Jimmy Carter’s term as U. S. President (1977–1981) included major deregulation with airlines, motor carriers, and railroads. Other advances were scored in communications, tax policy, and regulatory budgeting. But the “great deregulator” had a very different approach with energy, which (along with inflation) defined his economic infamy.
Carter began wellhead deregulation of petroleum and natural gas—but with a Windfall Profit Tax for crude oil and intrastate regulation for gas. Carter’s basic mindset was oriented toward the federal planning of supply and demand, outlined in the National Energy Plan of 1977. The visible hand of government, not the invisible hand of markets, was to be controlling.
What Was the Problem?
The energy crisis in Carter’s time was blamed on the irreversible, worsening depletion of oil and gas. Physical fixity meant an increasing cost of extraction, hence the problems of supply and price. The “economics of exhaustible resources” was mainstream fare in the textbooks and journals, spawning a new subdiscipline, energy economics. The engineering mind of the 39th President was determined to overcome a perceived limit to growth.
Oil shortages in 1972–74, and natural gas curtailments in the winters of 1971/72 and 1976/77, had set the stage. To Carter, and his energy czar James Schlesinger, [1] crude oil and natural gas had to be replaced by super-abundant coal, synthetic oil and gas from coal (synfuels), and supplemented by renewable energies. (Nuclear, never embraced, was completely off the table with the Three Mile Island incident in March 1979.)
On the demand side, less energy had to be consumed in transportation, industry, and power generation, not to mention in homes and businesses.
Major new legislation—interpreted in many thousands of Federal Register pages—empowered the newborn U.S. Department of Energy (1977). The new laws (in 1978) were the National Energy Conservation Policy Act; Power Plant and Industrial Fuel Use Act; Public Utilities Regulatory Policy Act; Energy Tax Act; and Natural Gas Policy Act.
And in 1980: the U.S. Synthetic Fuels Corporation Act; Biomass Energy and Alcohol Fuels Act; Renewable Energy Resources Act; Solar Energy and Energy Conservation Act; Solar Energy and Energy Conservation Bank Act; Geothermal Energy Act; and Ocean Thermal Energy Conversion Act.
Planning, More Planning
The National Energy Plan of 1977 stated, “neither Government policy nor market incentives can improve on nature.” [2] While recognizing the perverse effects of price ceilings on supply and demand, Carter blamed foreign political control by OPEC for his activism (“there was no free market or effective competitive forces relating to world oil supplies and price,” he stated in his memoirs). [3]
These false rationales resulted in a regulatory experience that was frustrating, wasteful, even bizarre. A new term, gapism, described the multitude of government programs passed to synthetically increase supply and reduce demand, given “disequilibrium” under price controls. “One can only conjecture that many gapologists do not really appreciate the fact that at higher prices consumers really do buy less and producers offer more,” observed Edward J. Mitchell, “or that they believe these tendencies are so weak that only astronomical prices will eliminate gaps.” [4]
The Economists Error
Experts, academics, and planners were all-in with the fixity-depletion premise of Carter energy policy. Forgotten or ignored was Scarcity and Growth: The Economics of Resource Availability (1963), which challenged depletionism and credited “man’s ingenuity and wisdom” with “increasing, not diminishing, returns.” [5]
“There has been a certain tendency to regard technological advance as a chancy 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 data suggested otherwise. “Every cost-reducing innovation opens up possibilities of application in so many new directions that the stock of knowledge, far from being depleted by new developments, may even expand geometrically.” [7]
It would take a contrarian, Julian Simon, to resurrect Barnett-Morse’s “great 1963 book” in the Carter era. [8] And in the 1980s, with energy prices decontrolled, the resource optimists would win the debate. Energy economics was just economics, after all. And less dismal.
Conclusion
Jimmy Carter was apparently well-intentioned in choosing the bureaucratic means to provide reliable and affordable energy for Americans. But he could have ended the energy crisis quickly and simply with an opposite public policy.
Carter was under the sway of false theories about what human ingenuity could accomplish in a free market, with or without major negative foreign policy events. Those 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 Perspective, Craufurd 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 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 America’s challenge against OPEC and oil imports in general.
[4] Edward J. Mitchell, U.S. Energy Policy: A Primer (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 Growth, p. 235.
[7] Barnett and Morse, Scarcity and Growth, p. 236.
Robert L. Bradley is the founder and CEO of the Institute for Energy Research.
