ECONOMIC REPORT OF THE PRESIDENT

Keyserling and the Council participated in the National Security Council’s
so-called “costing exercise” to estimate the cost of the military mobilization.
CEA also helped to draft the economics chapter of NSC 68, and CEA
defended the economic feasibility of a massive defense expansion against
the view—held by the Secretary of Defense and the Budget Director—that
it would precipitate “ruinous inflation, intolerable economic dislocation, or
both” (Flash 1965). Keyserling also helped to forestall the implementation
of direct price controls, believing they would dampen expanded production.
In doing all of this, the Council helped to persuade policymakers that the
Truman Administration’s national security objectives were compatible with
its economic ones.
For a few years, Keyserling successfully used the Korean War mobilization
to promote his expansionist agenda. During the war, unemployment
fell below 4 percent, and labor leaders appointed by Truman to various planning
agencies helped to redirect some military spending to economically
depressed regions and industries in the United States (Wehrle 2004).
By the end of the Korean War, however, Keyserling’s influence, and
support for his policies, had diminished. As inflation began to mount, the
Council found itself torn between competing objectives: Keyserling warned
the President about inflationary pressure, yet he also worried that excessive
focus on inflation would be used as a pretext to dampen spending. This
ambivalence served to exacerbate confusion within the administration about
the proper course of action, and in turn, undercut the Council’s influence
toward the end of the Truman Presidency (Flash 1965).
The Heller Council and the 1964 Tax Cut
Another particularly notable instance where CEA played a large role
in advocating for countercyclical policy occurred during the Kennedy and
Johnson Administrations. In the early months of Kennedy’s Presidency,
unemployment had reached almost 7 percent and economic growth had
been lackluster. Two schools of thought developed on the source of the
problem: the first group, which included CEA Chairman Walter Heller,
argued that the problem was insufficient aggregate demand, and that public
spending or tax reductions were necessary to boost demand for goods and
services; by contrast, the second group argued that there were structural
deficiencies in the economy, and that increasing spending would only aggravate
the problem (Norton 1977).
Drawing on relatively new macroeconomic concepts such as the fiscal
multiplier and the full employment surplus, CEA made the case that the
economy suffered from insufficient demand, emphasizing “the gap between
progress and potential, the resistance to improvement of unemployment,
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