When World War II ended in 1945, it was widely feared that the U.S. economy would sink back into a state of stagnation, if not another Great Depression. New Keynesian economic theories seemed to imply that, once the stimulus of wartime deficit spending was removed, private consumption and investment demand would falter and economic growth would again grind to a half. Of course, the reality turned out quite differently. While there was a downturn in the late 1940s, the economy soon took off on a two-decade period of unparalleled growth and prosperity, interrupted by only brief and mild recessions, which has since been dubbed the “Golden Age” of American (and global) capitalism.

Propelled by Cold War–related government spending, but also aided by the widespread diffusion of new technologies as well as by buoyant exports to the recovering economies of Europe and Asia, the U.S. economy marched along in fairly harmonious fashion from the late 1940s until the late 1960s. Inflation, while a subject of concern at the time (in a country that had never experienced sustained peacetime inflation before), was still moderate by later standards or in comparison with other countries. Real wages kept pace with productivity growth, so that workers shared in the benefits of improving technology. Unemployment generally remained low, and inequality in the distribution of income was reduced. The traditional working class apparently disappeared into the broad “middle class.”