While Berman locates the rise of a new breed of government economists in the 1960s, she briefly charts the foundation laid by earlier cohorts. The institutional economists, who favored “progressive-to-socialist reforms, with a strong role for the state,” established footholds in government agencies in the 1920s and 1930s and were among FDR’s closest advisers. Then Keynesian macroeconomics took center stage in the discipline and in some policy domains. Early appointees to the Council of Economic Advisors (created in 1946) “tended toward institutionalism” but soon “the CEA became defined by ‘growthmanship’”— raising living standards through economic growth, thereby avoiding the political challenges of redistribution and regulation. In Berman’s telling, macroeconomists’ division over the vexing problem of inflation eventually weakened their influence, creating space for the microeconomic approaches that would become entrenched across government bureaucracy and have constrained policy options ever since.
But the institutional economists and social Keynesians did not just fall out of academic fashion or become irrelevant to the problems at hand. Many were forced out of government or toward the political center by charges of disloyalty to the U.S. government, sometimes in the headlines but more often behind closed doors under the auspices of the federal employee loyalty program. That program had its roots in the late New Deal years, when Congressional conservatives charged that Communists and “crackpot, radical bureaucrats” were running the National Labor Relations Board, the Office of Price Administration, and other agencies that were challenging corporate prerogatives. Investigation by the Civil Service Commission and FBI initially discredited charges of Communist influence, but as conflict with the Soviet Union intensified, similar accusations got more traction.
After the “Communists in government” issue produced huge Republican gains in the 1946 midterm elections, Truman formalized the loyalty program through Executive Order 9835, which required executive agencies to create loyalty boards to evaluate derogatory information about employees or job applicants. Employees for whom “reasonable grounds for belief in disloyalty” could be established were dismissed. Federal employees were required to fill out forms listing organizations to which they belonged and explaining any association with groups on the newly public Attorney General’s List of Subversive Organizations; meanwhile their loyalty boards requested name checks and sometimes “full field investigation” by the FBI. The definition of “derogatory information” was vague, and much of it came from anonymous informants and the files of the House Un-American Activities Committee.