Governor Jimmy Carter became President by narrowly defeating President Gerald Ford in November 1976. When Carter took office in January, inflation was considered high (described as a annual rate of 4.6 percent), unemployment was calculated at 4.8 percent (exacerbated by the bulge of baby-boomers entering the job market). and economic growth was stagnant, what the economist Paul Samuelson called "stagflation".
Carter wanted to heal the nation's divide regarding its intrusion in Vietnam and on his first day in office he extended the amnesty for Vietnam-era draft evaders that had been created by President Ford — to the annoyance of the many who believed the intrusion was the right thing to do.
Carter was interested in frugal efficiency. He reduced the size of the White House staff by one-third, cancelled government-funded chauffeuring for cabinet members and put the presidential yacht up for sale. He hoped to tame inflation by eliminating unnecessary government spending and by reducing prices Americans were paying for imported energy (fuel). He had a "hit list" of 19 projects he claimed were "pork barrel" spending and said he would veto any legislation that included such projects.
Carter was to write in his memoirs:
I took seriously the commitments I had made as a candidate. Peace, human rights, nuclear arms control, and the Middle Esast had been major foreign policy concerns. I had also spoken out on issues closer to home: achieving maximum bureaucratic efficiency, reorganizing the government, creating jobs, deregulating major industries, addressing the energy problem, canceling wasteful water projects, welfare and tax reform, environmental quality, restoring the moral fiber of the government, and openness and honesty in dealing with the press and public.
Carter was to be credited by economists for freeing the US economy of stifling regulations. In his first State of the Union address, in 1978, he said:
Bit by bit we are chopping down the thicket of unnecessary federal regulations by which government too often interferes in our personal lives and our personal business.
In 1978, Carter fought with Congress to end price fixing by airlines, breaking up the regulatory cartel that had kept the same four national airlines virtually unchallenged for four decades.
The Carter Administration would push an antitrust suit against AT&T, eventually leading to the more competition in the telecommunications industry, ending Ma Bell's Ma Bell's nationwide monopoly with long distance calls (each copper wire with a capacity of 15 calls compared to 2 million calls on a single fiber line today.)
In 1979, Carter would deregulate the country's beer industry, making it legal to sell malt, hops, and yeast to home brewers. There were fewer than 50 breweries in the United States then, and in years to come there would be more than 5,000.
In 1979 he would also deregulate the trucking industry, lifting forty years of regulation, allowing independent truckers to compete for jobs. In 1980 he would open the auto industry to more competition, breaking the Big Three auto cartel by refusing to protect American car makers from foreign imports (which would inspire many auto-worker Democrats in Michigan to support his rival, Ronald Reagan, that year for president.
It was tough going for Carter dealing with Congress, despite control by the Democrats. Some were to describe him as lacking the skills with Congressmen that had been possessed by Lindon Johnson. Congressmen had their pet projects and power positions to defend, and a lot of lobbying by special interests occurred. Carter's criticism of "pork barrel" projects cost him support in Congress, and he had to do a lot of compromising.
Asked what surprised him about Washington, Carter said: "the inertia of Congress and the length of time it takes to get a complicated piece of legislation through," and another surprise was "the irresponsibility of the press." (A television interview by Bill Moyers, November 13, 1978).
Taking office in the midst of the Cold War, Carter continued the policies of measured relationships with the Soviet Union and China. With the USSR he worked on the nuclear arms control agreement called Salt II. In January 1979 in Washington, Carter and Deng Xiaoping were to sign three exchange agreements providing Chinese consular offices in San Francisco and Houston in exchange for American consular offices in Shanghai and Canton, a joint commission on science and technology, and cultural exchanges in journalism, sports, arts, and humanities. Carter recognized China to the chagrin of some on the right politically but with an understanding with Deng that the US would continue contributing to the defense of the anti-Communist regime on the island of Taiwan.
Carter reoriented U.S. foreign policy towards an emphasis on human rights. Taking office during a period of relatively warm relations with both China and the Soviet Union, Carter's interest in human rights put him at odds with the Somoza regime in Nicaragua, Pinochet in Chile, and dictators in Brazil and Argentina. And he criticized the Shah of Iran.
Described as a man of charm in expressing purpose in face to face discussions, Carter in 1978 managed a success in creating with the Camp David Accords with Egyptian President Anwar El Sadat and Israeli's Menachem Begin.
