You are browsing the archive for Carter Administration.

Real Fiscal Responsibility 5; Carter: Environmental Degradation

5:59 am in Uncategorized by letsgetitdone

Love Canal Emergency Declaration Area Plaque at site of 93rd Street School, the school had been knowingly built on top of Hooker’s toxic landfill.

This, the fifth post in a series evaluating the fiscal responsibility/irresponsibility of the Governments of the United States (mostly the Congress, the Executive Branch, and the Federal Reserve) by Administration periods, beginning in 1977 to 1981 with the Jimmy Carter period, will cover the performance of the Government on the environment and climate change aspect of “public purpose.” Posts One, Two, Three, and Four discussed some basic definitions and assumptions of the series and evaluated Government performance relating to economic stagnation, living wage full employment, price stability/inflation, implementing universal health care, and educational reform.

I’ve explained why fiscal responsibility is closely connected to the idea of public purpose, in this post prior to beginning the series. You’ll want to read it, if you want to know what I mean by “public purpose,” and see what else that pregnant term includes, apart from enhancing the environment.

In the first post, I also claimed that the Government of the United States has been fiscally irresponsible in every Administration period since 1977, because its fiscal policies have largely worked against key aspects of public purpose. The first 4 posts supported that claim across 5 aspects of public purpose, as will this one. Future posts in this series will attempt to document it across additional aspects of public purpose. Read the rest of this entry →

Real Fiscal Responsibility 4; Carter: Education Reform

6:41 am in Uncategorized by letsgetitdone

If you’re reading this you’ve landed near but not at the beginning of my very lengthy series evaluating the fiscal responsibility/irresponsibility of the Governments of the United States (mostly the Congress, the Executive Branch, and the Federal Reserve) by Administration periods, beginning in 1977 – 1981 with the Jimmy Carter period. My first post explained why I chose to start my evaluation with the Carter period, and also laid out my related definitions of fiscal sustainability, and fiscal responsibility.

It explained why fiscal responsibility is closely connected to the idea of public purpose, which I laid out in this post prior to beginning the series. You may want to consult that post, if you want to know what I mean by “public purpose.” I also claimed that the Government of the United States has been fiscally irresponsible in every Administration period since 1977.

In my second post, I began by examining the problems of ending economic stagnation, and providing full employment at a living wage, and, I hope, by showing that the Government, during the Carter period, failed to solve either problem because of its commitment to deficit reduction, and budget balancing, in the service of hoped for inflation moderation. The third post in the series, examined how the US Government failed in its efforts to create and maintain price stability, and also failed to provide a solution to the problem of providing the right of receiving health care to every American in need. So, thus far in the first three posts in the series we’ve seen how the Government during the Carter period failed to 1) end economic stagnation; 2) failed to create and maintain full employment; 3) failed to maintain price stability; and 4) failed to maintain price stability. It did not fail however, to reduce the Federal deficit, which is not in itself an aspect of public purpose, but a presumed means of preserving government solvency, and avoiding inflation. So, I suppose congratulations are due the Government for solving a faux problem and failing to directly address the real ones.

So, from 1977 – 1981, the Government of the United States is thus far 0 for 4 when it comes to achieving real fiscal responsibility through fiscal policy in accordance with key aspects of public purpose. The remaining posts in this series will continue to document the claim that all the US Governments since 1977 have been fiscally irresponsible. In this, the fourth post in the series, I’ll evaluate the Government’s efforts at educational reform during the Carter period. Will the Government go 0 for 5? We’ll see! Read the rest of this entry →

Real Fiscal Responsibility 3; Carter: Inflation and Health Care

6:36 am in Uncategorized by letsgetitdone

Here’s the third post in my series evaluating the fiscal responsibility/irresponsibility of the Governments of the United States (mostly the Congress, the Executive Branch, and the Federal Reserve) by Administration periods beginning in 1977 with the Jimmy Carter period. My first post explained why I chose to start my evaluation with the Carter period, and also laid out my related definitions of fiscal sustainability, and fiscal responsibility.

It explained why fiscal responsibility is closely connected to the idea of public purpose, which I’ve laid out here. I also claimed that the Government of the United States has been fiscally irresponsible in every Administration period since 1977.

In my second post, I began by examining the problems of ending economic stagnation, and providing full employment at a living wage, and, I hope, by showing that the Government, during the Carter period, failed to solve either problem because of its commitment to deficit reduction, and budget balancing, in the service of hoped for inflation moderation. The remaining posts in this series will continue to document the claim that all the US Governments since 1977 have been fiscally irresponsible. This, one, the third in the series, will examine how the US Government failed in its efforts to create and maintain price stability, and also failed to provide a solution to the problem of providing the right of receiving health care to every American in need.

