Jimmy Carter’s term as president of the United States (1977-1981) included major deregulation of airlines, motor carriers, and railroads. Other advances were made in communications, tax policy, and regulatory budgeting. But the “great deregulator” took a very different approach to energy, which (along with inflation) defined his economic notoriety.
Carter began deregulating oil and gas wellheads, but imposed windfall profits taxes on crude oil and intrastate regulations on gas. Carter’s basic thinking was oriented toward the federal supply and demand planning outlined in the 1977 National Energy Plan. It should have been controlled by the visible hand of government, not the invisible hand of the market.
What went wrong?
The energy crisis of the Carter era was thought to be caused by an irreversible deterioration in oil and gas. Physical fixity meant increased extraction costs, thus creating supply and price problems. “Economics of exhaustible resources” is a mainstay of textbooks and journals and has given rise to a new subfield: energy economics. The 39th president’s engineering mind was determined to overcome perceived limits to growth.
The oil shortages of 1972-1974 and natural gas cuts in the winters of 1971-1972 and 1976-1977 set the stage. To Carter and his Energy Czar James Schlesinger, [1] Crude oil and natural gas had to be replaced by highly abundant coal, synthetic oil and gas from coal (synthetic fuels), and supplemented with renewable energy. (Nuclear weapons were never accepted, but the Three Mile Island incident in March 1979 took them completely off the table.)
On the demand side, there was a need to reduce the energy consumed by households and businesses, as well as transport, industry, and power generation.
A major new law, interpreted over thousands of pages in the Federal Register, empowered the fledgling U.S. Department of Energy (1977). The new law (1978) was the National Energy Conservation Policy Act. Laws regarding power plants and industrial fuel use. Public Utility Regulatory Policy Act. the Energy Tax Act; and the Natural Gas Policy Act.
Then, in 1980, the U.S. Synthetic Fuel Corporation Act was enacted. Biomass Energy and Alcohol Fuels Act; Renewable Energy Resources Act. Solar Energy and Energy Conservation Law; Solar Energy and Energy Conservation Bank Law; Geothermal Energy Law; and Ocean Thermal Energy Harvesting Law.
Plans and more plans
The 1977 National Energy Plan stated that “neither government policy nor market incentives can improve nature.” [2] While recognizing the perverse effects price caps have on supply and demand, Carter blamed OPEC’s foreign political control for his activism. There was no free market or effective competition,” Carter wrote in his memoirs. [3]
These faulty rationales have resulted in a regulatory experience that is frustrating, wasteful, and even bizarre. A new term, gap doctrine, described the numerous government programs passed to collectively increase supply and reduce demand, taking into account the “imbalances” under price controls. Edward J. Mitchell “speculates that many gap scholars don’t actually understand the fact that when prices are high, consumers actually buy less and producers offer more.” “Or perhaps you believe these trends are so weak that only astronomical price increases will occur.” Eliminate gaps. ” [4]
Economist’s mistake
Experts, scholars, and planners fully agreed with the fixed depletion premise of Carter’s energy policy. Forgotten or ignored was Scarcity and Growth: The Economics of Resource Availability (1963), which challenged the depletion theory and argued that “human ingenuity and wisdom” “decreases returns.” He believed that it should “increase rather than increase.” [5]
“There is a tendency to think of technological progress as a chance phenomenon, a bit of good fortune that is sure to be used up sooner or later (although there is always an implication that it will be sooner),” Harold J. Barnett explains. did. Chandler Morse. [6] But data suggests otherwise. “Every cost-reducing innovation opens up the possibility of application in so many new directions that the stock of knowledge, far from being depleted by new developments, can even expand exponentially.” [7]
It would take contrarian Julian Simon to revive Barnett-Morss’s “Great Book of 1963” from the Carter era. [8] Then, in the 1980s, energy prices were deregulated and resource optimists won the debate. After all, energy economics was just economics. And it’s not that dire.
conclusion
Jimmy Carter clearly had good intentions when he chose bureaucratic means to provide Americans with reliable and affordable energy. But public policy to the contrary could have ended the energy crisis quickly and easily.
Carter was swayed by false theories about what human ingenuity could accomplish in free markets, with or without significant negative foreign policy events. Those wrong ideas had very bad consequences. We must not forget the energy lessons of the 1970s.
[1] “Schlesinger’s views on national economic policy were closer to French suggestive planning than to the invisible hand…” James L. Cochran, “Carter Energy Policy and the 95th Congress.” Perspectives on Energy Policy, edited by Craufurd D. Goodwin (Washington, DC: Brookings Institution, 1981), p. 553.
[2] Office of the President, Office of Energy Policy and Planning, National Energy Plan (Washington, DC: GPO, 1977), p. 13.
[3] Jimmy Carter, Keeping Faith: Memoirs of a President (New York: Bantam Books, 1982), p. 94. In his 1977 address to the nation, Carter describes America’s challenge to OPEC and oil imports in general. To this end, he used the memorable phrase “the moral equivalent of war.”
[4] Edward J. Mitchell, U.S. Energy Policy: An Introduction (Washington, DC: American Enterprise Institute, 1974), p. 1974. 20-21.
[5] Harold J. Barnett and Chandler Morse, Scarcity and Growth: The Economics of Natural Resource Availability (Baltimore, Maryland: Johns Hopkins Publishing, On Resources for the Future, 1963), p. 1963. 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 Energy Institute.
