Source: Bruce J. Schulman. The Seventies - The Great Shift
in American Culture, Society, and Politics (2001)
in American Culture, Society, and Politics (2001)
Nothing fed the “Malaise Days” more than double-digit inflation, and with interest rates exceeding 20%, prices increased across the board, and value of savings plummeted. As with the Great Depression, “Stagflation” was a transformative event for an entire generation. What further fed inflation was the level of consumer spending, in that people were afraid that if they didn’t spend now, their future purchasing power would diminish.
By the late-1970s, inflation had become as ominous and unacceptable as unemployment, and in the years after Carter’s Presidency, Americans would tolerate draconian policies such as tight monetary policy to tame inflation. However, when Carter was in office, there was a “Great American Freakout” over the Federal Reserve raising interest rates. Carter had appointed Paul Volcker as the Fed Chair, who reinvented the way the Fed adjusted the money supply to adjust interest rates, which is used to this day). Carter understood that inflation had to be reduced, but the reality was (and is) that inflation can’t be brought down quickly to serve political purposes, such as Carter winning re-election in 1980.
In 1978, Carter basically played “Cheerleader” (a la Herbert Hoover during the early stages of the Great Depression), trying to get voluntary cooperation to reduce inflation, rejecting draconian measures such as severe budget cuts, since the Congressional Elections of 1978 were right around the corner. Carter’s tepid attempts to reduce inflation may not have caused greater inflation, but that was what occurred nonetheless. Americans were still favorably disposed to Carter, but they wanted a President that was in “control”. Key advisors wanted Carter to enact draconian measures that he had so far avoided to reduce inflation. These advisors also told Carter that labor and business would not be happy with those severe measures, but they needed to be done, and fast. Other advisors for Carter advised the President to take a “wait-and-see” approach with inflation.
By the late-1970s, inflation had become as ominous and unacceptable as unemployment, and in the years after Carter’s Presidency, Americans would tolerate draconian policies such as tight monetary policy to tame inflation. However, when Carter was in office, there was a “Great American Freakout” over the Federal Reserve raising interest rates. Carter had appointed Paul Volcker as the Fed Chair, who reinvented the way the Fed adjusted the money supply to adjust interest rates, which is used to this day). Carter understood that inflation had to be reduced, but the reality was (and is) that inflation can’t be brought down quickly to serve political purposes, such as Carter winning re-election in 1980.
In 1978, Carter basically played “Cheerleader” (a la Herbert Hoover during the early stages of the Great Depression), trying to get voluntary cooperation to reduce inflation, rejecting draconian measures such as severe budget cuts, since the Congressional Elections of 1978 were right around the corner. Carter’s tepid attempts to reduce inflation may not have caused greater inflation, but that was what occurred nonetheless. Americans were still favorably disposed to Carter, but they wanted a President that was in “control”. Key advisors wanted Carter to enact draconian measures that he had so far avoided to reduce inflation. These advisors also told Carter that labor and business would not be happy with those severe measures, but they needed to be done, and fast. Other advisors for Carter advised the President to take a “wait-and-see” approach with inflation.
Months of internal wrangling over inflation continued within the Carter administration. Carter decided it was time to address the nation, which he did on 24 October 1978. In his address, Carter confessed that he didn’t have all the answers to the inflation problem, and also asked the nation to band together in the fight against inflation. Carter introduced some bold initiatives, such as cutting the federal budget. The speech was a turning point in Carter’s Presidency, in that up to that point most in the administration believed they could reduce inflation while they also worked to reduce unemployment., as well as many other goals for the nation. However, after the address, the focus was mainly on reducing inflation.
Despite naming an “Inflation Czar”, the old economic rules/strategies were not useful in terms of meaningfully dealing with “Stagflation”. Carter still hesitated in directly dealing with such industries as milk and sugar producers in his efforts to control inflation, and he abandoned a wage cap in order to not arouse union opposition. In 1977, inflation was 6.5%, 7.7% in 1978, and 11.3% in 1979, and Carter appeared powerless to stop it. Finally, in the Fall of 1979, Carter named Paul Volcker as the Fed Chair, who attacked inflation the way it needed to be done beforehand. The downside of Volcker’s tight monetary policy, which drastically increased interest rates to lower the money supply, was that a recession occurred that politically killed Carter. By June 1979, Carter’s approval rating was 33%. The “Great Inflation” produced its own generation, altering the relationship between Americans and their money, and to the federal government, and also to each other. Americans developed new attitudes towards credit and credit cards, with credit card debt increasing by a factor of five between 1973 and 1982.