For 1977 the US economy grew 4.9 percent (accounting for inflation), and in 1978 it grew 5.9 percent. But there was a problem with inflation (a measure of consumer prices). After only three months in office inflation had risen to an annual rate of almost 7 percent, and by October 1978 it rose to 9 percent. In October 1978, responding to worsening inflation, Carter announced the beginning of "phase two" of his anti-inflation campaign. Increases in a nation's money supply is said to encourage economic activity and reduce unemployment, but how much this played a role in the 1977 inflation is difficult to assess. There was that year along with a rise in economic growth rate and a decline in unemployment. There was also a rise in food prices, especially for meat. The price of gasoline in 1977 rose 5.7 percent, around double the rate in the late 1960s. And it was the cost of oil that was most responsible for inflation in 1978, as it had been in the early 70s with OPEC disrupting its production.
In December 1977, President Carter visited Iran and toasted its king, the Shah, Mohammed Reza Pahlavi, for making Iran "an island of stability" and for "the admiration and love which your people give you."
The disruption in oil production in 1978 accompanied the Shah having trouble holding on to power. Rebellious Iranian oil industry workers went out on strike and Iranian oil output declined, the reduced supply producing rising prices.
In January 1979, the Shah and his family fled to Egypt (the Shah describing it as an extended vacation). On February 1 The Ayatollah Ruhollah Khomeini returned to Tehran after nearly 15 years of exile, and he was greeted by several million Iranians. On February 7, Khomeini supporters took over Iran's law enforcement, courts and government administration.
Speculators anticipating profits pushed the price of oil higher on the oil markets, and to mitigate the impact of energy supply disruption, on March 1, President Carter submitted a gasoline rationing plan to Congress and energy conservation plans. A poll conducted by the Associated Press and NBC News found only 37 percent believing that the energy shortages were real and 54 percent thought the shortages were a hoax. What was obvious were the long lines to buy gasoline. In Levittown, Pennsylvania, angry truckers blocked intersections, vandalized property, set fire to automobiles, and fought police. Carter's job approval ratings were declining, to 32 percent in mid-May, the disapproval rate climbing to 52 percent.
On 15 July, Carter spoke to the nation in a televised speech about what he called the "crisis of confidence" in America today,to be known as his "malaise" speech. He described the oil crisis as "the moral equivalent of war." By the end of the month his approval and disapproval ratings were about the same as they had been in mid-May, and on September 14 a Washington Post poll gave Carter the lowest approval rating of any President in three decades. The next day, a Saturday, Carter collapsed participating in a 10 thousand meter community jog, with some in the press depicting it as representative of the strength of his presidency.
In late October, the Shah (now in the Bahamas) was transported to the United States for cancer treatment. Alone, Carter anticipated what would happen if he allowed the deposed Shah into the United States. He asked, "What are you guys going to advise me to do when they overrun our embassy now and take our people hostage?" But he gave-in.
On 4 November 1979 Islamic enraged militants (mostly students) who tended to see the Shah as a US puppet (put in power with the overthrow of an elected democratic government back in 1954), invades the U.S. Embassy in Tehran and took 90 hostages, 53 of whom were American. They demanded that the United States send the former Shah of Iran back to stand trial.
In December, Soviet troops pushed into Afghanistan, invited by Afghanistan's communist government to combat anti-communist Muslim guerrillas. Carter protested of the Soviet move and advocated a boycott the Moscow Summer Olympics. The Carter administration supported the CIA program to arm and finance the Jihad warriors, the Mujahideen, in Afghanistan — one of whom was Osama bin Laden. (Ronald Reagan, who had declared himself a candidate for the Republican nomination for president in a campaign speech in Florida in January urged Washington to provide those fighting the Russians Red Army shoulder-fired Stinger anti-aircraft missiles with which to shoot down Soviet helicopter gunships.)
Carter embargoed grain sales to the Soviet Union, hoping it would lead to opposition there to their country's troops in Afghanistan. It was a bad move. The Soviet Union cultivated more grain in its Ukraine Republic and bought grain from Venezuela and Brazil while US farmers "felt the brunt of the sanctions."
In April the Iran Hostage Crisis entered, and, having failed with diplomatic appeals Carter ordered a military mission to rescue the hostages. Three of of the operation's eight helicopters broke down, and one of the helicopters collided with one of the mission's six C-130 transport planes, killing eight soldiers and injuring five, and at a press conference a somber Carter took full responsibility for the mission's failure.
