The Gentle Time
Subsequent to the unexpectedly easy transition from war to peace that followed the cessation of hostilities in World War II, there were three relatively brief perturbations in a sustained period of fairly high levels of economic growth and low levels of unemployment. In 1949, unemployment rose from 3.8 to 5.9 percent but fell back the next year to 5.3 percent and continued to decline to a post-World War II low of 2.9 percent in 1953. After an increase to 5.5 percent in 1954, it hovered in the low 4 percent range for the next three years and then surged to 6.8 percent in 1958. Even with these periodic swings in unemployment, the average unemployment rate for the twelve years 1947-58 was 4.4 percent. Compared to the 1930s, it was a remarkable change.
In particular, the performance of the American economy in these years almost totally destroyed the "stagnationist" arguments of the late 1930s and early 1940s. 1 The post-World War II era had not become a mere reprise of the Great Depression. Why had this happened? A commonly expressed view at the time was that the failure to return to the economic conditions of the 1930s was the product of a remaking of the American economy. For example, Alvin Hansen, described by Arthur Okun as being "generally regarded as the dean of American Keynesian economists," 2 argued this view as early as 1957. His thesis was a simple one. The difference in the American economy, beginning with the outbreak of war in Europe in 1939, was the presence of adequate aggregate demand. 3 Furthermore, the stimulus for the provision of adequate aggregate demand had come from the Keynesian revolution. The mythology of the success of the Keynesian