Jimmy Carter’s Economy: Policy in an Age of Limits

Published by EH.Net (January 2004)

W. Carl Biven, Jimmy Carter’s Economy: Policy in an Age of Limits. Chapel Hill: The University of North Carolina Press, 2002, ix + 346p., (Hardcover), ISBN:0-8078-2738-X.

Reviewed for EH.Net by Toby G. Bates, Department of History, University of Mississippi

W. Carl Biven’s Jimmy Carter’s Economy: Policy in a Age of Limits examines the steps and missteps in the national fiscal strategy of the Carter administration and details a president tested by economic forces over which he possessed limited control. The author utilizes personal interviews with former members of the Carter administration, as well as an exhaustive examination of primary and secondary material, to detail a coalescence of events that faced the new chief executive. The severity of the economic problems prevented the application of any lasting solutions. In a business-like chronological narrative Biven argues that Carter inherited many of the complex economic problems of his term, gamely attempted various solutions, but in the end failed due to his management style, political infighting, and the overall limits forced by the dire economic times upon government policies.

Biven details three central problems that haunted the Carter administration: the Iranian hostage crisis, division in the Democratic Party, and most importantly the national economy. Double-digit inflation, slow national growth, high unemployment, a decline in the rate of growth of output per worker, and serious international economic challenges from Japan and Germany remained just a few of the problems the thirty-ninth president faced upon entry into the White House. Biven describes a Democratic party traditionally committed to full employment and the protection of the welfare state. The author concludes, however, that Carter understood that to confront the economic ills challenging the nation his political party needed to reconsider traditional national priorities and undertake an overall shift to the political center.

Carter’s personality and work traits played a role in his administration’s reaction to the economic despair confronting the nation. The president focused, such as in the case of inflation, on the microeconomic problems as opposed to macroeconomics. The author suggests that Carter preferred problems of a micro-nature where less of a chance existed for political or other outside entanglements. Biven quotes government officials that suggest that the president, due to his background in engineering, remained too wedded to minute details.

Biven begins his scholarship with an examination of the 1976 presidential election. He argues that while the economy had begun to recover from the severe recession suffered under President Gerald Ford, a different perception existed between true statistical recovery and an awareness of an upturn among the American populace. High unemployment and inflation dogged the incumbent, and Carter subsequently won a close election. Biven argues that initially Carter utilized traditional Democratic economists that remained wedded to Keynesian ideals. The problem, however, was that while these economic advisers focused at the outset on unemployment, the true threat to economic stability remained inflation. Biven writes that it was not until early 1979, after what the author describes as an inflation explosion, that Carter’s advisors shifted into anti-inflation mode and recognized the problem as issue number one. In other words, the economic problems in the mid to late 1970s required new ways of thinking, as the nation faced unprecedented troubles.

Biven details not only the domestic economic problems confronting the nation but the tensions inside the government to reach solutions. Carter did not possess a great deal of knowledge concerning economics so it was vital for the president to be surrounded by qualified advisors. The author documents the efforts of the Economic Policy Group, labeled by some as the Troika, to confront many of the nation’s economic woes. The first Troika consisted of the Secretary of the Treasury Michael Blumenthal, the Director of the Office of Management and Budget Bert Lance, and the Chairman of the Council of Economic advisors Charles Schultze. The Economic Policy Group also contained the secretaries of state, commerce, labor, housing and urban development, as well as the national security advisor. A Quadriad of advisors also possessed a role in economic policy as it consisted of the Troika as well as the Federal Reserve Chairman. Tensions surfaced as many viewed the groups as being too large and unwieldy to supply a coherent economic strategy. Personal politics played a part as well as many members of the Economic Policy Group practiced differing political beliefs and played to conflicting constituencies.

The author writes that due to the economic policy limits placed upon the nation Carter’s subsequent move to the ideological center on fiscal strategy alarmed many Democrats. Branded a reluctant Keynesian and a financial conservative, the president faced great opposition from many members of his own party in the passage of many economic programs. The first signs of trouble arrived in the debates concerning passage of a stimulus package, tax cuts and a jobs program, in the first few months after the inauguration. Carter also experienced difficulty with many of his own party members in Congress on the passage of energy legislation. Biven argues that the president’s difficulties with a Congress dominated by members of his own party contributed to the domestic image of Carter as a weak national leader.

Biven describes the various international efforts of the Carter administration to increase economic growth. He writes of Carter’s efforts to press West Germany and Japan to join the United States in a joint expansion effort as he sent Vice President Walter Mondale overseas to garner support. While the Germans remained skeptical, the Japanese displayed a warm if not cautious reception. Biven also writes of the 1978 Bonn summit in which Carter hoped to increase support for international expansionary policies. Debates among allies concerned American oil imports and the trade surpluses of Germany and Japan. The author awards mixed success to the American president.

Unlike issues of inflation and unemployment that preceded the Carter years, Biven does describe some “self-inflicted wounds” of the administration. The author devotes one section of his work to what he describes as the narrower, microeconomic decisions that influenced the Carter administration’s approach to the inflation problem. The author examines the Social Security tax increase, periodic minimum wage expansion, economic and social deregulation, and issues involving trade restriction. Biven concludes while many of the programs remained necessary in the grand scheme of things, the administration complicated the inflation picture on matters of micro-concern.

He details the limits of presidential power in relation to the economy and in a similar vein the relationships of Carter with the Federal Reserve chairmen of the time: Arthur Burns, William Miller, and Paul Volcker. The president did not enjoy a close relationship with Burns, the chairman inherited from the Ford administration, as Carter feared that his stimulus plan would suffer if the Federal Reserve responded with monetary restraint. After Miller moved to the treasury department, the arrival of Volcker again brought intermediate frustration for Carter. Regardless of tensions, he argues that Carter deserves a great amount of credit for the appointment of Volcker to the Federal Reserve as the chairman’s monetary polices after Carter left office eventually broke the back of inflation.

Biven argues convincingly that economic limits set boundaries to the policy options available to Carter and placed his administration on a more conservative fiscal path. In a clear presentation the author reveals that monies normally available for traditional Democratic programs did not exist, as the slow growth of the national economy did not provide needed revenue. The conservative direction resulted in the developments of fissures in the president’s party and election year troubles for the incumbent. Biven describes Carter’s administration as well as the president’s economic policies as both occurring during a transitional time for the American financial system. He writes that the historical record remains unclear if the soaring inflation of the late 1970s, the president’s number one nemesis, resulted solely from the actions of Carter’s administration. The president realized that the national economy could no longer be viewed as an unlimited source of revenue and instead had to work within an atmosphere of limits. Biven concludes rightfully that before historians declare Carter’s a failed presidency, scholars should first examine the severe economic limits forced upon and contained within his four years in the White House.

Toby G. Bates is a Ph.D. candidate in modern American history at the University of Mississippi.