David Frum likes Jean Edward Smith’s biography of Eisenhower. I mostly enjoyed it myself, but Frum agrees with Smith’s claim the Interstate Highway Act was a Keynesian stimulus program to deal with the end of the Korean War. That seems mostly wrong when I look at the dates.

Smith wrote that “the [economic] danger signs were evident as early as February 1954.” Well, I don’t doubt that signs were evident because according to the Bureau of Economic Analysis, the United States had already been in recession since July of 1953. The economy returned to growth by June of 1954 - a full two years before Eisenhower signed the Interstate Highway Act.

Smith also wrote that “By the Summer of 1954, it was clear that an economic crisis was at hand. Unemployment rose, and a recession seemed just around the corner.” According to the Bureau of Labor Statistics, the unemployment rate peaked at 6.1% in September of 1954 and was down to 5.0% by the end of the year. What any of this has to do with the Interstate Highway Act is anybody’s guess, but Smith then made a very large claim.

Smith’s argued that “when unemployment rose and recession threatened in the aftermath of the Korean War, he {Eisenhower] nipped it in the bud with the interstate highway program - the mother of all stimulus programs.” The dates are all wrong here. Later in the same book, Smith wrote that Eisenhower signed the Interstate Highway Act into law in June 1956. The most recent American recession had ended a full two years earlier. One can argue about the Keynesian multiplier, but I have never heard a reputable economist argue that this multiplier is able to travel backwards in time to retroactively shorten recessions that had already ended. Perhaps Smith had a different public works program in mind, but he specifically mentioned the “interstate highway program.”

Smith could hardly mean that the Interstate Highway Act prevented a recession in the year it passed. The unemployment rate that year never rose above 4.3%. It is not easy to link to the Bureau of Labor Statistics Excel chart, but GDP growth for the two years preceding the passage of the interstate highway act were -o.6% for 1954, and 7.2% for 1955. The first two years from the signing of the Interstate Highway Act saw GDP growth of 2% per year and the economy then saw negative economic growth in 1958 - and it was a deeper recession than the one that occurred in 1953-1954.

This isn’t to say that there weren’t sound economic arguments for the Interstate Highway Act. There is probably a strong argument to be found that faster and cheaper transportation contributed to the spectacular economic growth that occurred in the 1960s. The problem is that Smith thinks he is making an argument for economic “stimulus” that is undermined by his own (and government) data. It doesn’t make the argument for fiscal stimulus wrong. I keep wondering if Smith is referring to a set of facts not in evidence. If Smith really is mistaken, how did this get past the fact checkers?

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Articles by Pete Spiliakos

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