What Is Wartime Boom In The 1960s Of America?

The American economy entered the 1960s having experienced numerous recessions. John Kennedy took over the presidency hoping to resuscitate the economy. This was the era when the New Economics as the Keynesian approach was called, came to Washington. Economic advisers to Presidents Kennedy and Johnson recommended expansionary policies, and Congress enacted measures to simulate the economy, including sharp cuts in personal and corporate taxes in 1963 and 1964. Gross domestic product grew 4 percent annually during the early 1960s, unemployment declined, and prices were stable. By 1965, the economy was at its potential output.

Unfortunately, the government underestimated the magnitude of the build  up for the Vietnam War; defence spending grew by 55 percent from 1965 to 1968. Even when it became clear that a major inflationary boom was under way, President Johnson postponed painful fiscal steps to slow the economy. Tax increases and civilian expenditure cuts came only in 1968, which was too late to prevent inflationary pressures from overheating the heating the economy. The Federal Deserve accommodated the expansion with rapid money growth and low interests rates. As a result, for much of the period 1966 to 1970, the economy operated far above its potential output.