Today, we present a guest post written by Jeffrey Frankel, Harpel Professor at Harvard’s Kennedy School of Government, and formerly a member of the White House Council of Economic Advisers. An earlier version appeared at Project Syndicate. 

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September 27, 2024 — Jimmy Carter is to turn 100 on October 1.  His presidency has always been underestimated.  A few of his accomplishments, like the Camp David Accords, are well-known.  But his legacy has been hurt by misperception of some specific developments of those years, 1977-1981.  This is particularly true when viewed in light of new information that did not come out until more recently.

Consider policy in three areas: (1) deregulation, (2) inflation, and (3) the Iranian hostage crisis.

Let’s start with economic policy.  The conventional take is that Carter represented excessive regulation, government spending, and inflation.  It seems that everyone is sure that Ronald Reagan began the shift away from big government, whether they think that was a good thing or bad.  But let’s look at the historical record.

1. Deregulation

It was in fact the Carter Administration that initiated the turnaround, beginning the roll-back of government regulation in multiple areas where it was distortionary and harmful.  The needed reforms started with transportation and communications. The air cargo industry was successfully deregulated in 1977, allowing the birth of overnight delivery service by Fed Ex and other delivery companies. The rapid expansion of these express delivery services, in turn, later allowed Amazon to revolutionize shopping.  Next, Carter deregulated air travel, appointing economist Alfred Kahn to run the Civil Aeronautics Board in 1977 and passing the Airline Deregulation Act in 1978. Kahn eventually fulfilled his deregulation mandate by phasing the CAB out of existence.  As textbook economics predicted, greater competition subsequently lowered the cost of flying by an estimated 22-50 %, bringing what had been a privilege of the wealthy elite into reach for the masses.  Trucking and the railroad industry were deregulated in 1980.  Again, these two sectors were transformed, as competition dramatically lowered shipping costs to consumers.

Long-distance phone service was also deregulated in 1980.  It is hard to remember today that, up to that time, making or receiving a long-distance call, even within the United States, was so expensive that families reserved it for birthday congratulations and emergencies.

Carter deregulated natural gas in 1978 and oil in 1979.  There was a phase-out period for the controls, but energy supply increased, consumers conserved, and real prices eventually fell after the reforms took full effect in 1985.

Also in 1979, the President installed 32 solar panels on the White House roof and presented a plan to get 20% of US energy from renewables by 2000.  Only from the vantage of the 21^st century has the cost–effectiveness of solar and wind power been realized.  Carter was ahead of his time, with respect to technology, the environment, and US energy dependence, where his goal of independence has been achieved.

Another on the list of industries that he deregulated was beer.  The 1979 opening of this sector to competition resulted in growth, from less than 100 American breweries in 1979, to 1,500 in 1997, most of them small craft brewers.  This would not have been possible without the lifting of restrictions that had previously made home brewing illegal.  Perhaps the lag in the full beneficial effects of deregulation in such sectors as natural gas and craft beer helps explain why Americans do not associate them with Carter.

The Carter Administration also instituted systematic White House analysis of new pending regulations, specifically the Office of Information and Regulatory Affairs and its use of cost-benefit criteria, both of which are still in effect and have improved the regulatory process ever since.

Financial deregulation is a bit more controversial. The liberalization of federal banking rules began in 1980, with the Depository Institutions and Monetary Control Act.  It removed both the ceiling on interest rates that banks could pay on customers’ savings deposits and the outright prohibition of any interest payment on checking account deposits.  At last, depositors could earn some return. Reagan should also get some of the credit for financial deregulation: he signed the 1982 Garn-St Germain Act, which deregulated Savings and Loan institutions.  But it eventually turned out that many thrift institutions were headed for insolvency.