Creating and Maintaining Price stability

The Carter Administration sought price stability, and was convinced, mistakenly, that reducing the deficit and eventually balancing the budget would also bring the cost-push inflation in oil prices under control. In the pursuit of price stability, the President used his veto power (p. 40) on a heavily Democratic Congress of supposed allies when he vetoed a public works bill providing for $5 Billion in water projects in 1978, because be thought it was inflationary and full of pork. In addition, he vetoed or pocket vetoed a number of other bills passed by the Democratic Congress in pursuit of smaller Federal deficits and Government frugality.

Not that the Government ran very large deficits in those days in light of current ideas about large deficit spending. In fact, Congress, the President, and the Federal Reserve combined to reduce deficits very quickly after the Ford Administration. After 8 quarters when the Federal Government deficit ranged from 2.88%* of GDP to 6.50%, with 7 quarters exceeding 3% of GDP, the deficit was reduced during the Carter Administration to under 3% of GDP in the first quarter of 1977 and remained in the 0% to less than 3% range, with a low of 0.47%, for the rest of President Carter’s term.

These small Federal deficits were accompanied by small trade deficits by contemporary standards, ranging from a high of 1.21% of GDP to a low of 0.10%. In addition, there were five quarters of small trade surpluses during the Carter Administration, as well. In spite of this generally favorable context, the Government could not achieve price stability because its leaders in all branches were ideologically biased against using the right methods to control the cost-push oil inflation being caused by the spike in oil prices due to Saudi policy during these years. In fact, the Government mostly executed a textbook case of what not to do.

Cost-push inflation cannot be eliminated without killing the economy if one relies on increased taxes, reduced Government spending and high interest rates, which is the deficit hawk prescription. All that will and did do is to move toward macroeconomic and microeconomic austerity. The way cost-push inflation has to be fixed is through bringing alternative sources of supply, wage and price controls, and rationing online.

We know these last two measures are hard to take for Americans and hard to enforce. But they worked during WWII (pp. 95 – 120) even in a time of full employment, and would have worked again if the Congress and the Carter Administration would have employed them sufficiently vigorously. But even though the Administration and Congress did implement wage and price “guidelines” in 1978, and then moved on to tighter controls later, implemented by a Council of Wage and Price Stability, the prices affected were limited in scope, amounting to about half the prices in the economy, and the enforcement of standards wasn’t thoroughgoing, in part because the regulatory staff implementing the program was only 10% of the size of a comparable staff during the Nixon Administration.

As for bringing new supplies online, that is the best cure for cost-push inflation, but the problem with it is that it can take a good deal of time to work. Ironically, Jimmy Carter did initiate this cure for Saudi-induced oil inflation during his Administration, when he de-regulated natural gas production. The problem was that the new supplies did not begin to have an impact for some time. Eventually they did, but only after President Carter was defeated by Ronald Reagan, and only after the availability of more natural gas created an international oil glut, the primary reason for the fall of inflation in the Reagan Administration.

The secondary reason for the fall of inflation was Volcker backing off the Federal Funds rate. The Reagan recovery couldn’t have occurred without that; but, on the other hand, Volcker’s move wouldn’t have been effective if the oil price hadn’t already fallen.

So, the bottom line here, is that the Government did mostly fiscally irresponsible things in seeking price stability during the Carter Administration, while wrapping itself in the moral sanctimony of preaching the necessity for sacrifice. The one clearly good thing it did was to de-regulate natural gas. That eventually worked, and if Congress and the President had combined that with oil rationing and strict enforcement of price controls on domestic supplies, export controls on domestic oil, application of price controls on oil imports, and perhaps limited wage controls, then the economy could have survived without Paul Volcker’s Fed drying up the credit flow and producing a prolonged recession.

Implementing the right of health care for everyone

Carter promised passage of a national health insurance plan during his campaign, but when he was elected he backed off that idea as soon he was warned about the perceived likely inflationary impact of such legislation. This fear dogged his Administration and was a major factor in his inability to come to agreement with Teddy Kennedy and Russell Long on a bill that all three could support.

As his term passed, hesitation and delay resulted in his chance of passing a Medicare for All or other national health insurance bill slipping away, even though he had enormous Democratic majorities in both Houses during his first two years, and healthy majorities in his last two. His fear of inflation and concerns for fiscal responsibility as he defined it, prevented him from making a deal with Democrats supporting a single-payer system. He also insisted that any health reform bill had to safeguard a role for the private insurers.

At the time spending on health care amounted to 9% of GDP. Now that figure is at 18%. In retrospect, it is clear that the same beliefs about fiscal responsibility bothered him in this area as in the economic stagnation, full employment, and price stability issue areas. And also that his insistence on his mistaken fiscal responsibility notion, led to fiscally irresponsible policies, that, in turn, eventually led to the health care sector doubling the proportion of GDP it consumes on an annual basis, and also to many years of unnecessary fatalities, bankruptcies, foreclosures, and family breakups due to lack of universal health insurance.

In retrospect, this is one of areas of the Government’s biggest failures during the Carter Administration. The President was reluctant to make changes that excluded private interests, and to use the Government’s recently acquired greater policy space existing because the Government was now a sovereign fiat currency issuer to spend for the public purpose. His lack of faith in the ability of the Government to do things well, and his ideological faith in the superiority of the private sector to the Government as an agent of change, undermined his effectiveness in this as well as the other areas discussed thus far. It also has bestowed a very high cost on most Americans since 1981.

