President John F. Kennedy's Economic Policies
What Were They, and How Do They Affect You Today?
John Fitzgerald Kennedy was the 35th U.S. president. He took office on January 20, 1961, and was assassinated on November 22, 1963. Every year around that time you hear a lot about his charisma, Camelot, and conspiracies. You'll also hear again about the tragic deaths of his son, wife, and brother.
Most of us have heard of the Bay of Pigs, the Cuban Missile Crisis, and the race to the moon. JFK is known more for his foreign policy than anything else. After all, he was the American president who stood at the Berlin Gate and said, "Today, in the world of freedom, the proudest boast is 'Ich bin ein Berliner.'" The crowd went wild! West Germans felt his support for their city that had just been divided by the Communists who held East Berlin.
On the domestic front, we've all heard Kennedy's famous Inaugural speech, "Ask not what your country can do for you. Ask what you can do for your country." It was so powerful because he was creating a vision to lead the country out of the 1960 recession.
Kennedy had just won a very close presidential race. The TV pundits said JFK won because he looked good on the screen. But his opponent, Vice-President Richard Nixon, said years later that he lost because of high unemployment levels.
Kennedy's inaugural speech created confidence in his leadership and direction. He cleverly moved forward a year's worth of federal government spending to jump-start the economy without a fight from Congress. He promised to keep spending until businesses were hiring again. He publicly stated that he didn't care about the national debt, which is how he got "the country moving again."
JFK's endorsed deficit spending, mild by today's standards. It proved that government spending jumpstarts a sluggish economy. He also increased the minimum wage, improved Social Security benefits, and passed an urban renewal package. Last but not least, he focused the nation on helping the mentally challenged.
Kennedy ran for office against Republican Vice-President Richard Nixon during the 1960 recession, which had started in April. Voters responded to his hard-core promise to get America moving again.
The recession was caused by contractionary monetary policy. The Federal Reserve had raised interest rates to 4 percent to curb a 1959 growth rate of 7.25 percent. By the time of the election in 1960, the economy was shrinking 4.2 percent. Unemployment had grown to 6.6 percent. That was modest compared to the history of recessions.
In the long history of the world, only a few generations have been granted the role of defending freedom in its hour of maximum danger. I do not shrink from this responsibility--I welcome it. I do not believe that any of us would exchange places with any other people or any other generation. The energy, the faith, the devotion which we bring to this endeavor will light our country and all who serve it--and the glow from that fire can truly light the world.
And so, my fellow Americans: ask not what your country can do for you--ask what you can do for your country.
My fellow citizens of the world: ask not what America will do for you, but what together we can do for the freedom of man.
Second, he fulfilled his campaign pledge. In his first State of the Union Address, he said, "I will propose within the next 14 days measures aimed at ensuring a prompt recovery and paving the way for increased long-range growth."
Kennedy did this by pumping billions into the economy right away. He didn't need Congressional approval. He merely directed federal agencies to move their budgeted spending forward as quickly as possible. In this way, JFK dumped a billion dollars in state highway aid funds into circulation. He accelerated payment of farm price supports, tax refunds, and GI life insurance dividends. He created a Food Stamp program and expanded Employment Offices.
Finally, he asked the Fed to use its open market operations to buy Treasury notes. The move would keep long-term interest rates low. The Fed also lowered the fed funds rate from 4 percent to 1.98 percent to lower short-term rates. A review of gross domestic product by year reveals growth increased by 2.6 percent in 1961, and by 6.1 percent in 1963.
Most important, Kennedy made clear that he would continue government spending as long as needed. He would not only end the recession but get the recovery off to a solid start. He made good on his word, battling a rising 6.1 percent unemployment rate.
Between 1961-1963, Kennedy added $23 billion to the national debt. It was a moderate 8 percent increase to the $289 billion debt level at the end of Eisenhower's last budget. His deficit spending ended the recession and contributed to an expansion that lasted until 1970. It didn't add much to the U.S. debt when compared to other presidents.
In addition to spending, JFK also advocated tax cuts. In his address to the Economic Club of New York in December 1962, he discussed spending more on education. He would also expand research and development and cut taxes. At that time the income tax rate was 91 percent, which he wanted to lower to 65 percent.
Defense and the Vietnam War
Kennedy's chief foreign policy goal was to defend U.S. interests against the Soviet Union's expansion of communism. In February 1961, he authorized the disastrous Bay of Pigs invasion. It was a failed attempt to overthrow the communist leader Fidel Castro.
In June 1961, JFK met with Soviet leader Nikita Khrushchev, who threatened to cut off the U.S. access to Berlin. The USSR was given East Berlin at the end of World War II. In response, Kennedy added to the defense budget. He increased intercontinental ballistic missile forces. He added to the Air Force and Reserves, and five new army divisions.
On August 13, 1961, the Soviet government erected the Berlin Wall. It banned its citizens on the eastern side of the city to travel to the German west side. Two years later, Kennedy gave his famous speech at the wall, promising to support freedom and oppose communism.
In October 1962, Kennedy found out that the Soviets were building nuclear missile sites in Cuba. He authorized a blockade of the island, and the USSR removed the sites.
In August 1963, South Vietnamese officers discussed the U.S. reaction to a potential coup of President Diem's government. JFK had increased American aid and U.S. military advisers to more than 16,000. In November 1963, Diem was assassinated. The military took over, confident in U.S. support. In that way, JFK laid the foundation for the Vietnam War.
Kennedy and Mental Health
On October 24, 1963, Kennedy signed the Maternal and Child Health and Mental Retardation Planning Amendment to the Social Security Act. It provided funding to states to improve their programs. On October 31, he signed the Mental Retardation Facilities and Community Mental Health Centers Construction Act.
Upon signing the Act, Kennedy said,"…The mentally ill need no longer be alien to our affections or beyond the help of our communities.” He was especially sensitive to their needs. His younger sister Rosemary was born with intellectual disabilities.
The Act funded community mental health centers to provide better care than mental hospitals. Or, at least, that was the plan. Instead, states closed their mental hospitals. Funding was inadequate and later cut, for the community centers. Only 5 percent of patients treated at the centers were psychotics. Over time, many mental hospital patients were sent to nursing homes funded by Medicare and Medicaid. This was the beginning of deinstitutionalization.
Kennedy's Early Years
John F. Kennedy was born on May 29, 1917. He received a BA in political science from Harvard College in 1940, graduating cum laude. He joined the Navy from 1940-1945 to fight World War II. He commanded a PT-109 boat that was sunk by a Japanese destroyer. He received a Purple Heart and Navy and Marine Corps Medal by swimming four hours to save one of his men.
He became a U.S. Congressman from Boston before becoming a U.S. Senator from Massachusetts in 1953. He received the Pulitzer Prize in history for his book "Profiles in Courage."
In 1956, Kennedy narrowly missed the Democratic Vice-President nomination. He became the presidential candidate in 1960. JFK described his vision of America's "New Frontier" in that speech. He beat Vice-President Richard M. Nixon by a very narrow margin by promising to end the recession. (Source: "On the Issues," Kennedy.)