Jimmy Carter: the great deregulator?

Jimmy Carter’s term as US president (1977–1981) included major deregulation among airlines, auto carriers, and railroads. Other progress was made in the areas of communication, tax policy and budgeting. But the “great deregulator” had a very different approach to energy, which (along with inflation) defined his economic disgrace.

Carter began by deregulating oil and natural gas, but with a windfall tax on crude oil and intrastate regulation on gas. Carter’s basic mindset focused on federal supply and demand planning as outlined in the National Energy Plan of 1977. The visible hand of government, and not the invisible hand of the markets, would be controlling.

What was the problem?

The energy crisis of Carter’s time was blamed on the irreversible, worsening depletion of oil and gas. Physical stability meant rising costs of extraction, hence the supply and price problems. The ‘economics of exhaustible resources’ was the standard in textbooks and journals, creating a new sub-discipline, energy economics. The technical mind of the 39th president was determined to overcome a perceived limit to growth.

Oil shortages in 1972-74 and natural gas restrictions in the winters of 1971-72 and 1976-77 had set the tone. To Carter and his energy czar James Schlesinger: [1] Crude oil and natural gas had to be replaced by an abundance of coal, synthetic oil and gas from coal (synfuels), and supplemented with renewable energy sources. (Nuclear power, never embraced, was completely off the table after the Three Mile Island incident in March 1979.)

On the demand side, less energy had to be used in transport, industry and power generation, not to mention homes and businesses.

Major new legislation – interpreted on many thousands of pages of the Federal Register – empowered the new US Department of Energy (1977). The new laws (in 1978) were the National Energy Conservation Policy Act; Law on the Use of Power Plants and Industrial Fuels; Public Utilities Regulatory Policy Act; Energy Tax Act; and Natural Gas Policy Act.

And in 1980: the American Synthetic Fuels Corporation Act; Biomass Energy and Alcohol Fuels Act; Renewable Energy Sources Act; Solar Energy and Energy Savings Act; Solar Energy Act and the Energy Savings Bank; Geothermal Act; and Ocean Thermal Energy Conversion Act.

Plans, more plans

The National Energy Plan in 1977 stated: “neither government policy nor market incentives can improve nature.” [2] Although he acknowledged the perverse effects of price ceilings on supply and demand, Carter blamed OPEC’s foreign policy control for his activism (“there was no free market or effective competitiveness in global oil supplies and prices,” he declared in his memoirs). [3]

These bogus reasons resulted in a regulatory experience that was frustrating, wasteful, and even bizarre. A new term, gapismdescribed the multitude of government programs adopted to synthetically increase supply and reduce demand, given the “imbalance” under price controls. “One can only suspect that many gapologists do not really appreciate the fact that at higher prices consumers do indeed buy less and producers offer more,” noted Edward J. Mitchell, “or that they believe that these trends are so weak that only astronomical prices will do that. eliminating gaps.” [4]

The economists’ mistake

Experts, academics and planners were all in on the premise of Carter’s energy policy: fixity and depletion. Was forgotten or ignored Scarcity and growth: the economics of resource availability (1963), which challenged depletionism and attributed “the ingenuity and wisdom of man” to “increasing, not diminishing, returns.” [5]

“There has been a certain tendency to view technological progress as a chance phenomenon, a bit of luck that is sure to run out sooner or later (with the ever-present implication that it will be sooner),” explained Harold J. Barnett and Chandler Morse. [6] But the data suggested otherwise. “Each cost-reducing innovation opens up application possibilities in so many new directions that the stock of knowledge, instead of being exhausted by new developments, can even expand geometrically.” [7]

It would take a contrarian, Julian Simon, to revive Barnett-Morse’s “great book of 1963” in the Carter era. [8] And in the 1980s, when energy prices were decontrolled, the resource optimists would win the debate. After all, energy economics was just economics. And less gloomy.

Conclusion

Jimmy Carter apparently had good intentions when he chose the bureaucratic means to provide Americans with reliable and affordable energy. But he could have ended the energy crisis quickly and easily with opposing government policies.

Carter was under the influence of false theories about what human ingenuity could achieve in a free market, with or without major negative foreign policy events. These false ideas had resounding negative consequences. The energy lessons of the 1970s should not be forgotten.

[1] “Schlesinger’s views on national economic policy were closer to French indicative planning than to the invisible hand….” James L. Cochrane, “Carter Energy Policy and the Ninety-fifth Congress.” In Energy policy in perspectiveCraufurd D. Goodwin, ed. (Washington, DC: The Brookings Institution, 1981), p. 553.

[2] Executive Office of the President, Energy Policy and Planning Office, The National Energy Plan (Washington, DC: GPO, 1977), p. xiii.

[3] Jimmy Carter, Keeping the Faith: Memoirs of a President (New York: Bantam Books, 1982), p. 94. In a 1977 address to the nation, Carter used the memorable phrase “the moral equivalent of war” to describe the American challenge to OPEC and oil imports in general.

[4] Edward J. Mitchell, American energy policy: an introduction (Washington, DC: American Enterprise Institute, 1974), pp. 20–21.

[5] Harold J. Barnett and Chandler Morse, Scarcity and growth: the economics of natural resource availability (Baltimore, MD: Johns Hopkins Press, for Resources for the Future, 1963), pp. 3, 8.

[6] Barnett and Morse, Scarcity and growthP. 235.

[7] Barnett and Morse, Scarcity and growthP.236.