The (. Its main purpose was to lay the responsibility of economic stability onto the federal government.
By the end of
World War II , the nation was finally shrugging free of a drastic economic
Recession that culminated in the
Great Depression . During that time, unemployment rates soared into the twenties of percent, and only radical government spending seemed to curb further degradation. The
U.S. Congress , fearful of another bout of unemployment spurred by the return of discharged war veterans, sought to establish preemptive safeguards against economic downturn.
The United States relied on Keynesian economic theory to develop its strategy. The theory, set forth by economist
John Maynard Keynes , contends that unemployment is caused by insufficient aggregate demand relative to the possible aggregate supply generated by full employment. Swings in aggregate demand create a phenomenon known as a business cycle that leads to irregular downsizing and hiring runs, causing fluctuations in unemployment. Keynes argued that the biggest contributor of these shifts in aggregate demand is investment.
To keep aggregate demand fairly consistent and thus minimize the impact of business cycles, the government must keep the rate of investment reasonably constant. To this effect, the government should engage in ''compensatory spending'' to counterbalance private sector investment, minimizing its indirect effect on unemployment.
The original bill, called the Full Employment Bill of 1946, was introduced in the House as H.R. 2202 and introduced without change by Congressman
Wright Patman in the Senate as S. 380. The bill represented a concerted effort to develop a broad economic policy for the country. In particular, it mandated that the federal government do everything in its authority to achieve full employment, which was established as a right guaranteed to the American people. In this vein, the bill required the President to submit an annual economic report in addition to the national budget. The report, designated the Economic Report of President, must estimate the projected employment rate for the next fiscal year, and if not commensurate with the full employment rate, to mandate policies as necessary to attain it.
There was strong opposition to the wording of the bill. In particular, a number of congressmen argued that business cycles in a
Free Enterprise Economy were natural and that compensatory spending should only be exercised in the most extreme of cases. Some also believed that the economy would naturally drive toward full employment levels. Others believed that accurate employment level forecasting by the government was not practical or feasible. Some were uncomfortable with an outright guarantee of employment.
The bill was pressured to take on a number of amendments that forced the removal of the guarantee of full employment and the order to engage in compensatory spending. Although the spirit of the bill carried through into the Employment Act of 1946 (hereafter referred to as "Act"), its metaphorical bite was gone. The final Act was not so much a mandate as it was a set of suggestions.
President
Harry S. Truman signed the compromise bill into law on
February 20 ,
1946 .
The Employment Act of 1946 was a definitive attempt by the federal government to develop macroeconomic policy. Future economic policy was allowed to grow beyond the
Constitutionally Defined realm of monetary and trade control and into the national economy at-large. Although Congress removed all of the quantitative markers from the final incarnation of the law, the Act keeps the original spirit intact and encourages the federal government to "promote maximum employment, production, and purchasing power." This clause set the foundations for future cooperation and communication between the federal government and private enterprise.
The Act requires the President to submit an annual economic report within ten days of the submission of the national budget that forecasts the future state of the economy, including employment, production, capital formation, and real income statistics. This
Economic Report Of The President , as the Act names it, sets forth future economic goals of the country and offers suggestions on how to attain it, a marked compromise from the original bill's focus on compensatory spending.
The Act creates the
Council Of Economic Advisers , an appointed advisory board that will advise and assist the President in formulating economic policy. It also creates the
Joint Economic Committee , a committee composed of both senators and representatives instructed to review the government's economic policy at least annually.
Unemployment levels remained fairly steady after the passing of the Act. After 1970, however, the economy began to fluctuate and unemployment rates rose again. The same fears that motivated the creation of the Act in 1946 precipitated an amendment in 1978, entitled the
Full Employment And Balanced Growth Act . This act was identical in spirit to the original Full Employment Bill of 1945, providing a guarantee of full employment and economic means to do so.
