policy - The Black Vault

THE BDM CORPORATION
D. JOHNSON ADMINISTRATION ECONOMIC POLICIES AND THE VIETNAM WAR
Lyndon Johnson wanted to be the greatest president of the 20th
century, or, if that proved to be impossible, at least the greatest president
since FDR. This was no small order; but Johnson was no modest man
With his own extraordinary talents, plans for the "Great Society," and the
unprecedented prosperity of the mid 1960s,
Johnson had a chance of achieving
his goal. Certainly Vietnam would not stop him. When US involvement
in Vietnam skyrocketed in 1965,
Johnson set out to have the war, the Great
Society, and unparalleled prosperity all at the same time. 21/
It certainly did not seem that the economy would provide problems for
the new administration. Unemployment, which stood at nearly 7 percent when
Kennedy came to office, was, by the summer of 1965, down to 4.5 percent.
GNP had soared from $500 billion in 1961 to over $650 billion in 1965.
According to Executive Branch economists, possibly $25 billion of this
increase was due to the Kennedy-Johnson tax cuts. What is more, by the
summer of 1965 the economy had been through 50 straight months of expansion,
with the consumer price index having risen by less than 2 percent in
each of the preceding three years. 22/
The truth of the matter was that the economy could have afforded guns
and butter at the same time, only not quite as much of each as Johnson
tried to provide.
If war expenditures were taken as a given, the administration
had to chose between excess demand (i.e., inflationary pressure), a
cutback
in either private-sector spending or the government's domestic
programs, or a "pay-as-you-go" tax base. Not coming to terms with these
trade3ffs soon enough led ultimately to the unfortunate combination of all
three undesirable options:
cutbacks in the war on poverty and other Great
Society programs, increased taxes, and inflation. 23/
1. Escalation in Vietnam: Guns, Butter, and Inflation
On July 27, 1965, the decision was made to send the 101st Airhorne
Division to Vietnam. This was the day, according to Johnson himself,
when accomplishing the dream of the Great Society began to conflict with US
obligations halfway around the world. By November and December of that
4-14
'.'. _7