 

2. Inflation

It is inaccurate to blame the 39^th president for the high inflation of the 1970s.  That originated in high government spending and easy monetary policy during the Vietnam War era, under the administrations of Lyndon Johnson and Richard Nixon.  Nixon in 1971 directly pressured Fed Chairman Arthur Burns to increase monetary stimulus in order to boost the economy in advance of the 1972 election, in combination with wage and price controls to temporarily suppress inflation until after the vote.  Nixon’s sinister instructions to Burns were fully proven only 35 years later, from White House tapes.  Subsequently, when the distortionary wage-price controls were eventually removed, inflation came back stronger than ever.  In addition to the controls, the August 15, 1971 package, known as the “Nixon shock,” also included protectionist trade measures (a 10 per cent surcharge on imports) and unilateral abandonment of the gold standard (followed by devaluation of the dollar), all of which added to inflation.

Jimmy Carter also inherited from the Nixon and Ford Administrations a budget deficit equal to 4 % of GDP in 1976.  It came down to 2 ½ % of GDP by the time he left office.  The federal deficit then soared under the tax-cutting Reagan and George H.W. Bush Administrations.

Although Carter did not create the 1970s inflation, he played a critical role in putting an end to it.  It was he who finally appointed Paul Volcker Chairman of the Federal Reserve in 1979, with a mandate to do what it took to break the back of inflation. What it took was sky-high interest rates and two recessions.  The 1980 recession may be the reason that the incumbent President was not re-elected that November.  (The successor Reagan administration then returned to the pattern of seeking easier monetary policy from the Fed in the lead-up to the 1984 election, and eventually forced Volcker out.)

 

3. The Iran hostage crisis

The other explanation that is often given for why Carter lost the 1980 election to Reagan was the more general sense of a failed presidency.  The perception was reinforced by Carter’s address to the American people on July 15, 1979, calling for a renewal of the American spirit.  It was disparagingly dubbed the “malaise” speech – as if Americans are known to prefer cheer-leading from their leaders in trying economic times.  The sense of a failed presidency was also captured by front-page photographs showing him exhausted during a six-mile run – as if other presidents run six miles and don’t get tired.

The most prominent failure of his term in office was Carter’s inability to get Iran to release 52 US personnel who had been taken hostage by militants in November 1979.  But two details of the hostage story that came out much later cast a different light on the episode.

First, in January 1980, the CIA, with the approval of President Carter, was behind the daring rescue from Tehran of six American diplomats who had been sheltered by the Canadian Embassy.  The US government’s role was revealed only when records were declassified in 1997 and was made more widely known only in 2012 by the movie Argo, in which Ben Affleck played the lead CIA agent.  Carter could have claimed credit for the rescue in advance of the November 1980 election.  But he kept the US role in the operation secret at the time, leaving full credit to the Canadians, in order to avoid angering Iran and thus endangering the remaining hostages.

More recently, in March 2023, the world learned a shocking fact that completely changes our understanding of the end of the hostage crisis.  A Texas Republican named Ben Barnes, an eyewitness to history who wanted to set the record straight while he and Carter were both still alive, made a startling confession.  In July-August of 1980, three months before the Carter-Reagan election, Barnes had accompanied John Connally — who had been Nixon’s Treasury Secretary and architect of the 1971 Nixon shock – on a visit to the Middle East on behalf of the Reagan campaign.  Connally carried a message for the Iranian government: “Don’t release the hostages before the election. Mr. Reagan will win and give you a better deal.”  The trip evidently succeeded, explaining the puzzle why the Iranians only released the hostages on January 20, 1981, minutes after Reagan’s inauguration, and not before.

A secret deal between Reagan campaign manager William Casey and the Iranian government had been alleged previously.  And it came out later that the incoming Administration had secretly sold arms to Iran in 1981-82, via Israel. The suspicions prompted a 1992 congressional investigation, but had been judged skeptically, given the absence of hard evidence prior to Barnes’ revelation.

Perhaps it is not too much of an exaggeration to say that Carter was willing to lose the election in order to do his job conscientiously, for the hostages and for the American people, while the Reaganites were willing to prolong the hostages’ captivity in order to win the election.  In any case, Jimmy Carter deserves to be judged by everything that we now know, rather than being forever frozen in facile malaise perceptions of 1979.

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This post written by Jeffrey Frankel.