President John F. Kennedy Writes to the Chair of the Federal Reserve, Seeking to Learn From Japan’s Economic Miracle

“This week’s Economist has an interesting article on Japanese economic growth. I wonder after reading it you think it has any relevance to our problems.”

Japan was devastated in World War II, with its industry pummeled into dust, and by war’s end its economy had shrunk to 1/3 of what it had been before December 7, 1941. It rallied, in part because of American orders during the Korean War, but these ceased in 1953. Despite this, 1954 saw average incomes return to prewar levels. Japanese business leaders and bureaucrats now focused on developing the country’s heavy industries. They made rapid progress throughout the 1950s. Living standards at the end of the decade were 25% higher than they were in the middle of the decade. In 1960, Prime Minister Ikeda unveiled the “Ikeda Plan” which was designed to improve the living standard of people and realize full employment. It outlined the ambitious goal of doubling the nation’s income in ten years, the plan predicting a 7.2% growth rate, and detailed a series of concrete steps to achieve this end: investment in education and infrastructure, a focus on exports, and the nurturing of heavy industries. Economists outside Japan praised the details of the Ikeda Plan, but claimed that no nation could double its income in just ten years. But Japan’s economy achieved this in only seven years. Along the way, average growth was climbing an astounding 11.6% per year.

In 1962, Ikeda developed his National Comprehensive Development Plan, the goal of which was balancing regional development to spread the prosperity nationwide (rather than in just a few large cities). At the same time, Japan passed the New Industrial Cities Law, which designated 15 regions and provided funding for infrastructure development. Both of these projects would be implemented before year’s end.

When President Kennedy too office in January 1961, the United States economy was in a recession, struggling with rising unemployment, slumping profits and depressed stock prices. This is why candidate Kennedy had run on a campaign pledge to “get America moving again.” But there was no easy fix.  Months after his inauguration, the stock market peaked, then plummeted in the first half of 1962. During that period, the S&P declined 22.5%, and the Dow 5.7%. Kennedy responded to the slowdown by sending Congress an economic growth and recovery package consisting of twelve measures. They included an increase in the minimum wage from $1.00 to $1.25 per hour and an extension of the minimum wage to a larger pool of workers, an increase in unemployment compensation plus increased aid to children of unemployed workers, increase social security benefits to a larger pool of people, emergency relief for feed grain farmers, area redevelopment, vocational training for displaced workers, and federal funding for home building and slum eradication. But by mid-1962 he was convinced the economy needed additional stimulation, and advocated a tax increase to pay for it.

In its September 1962 issue, The Economist magazine, widely read and influential in the world of business, ran a lengthy article entitled, “Consider Japan”, which discussed and explained the high rate of growth of the Japanese economy. It dealt comprehensively with high productivity, expansion of demand, good labor relations, and other factors. The article woke up the world to the extent of the Japanese miracle, argued that it was not just of local interest but had lessons for the developed world, and made the then startling statement: “In the name of common sense, government economists and apostles of conventional wisdom from all the world should be coming to Japan to study just how to emulate it.” Before this landmark article, Americans mainly took credit for the Japanese recovery, assuming that U.S. aid and orders were responsible for the rise, and Japanese products were often derided.

President Kennedy was both a great reader and an intellectual, and he read the article. He had all along been watching Japan with interest, and was aware of the new Ikeda legislation to spread prosperity throughout that nation. He quickly acted to determine what the U.S. might learn from Japan.

Typed memorandum signed as President, on White House letterhead, September 5, 1962, to Federal Reserve Chairman William McChesney Martin. “Memorandum For Bill Martin: This week’s Economist has an interesting article on Japanese economic growth. I wonder after reading it you think it has any relevance to our problems.”

This is a great rarity – just the second such memo of JFK on a policy matter that we have had. It shows him open to new ideas, not hesitant to learn, hoping to shape a better economic policy.