfare (HEW) in 1953, headed by Oveta Culp Hobby, the first woman in a Republican cabinet
• Started a soil-bank program to cut farm production and raise farm income
• Opposed federal health insurance and federal aid to education

The Interstate Highway System

The Highway Act of 1956 authorized 42,000 miles of interstate highways linking the nation's major cities, the most permanent physical legacy of the Eisenhower years. Officially justified as national defense (moving troops and weapons), it also created jobs, boosted trucking, accelerated suburban growth, and helped homogenize national culture. The costs: railroads and the environment suffered, and public transportation, which the old and poor depended on, was largely ignored.

Why Some Historians Love Ike's Economy

Inflation averaged a negligible 1.5 percent during his presidency. Between 1945 and 1960, per-capita disposable income more than tripled, and by the mid-1950s the average family had twice the real income of a comparable 1920s family. Some historians rate Eisenhower's economic policies the most successful of any modern president's.

Kennedy and Johnson: The Liberal Economy (1961-1969)

Kennedy, at 43 the youngest person ever elected president and the first Catholic in the White House, promised a "New Frontier." Most of his domestic proposals (aid to education, health care, urban renewal, civil rights) stalled in Congress during his thousand-day administration. His economic wins:

• The Trade Expansion Act (1962) authorized tariff reductions with the European Economic Community (Common Market)
• He faced down big steel executives over an inflationary price increase and won a rollback
• Defense and space spending (including the commitment to land on the moon by decade's end) stimulated the economy

After Kennedy's 1963 assassination, Lyndon Johnson used his legislative skill to pass an expanded civil rights bill and Kennedy's income tax cut, which sparked consumer spending and jobs. The 1960s saw a long economic expansion, and the War on Poverty significantly reduced the number of families in poverty before Vietnam War costs forced cutbacks. Johnson's broader Great Society gets full treatment in AMSCO 8.9.

Nixon, Stagflation, and the 1970s Economic Shift

Nixon won the White House in 1968 and 1972 but faced Democratic majorities in Congress, so he governed through moderation and compromise.

New Federalism

Nixon's New Federalism, or revenue sharing, gave local governments $30 billion in block grants over five years to spend on local needs as they saw fit, shifting responsibility from Washington to the states. His Family Assistance Plan (a guaranteed annual income to replace welfare) died in Congress. When he tried impounding (refusing to spend) funds Congress had appropriated for social programs, the courts ruled against him: a president must carry out the laws of Congress.

Stagflation Hits

Starting with a 1970 recession, the 1970s economy suffered stagflation, the unusual combination of economic stagnation and high inflation. Nixon's responses:

• First cut federal spending; when that deepened the recession, he switched to Keynesian deficit spending
• August 1971: a surprise 90-day wage and price freeze
• Took the dollar off the gold standard (devaluing it against foreign currencies) and imposed a 10-percent surtax on imports, making U.S. goods more competitive

In 1972 Congress also indexed Social Security benefits to the cost of living, protecting seniors from inflation but raising future program costs.

Ford, Carter, and Volcker

Ford pushed voluntary anti-inflation measures (WIN, "Whip Inflation Now," buttons), but inflation continued and unemployment topped 9 percent. Carter tried energy conservation and reviving the coal industry; inflation hit an unheard-of 13 percent in 1979-1980. Inflation pushed middle-class taxpayers into higher brackets (sparking a "taxpayers' revolt") and helped drive the federal deficit to nearly $60 billion in 1980.

Federal Reserve chairman Paul Volcker decided breaking inflation mattered more than reducing unemployment. The Fed pushed interest rates to 20 percent in 1980, devastating the auto and building industries, but it worked. By 1982, inflation was under 4 percent.

Why the Boom Ended

This is the analytical payoff of the chapter. The postwar boom rested on a booming private sector, strong unions, high federal spending, the baby boom, and new technology. By the 1970s, recovered economies in Japan and Germany produced cheaper, often better-built cars and consumer goods, while new technology required fewer workers. Together, foreign competition and automation undercut the high-paying manufacturing jobs that had built the 1950s middle class. For the first time since World War II, the American standard of living was declining.

Key Terms to Know

Practice and Next Steps

Pair these notes with the Topic 8.4 Economy after 1945 course study guide for the College Board framing, then continue to AMSCO 8.5 Culture after 1945, which covers the social side of this same boom. The full chapter list is on the APUSH AMSCO notes page.

To check yourself, run Unit 8 questions in guided practice, drill terms with the key terms glossary, and try a timed full-length practice exam once you've finished Period 8.