Economic View: The Economy Grew Even Faster in Truman’s Presidency. So What?

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We ought to be able to understand what caused that colossal Truman boom. After all, there has been plenty of time to consider it.

There are many explanations, but we don’t really know the truth.

Whatever caused it, it doesn’t seem to have been presidential magic. As described in David McCullough’s 1992 book “Truman,” this president was a modest and courteous man, who did not ask to be treated as a genius, and virtually no one treated him as one. The Times, rather politely, called his speeches “down to earth.”

We know for sure that a tax cut didn’t spur growth back then: Personal income tax rates rose slightly in 1950. And government spending didn’t do it: Total government expenditure in 1950 was still near a postwar low. Nor did new protective tariffs cause the surge. The General Agreement on Tariffs and Trade, which went into effect in 1948, was in the process of reducing tariffs, not raising them.

In fact, it’s quite possible that the fundamental cause of the 1950 boom was bad news, not good. Recall that on, Aug. 29, 1949, the Soviet Union detonated its first atom bomb, ending the brief nuclear monopoly of the United States.

New York City’s first air raid siren wasn’t installed until October 1950. On Aug. 27, 1950, the Sunday New York Times published a front-page article, “City Folk’s Fear of Bombs Aids Boom in Rural Realty.” Many people wanted to move to the suburbs or to buy vacation homes or farms as refuges from the atom bomb. That fear helped to spur home building.

For several reasons, the United States in 1950 was at the peak of its biggest housing construction boom since 1929. It still counts as the peak, ranking even higher, as a fraction of G.D.P., than the boom just before the 2007 financial crisis.

Residential investment had been high since World War II, reflecting a postwar housing shortage and higher home prices, but it suddenly spiked much further after the A-bomb scare in 1949. It was likely driven higher still in 1950 by new fear generated by the Korean War, which began with the invasion of the south by the north, supported by both the Soviet Union and newly communist China, on June 25, 1950. By December, The New York Times reported that many people thought the world was on the brink of World War III.

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