The Government, led by Carter during this period, could not even conceive of just letting the twin deficits (Trade and Budget) float, and accommodating the trade and import desires of the private sector. Had he been able to do so, he might have been been able to overcome stagflation, create prosperity, and produce low-cost universal health insurance for everyone.

Watch for my next post on the Government’s failure to legislate enduring educational reform during the period 1977 – 1981.

*My thanks are due to Professors Scott Fullwiler and Stephanie Kelton for kindly providing me with their quarterly time series data on Sectoral Financial Balances which I’ve drawn upon for the deficit, and GDP numbers I’ve used in this post.

(Cross-posted from New Economic Perspectives.)

Real Fiscal Responsibility 2: Carter, Stagnation and Unemployment

11:30 am in Uncategorized by letsgetitdone

The economy during the Carter period never operated at full capacity or near full capacity. Deficit and inflation reduction were emphasized above all other domestic concerns, and substantial output gaps were simply accepted as something that it was very difficult for Government to do anything about.

This post continues my series evaluating the fiscal responsibility/irresponsibility of the Governments of the United States (mostly the Congress, the Executive Branch, and the Federal Reserve) by Administration periods beginning in 1977 with the Jimmy Carter period. My first post explained why I chose to start my evaluation with the Carter period, and also laid out my related definitions of fiscal sustainability, and fiscal responsibility.

It explained why fiscal responsibility is closely connected to the idea of public purpose, which I’ve laid out here. I also claimed that the Government of the United States has been fiscally irresponsible in every Administration period since 1977. The remaining posts in this series, and they will be many, will document that claim with analysis.

In this second post, I begin my evaluation of the extent of fiscal responsibility or irresponsibility of the Federal Government during the Carter Administration by covering two of the primary problems reflecting public purpose, and what the Federal Government did or did not do about them with its fiscal and monetary policies. The two are: ending economic stagnation, and creating full employment at a living wage.

Replacing a stagnating economy with one operating at its full potential; closing the current output gap

The economy during the Carter period never operated at full capacity or near full capacity. Deficit and inflation reduction were emphasized above all other domestic concerns, and substantial output gaps were simply accepted as something that it was very difficult for Government to do anything about. This was true during a period in which the presidency and the Congress were both in Democratic hands with substantial majorities.

In addition, the President was able to appoint his choice to head the Federal Reserve on two occasions. During the early part of his Administration he was dealing with a Republican appointee, Arthur F. Burns, who was far from a fiscal hawk on inflation. When Burns resigned, Carter appointed G. William Miller to head the Federal Reserve. Miller was, if anything, more dovish on interest rates than Burns. But later when he moved Miller to Treasury, he appointed the fiscal hawk Paul Volcker as Federal Reserve Chairman, and in doing this shot both himself and the United States economy in the foot; condemning himself to defeat in 1980; and the economy to a multi-year recession with high levels of unemployment from 1980 – 1986.

In spite of his favorable political situation (at least until he appointed Volcker) for active deficit spending-based fiscal policy, President Carter and leaders in the other branches of Government chose to emphasize inflation moderation, rather than facilitating an economy that used its full productive capacity for the public purpose. The outcome of this orientation was characterized as “stagflation” in the popular press, and the term came to stigmatize the Carter period in Government and his Administration, in particular.

Why did the leaders of the Congress, the Executive and the Federal Reserve choose inflation moderation above other goals during the period 1977-1981? Partly because President Carter was very serious about attempting to reduce the Government’s deficit, and eventually balance the Federal budget by 1981, and he implemented a variety of Executive Branch cost-cutting measures across the Federal Government to try to reach his goal, while using the power and bully pulpit of the presidency to bring others along the path of “sacrificing for the public good.”.

Congress both collaborated with and sometimes opposed Carter’s cost-cutting proposals, when they related to infrastructure spending. But generally, they supported him in his broad-based deficit cutting activities, because they bought into the fiscal responsibility as deficit cutting and budget balancing notion, and also accepted that as political virtue in a time of uncertainty and stagflation.

Read the rest of this entry →

Losing Ground: Neo-liberalism and Hope

7:48 pm in Uncategorized by letsgetitdone

Important changes in societal economic philosophy and policies occurred in the United States during the 1980s, after a transition period covering the Carter Administration, and accelerating after the accession of Ronald Reagan to the Presidency. It’s now nearly three decades later, and we can ask how well the transition from Keynesianism to Neo-liberalism has worked. It’s common knowledge that this period has seen wage stagnation for working Americans, and also growing inequality. In this post I want to present a simple table showing certain changes in key indicators across the decades and discuss its significance for evaluating the performance of neo-liberalism compared to the earlier Keynesian orientation and policies. Here’s the Table. Read the rest of this entry →