It's a much more complex question. For start, while Joe McCarthy himself is the greatest individual symbol of this whole period, there were many other crucial people and events in which he played no role. (For example, the Hiss affair, arguably the very central event of the whole era, had happened before McCarthy came to any national prominence.)
Now, the whole "McCarthyist" reaction (a.k.a. the "Second Red Scare") did have some significant influence on things. After all, the U.S. back then still had some strong and functional institutions of democracy and federalism, and the Washington elites were in genuine fear of politicians who were riding on people's (quite reasonable) anger against the worst outrages of the New Deal regime. This clash was resolved with the complete defeat of these politicians, who were either destroyed and consigned to infamy, like McCarthy, or eventually lost their edge and got assimilated into the establishment, like Nixon. But the blow they delivered did have a significant influence in altering the course of events in a number of different ways.
(By the way, Moldbug has written a very insightful analysis of McCarthyism as the last dying gasp of meaningful representative democracy in the U.S.)
As for the U.S. prospering in the 1950s and 1960s despite all this, it's always futile to discuss historical counterfactuals. There are way too many confounding factors involved, not the least of which is that in the 20th century, the benefits of technological progress for living standards tended to exceed the damage by bad government in all but the most extreme cases, making it hard to speculate on what might have happened without the latter. (Also, due to a confluence of lucky technological and social factors, the period in question happened to place low- and medium-skilled labor in industrialized countries in an exceptionally favorable situation.)
(Note that if it hadn't been for the empirical example of the Western world across the Iron Curtain, people in the Communist countries 30 years ago could also claim, as an argument in favor of the system, that their standard of living was higher than a century earlier. Also, just like in those countries it was dangerous to be too critical of the alleged great progress achieved, nowadays in the Western world it is can also be quite dangerous for one's reputation to question the results of some of the contemporary grand narratives of progress.)
Note that if it hadn't been for the empirical example of the Western world across the Iron Curtain, people in the Communist countries 30 years ago could also claim, as an argument in favor of the system, that their standard of living was higher than a century earlier.
Sloppy. Most such "empirical examples" of Communist rule and prosperity being inversely correlated make for very, very weak Bayesian evidence of Communism's low comparative utility for the countries in question.
The only even remotely proper comparison here would be East Germany vs...
I have found this most wonderful (if fairly lengthy) article, and thought you would enjoy having it brought to your attention.
It is so good, I think we should include it among the references in the "Politics is the Mind Killer" wiki page. But, before that, I submit it to you, and ask you: is there anything in this article that would warrant its exclusion from this site? I mean, besides the fact that it is about politics, and written by a notorious Social-democrat (And is that in itself grounds for exclusion?).