Reno Hayek Symposium

A friend the other day suggested a new bumper sticker, “It Took a Carter to Get a Reagan.” That made me wonder if things could possibly get that bad under BHO, will the Atlas Shrugged looters and moochers drive the producers out?

Stephen Moore, a member of the WSJ editorial board penned an excellent feature in the March issue of American Spectator which ventures some historical comparisons. I remember car pooling in California and long gas lines and stagflation. This wasn’t the depression my father lived through but it got my attention and changed my economic and political thinking for good.

Moore takes our recent economic history forward from the Kennedy era in concise political detail. It is a must read. A small excerpt follows. Hopefully the current ruling classes will learn from history, though I doubt it.

ANOTHER HUGE CARTER BLUNDER was his energy policy, even though it was his top domestic policy concern. Carter had declared that ending the energy crisis was for the nation “the moral equivalent of war.” This was an era of gasoline lines—a time when motorists would start lining up at 6 a.m. on frigid winter mornings to be first in line to fill up the tank.

Throughout the 1970s, under Nixon, Ford, and Carter, OPEC severely restricted production of oil, contributing to a big spike in the price of heating oil and gasoline. The fall in the value of the dollar—and the loss of its purchasing power—played a key and underappreciated role here as well. By the late 1970s the price of a barrel of oil had more than tripled from $10 to $32 a barrel.

Jimmy Carter was pessimistic about America’s ability to pull out of the oil price spike. Thoroughly a Malthusian, he gloomily predicted in 1977 that “we could use up all of the proven reserves of oil in the entire world by the end of the next decade.”

Political panic during his administration spawned a potpourri of crackpot responses, including gas rationing; wellhead price controls; a “gas guzzler tax” on cars; an odd-even license plate system for rotating the days of the week that Americans could fill-’er-up; a voluntary policy urging stores and public buildings to turn the thermostat to a chilly 65 degrees in winter and a sweaty 80 in summer; a windfall profits tax imposed on producers of domestic oil, so that drillers could not “profit” from the OPEC price spikes; and a $2 billion “investment” in something called the Synthetic Fuels Corporation, an alternative renewable energy boondoggle that had produced not a kilowatt of electricity by the time it was closed down in 1982.

The one policy change that was desperately needed was decontrol of oil and natural gas prices— which Ronald Reagan was calling for on the 1980 presidential campaign trail. But Carter fought the idea and denounced proposed natural gas price decontrols as “immoral and obscene.”

The effect of the Carter price control and windfall profits tax policies was that U.S. oil production fell from 11 to 9 million barrels a day from 1971 to 1980 (incredibly even as the retail price at the pump for gasoline more than tripled). Price controls made it unprofitable for domestic producers to increase output through more expensive processes, such as drilling deeper wells, fracturing, steam or water injection, offshore drilling, and so on. The other perverse effect of the price controls and profits taxes was that U.S. imports of foreign oil rose from 4 to 8.5 million barrels of oil a day from 1970 to 1977, as demand for oil rose and domestic production fell. In the final analysis, Carter’s policies led to less conservation, less domestic production, more dependence on foreign oil, and higher long-term prices.

IT WASN’T JUST HIGH ENERGY PRICES that flummoxed Jimmy Carter—the rise in all prices became an irresistible force of nature during his presidency. Carter was a convert to the Phillips Curve belief that high inflation had to be tolerated to put people to work. So even with the money supply rising by 11 percent a year in 1977, he and his cadre of economists urged the Federal Reserve Bank to lower interest rates and quicken the pace of the printing presses to push more dollars into the economy. One of his chief economic advisers, Lawrence Klein, said, “We need faster monetary growth,” even as inflation raged and monetarist economists argued just the opposite. In 1977 inflation was at an intolerable 7 percent, in 1978 it climbed to 9 percent, in 1979 it hit 12 percent, and in 1980 it shot up further to 14 percent. In 1980 the prime mortgage interest rate hit an astronomical high of 20.5 percent. The home building industry virtually shut down with interest rates that high. America was starting to resemble a Third World country in terms of monetary policy.

Carter had no solution. In 1978 he called the inflation bulge a “temporary aberration.” Then in later years when the “temporary” nature of inflation suggested that the president suffered from a detachment from reality, Carter said that inflation wasn’t his fault, but more of a moral affliction affecting American society because we had lost our capacity to “sacrifice for the common good.” He declared in one speech that it was “a myth that the government can stop inflation.” Americans scratched their heads and wondered if the Fed and Congress and the president couldn’t stop inflation, then who could?

via The American Spectator : That ’70s Horror Show.

Tom Motherway