("How Jimmy Carter lost Iran" by the (Washington Post.)
President Carter went along with Cold War considerations regarding foreign policy. He responded to the Soviet Union's intervention in Afghanistan intending to deter the Soviet Union from seeking hegemony in the Persian Gulf region. Carter said that the Soviet challenge would "take national will, diplomatic and political wisdom, economic sacrifice, and, of course, military capability," adding: "We must call on the best that is in us to preserve the security of this crucial region."
Brittanica writes that "Foreign-policy advisers within the Carter administration speculated that the Soviet Union wished to prevent the spread of the Islamic Revolution," But others joined Carter in fearing that the Soviet Union was returning to a policy of expansionism making a move to control the Middle East's oil resources.
From before the Soviet invasion, US intelligence had been working against an imagined Soviet move through Afghanistan. Writes Jeffery St. Clair and Alexander Cockburn: "It was July 3, 1979, that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul." Carter's cold warrior National Security Advisor, Zbigniew Brzezinski, told the anti-Soviet Islamic fighters, the Muhjahideen, "Your cause is right and God is on your side!" Muslims from various countries joined the Mudahideen in Afghanistan, and among them was Osama bin Laden from Saudi Arabia was a prominent organizer and financier of the foreign volunteers.
There was fear that if the Soviet Union dominated Afghanistan it could dismember Pakistan (promote a separate Baluchistan). The Carter administration moved closer to Pakistan's military dictator Muhammad Zia-ul-Haq, who had overthrown and Prime Minister Ali Bhutto and had him executed. The Carter administration had cut off aid to Pakistan on the grounds that Pakistan had not made sufficient progress on the nuclear proliferation issue, but when the Soviet Union invaded Afghanistan Carter offered Pakistan $325 million in aid over three years.
In 1980 inflation reached 13.5 percent with unemployment still high at around 5.8 percent. Carter was asked at a press conference what he planned to do about inflation. He replied, “It would be misleading for me to tell any of you that there is a solution to it."
Congressional leaders and Carter agreed on the need to fight inflation, and so did the Chairman of the Federal Reserve Board, Paul Volcker (appointed by in August 1979) who had begun raising interest rates. This was followed by the economy falling into a recession, the economy between April and June having the sharpest one-quarter drop in national output on record, with unemployment rising to more than 7.5 percent in May.
Senator Edward Kennedy favored more spending to stimulate the economy and unlike Carter he was for a national health insurance program. He challenged Carter for the party's nomination. Kennedy was advocating outright nationalization of the oil industry, Reagan was advocating complete decontrol, and Carter was taking the middle ground. At the Democratic convention in August, Carter won 36 states including the heartland, Kennedy 12 states including California, New York, and Massachusetts, and Carter won the nomination.
In the third quarter (July, August and September) the economy recovered, but unemployment remained high and Volcker had not had enough time for his high-interest rates to knock down the inflation. Carter had used a rhetorical gimmick running for President against Gerald Ford: the Misery Index, unemployment plus inflation: 13.5. Carter put Ford misery index at 13.5. Running against Carter for the presidency. Reagan used it against Carter, pointing to a misery figure of 20.
Carter in his memoirs would recall Reagan wanting "massive tax reductions ... primarily for corporations and very rich people" and his "ridiculous theory that this would give them more money to create jobs and would actually result in increased federal tax revenues."
In his memoirs, Reagan would remember the Democrats wanting "to borrow some of the principles of the Soviets' failed five-year plans." And he recalled the Democratic platform calling for a "fairer distribution of wealth, income, and power — code words that to me meant a confiscation of the earnings of people in our country who worked and produced, and their redistribution to people who didn't."
During the Carter-Reagan debate, Carter's held an expression of worry, while Reagan appeard confident and relaxed. Reagan continued with his opposition to government in the lives of Americans and a call for balanced budgets. On election day, Reagan's message of optimism triumphed over Carter's message of sacrifice and pain. Reagan won 50.7 percent of the vote to Carter's 41 percent.
The hostages would be released as soon as Carter was no longer president — just after Reagan was sworn in, on January 20 1981.
CONTINUE READING: Reaganomics
Copyright © 2018 by Frank E. Smitha. All rights reserved.