The Employment Act of 1946: Some History Notes

Abstract

SBOU'I' 40 years ago, in response to the Depression of the 1930s, Congress passed the Employment Act of 1946. Its sponsors believed that earlier failures to deal with massive worldwide unemployment had contributed significantly to the rise of National Socialism, which eventually culminated in World War II. This belief urged the act's sponsors to find a solution to the problem that had caused "such a great melting away of prosperity in such a short period of time."' The legislation followed on the heels of a revolution in macroeconomic theory. 'This new theory suggested that periodic booms and busts could be avoided if government pursued a policy of "compensatory finance." The new theory promised the success of centrally directed economic stabilization policy and provided the nucleus around which the proposed legislation was built, The bill that was initially proposed stir ed up considerable controversy. Some considered it "a great Magna Carta of government planning for full employmen!.'' 3 Others viewed it as ''utterly alien to America

Keynesian Dominance in Crisis Therapy

“…Two years later the "Employment Act" in the US followed. The initial bill provided for full employment at all times for all Americans ensured by government expenditure (Santoni 1986). The final act was legalized in a weakened form.…”

“…The final act was legalized in a weakened form. The full employment government guarantee was transformed into the "promotion of maximum employment, production and purchasing power" (Santoni 1986). In Germany, In most industrialized countries the period of the "golden age" was dominated by some kind of Keynesian government activity, but if the resulting decline in unemployment was due to Keynesian stimulus is controversial.…”

Minsky and Economic Policy: 'Keynesianism' All Over Again?

“…Often, the Act is thought to represent the final victory of Keynes's ideas and the establishment of a long period of Keynesianism that culminated in Nixon's famous tirade "we are all Keynesians now." However, the Act was substantially different from the 1945 bill (Santoni 1986) and Barber notes that: presented by an economist hostile to Americanized Keynesianism. (Barber 1996: 169) Rather than guaranteeing the right to employment, the 1946 Act transformed the U.S.…”

Beyond the Norm

“…This is especially true for macroeconomic policymaking, where government forecasts of inflation, unemployment, and real output growth play a vital role in both fiscal and monetary policy making. Macroeconomic forecasts represent tangible policy information that is employed in managing the US economy consistent with both the Full Employment Act of 1946 and Humphrey-Hawkins Full Employment and Balanced Growth Act of 1978 (Santoni 1986). Therefore, it is important to pose the following question -Are government agencies' macroeconomic forecasts consistent with rational policy decision making?…”