Despite naming an “Inflation Czar”, the old economic rules/strategies were not useful in terms of meaningfully dealing with “Stagflation”. Carter still hesitated in directly dealing with such industries as milk and sugar producers in his efforts to control inflation, and he abandoned a wage cap in order to not arouse union opposition. In 1977, inflation was 6.5%, 7.7% in 1978, and 11.3% in 1979, and Carter appeared powerless to stop it. Finally, in the Fall of 1979, Carter named Paul Volcker as the Fed Chair, who attacked inflation the way it needed to be done beforehand. The downside of Volcker’s tight monetary policy, which drastically increased interest rates to lower the money supply, was that a recession occurred that politically killed Carter. By June 1979, Carter’s approval rating was 33%. The “Great Inflation” produced its own generation, altering the relationship between Americans and their money, and to the federal government, and also to each other. Americans developed new attitudes towards credit and credit cards, with credit card debt increasing by a factor of five between 1973 and 1982.
The “Great Inflation” turned Americans into frenetic borrowers, in that until the 1970s there was institutional resistance to carrying debt, with thrift being a virtue, while borrowing was equated with moral weakness. With double-digit inflation, thriftiness was out, in that people didn’t want to pay for tomorrow’s higher-priced goods with yesterday’s diminished-in-value dollars. To more-and-more Americans by the late-1970s, using credit cards/borrowing made sense, in that a person could have the item(s) today, and pay off the debt with tomorrow’s diminished dollars. The “Great Inflation Generation” bought now, and worried about paying off debt later.
Due to the refusal of banks to raise interest rates on savings accounts, the “Great Inflation” led to the creation of money market mutual funds. These mutual funds took investor’s money and purchased short-term debt instruments such as treasury bills and jumbo certificates-of-deposit, which were exempt from Regulation Q (a banking regulation from 1933 that capped interest rates on savings accounts). These new mutual funds meant that investors, even small time investors, could get a much greater return on their money. However, in order to attract investors, the money market mutual fund had to look and function like a savings account, with check writing a major feature. The old rule of investments was reversed, in that before the late-1970s it was easy to deposit money, but hard to take it out, but money market mutual funds made it easy to do both. In 1974, there were $1.7B in money market funds, but by 1982 it was $200B. In the midst of all of this, the majority of Americans believed it was the duty of the government to rein in inflation.
Due to the refusal of banks to raise interest rates on savings accounts, the “Great Inflation” led to the creation of money market mutual funds. These mutual funds took investor’s money and purchased short-term debt instruments such as treasury bills and jumbo certificates-of-deposit, which were exempt from Regulation Q (a banking regulation from 1933 that capped interest rates on savings accounts). These new mutual funds meant that investors, even small time investors, could get a much greater return on their money. However, in order to attract investors, the money market mutual fund had to look and function like a savings account, with check writing a major feature. The old rule of investments was reversed, in that before the late-1970s it was easy to deposit money, but hard to take it out, but money market mutual funds made it easy to do both. In 1974, there were $1.7B in money market funds, but by 1982 it was $200B. In the midst of all of this, the majority of Americans believed it was the duty of the government to rein in inflation.
During 1977 - 1979, Carter had been unable to find a cure for the national malaise. Inflation increased, and infrastructure fell into disrepair. Rising prices increased property taxes, which led homeowners, first in CA, to rebel. Energy supplies dwindled, and in cities long lines existed for gas, and many state instituted gas rationing. The federal government instituted a 55 mph national speed limit on US highways and interstates in order to ration gasoline. By 1979, it was clear to the Carter administration that doing what needed to be done for the nation be a political liability for Carter, which led to further delays and dawdling.
During June 1979, 60% of US gas stations were closed due to shortages, and Carter’s poll numbers dropped to even lower depths. Carter noticed that there was a wave of discontent/revulsion sweeping the nation against the federal government and established institutions. Carter returned early from an energy summit in Tokyo, and announced that he would soon speak to the nation on the energy crisis. Soon thereafter, Carter canceled the the speech in order to conduct a summit of his own at Camp David. Carter talked with various segments of US society, including regular citizens as well as governors (including AR’s Bill Clinton). Carter became convinced that the real problem in the nation rested in shortages, especially in terms of political and spiritual energy, of which to Carter seemed to be a greater threat than the actual shortages.
On 15 July 1979, Carter addressed the nation in what would become known as the “Crisis of Confidence” speech. It was sometimes referred to as the “Malaise Speech”, but Carter never used the word malaise in his address - the media focused on that word. In essence, Carter, the religious lay person, lectured/scolded the nation from this pulpit. Carter stated that the efforts of the government had been mixed, but the real problem was a “Crisis of Confidence” towards the government, institutions, and among fellow Americans. Carter asserted that poison was sucking the soul out of the nation. In effect, Carter blamed the citizens for the serious predicaments, such as self-indulgence and parochialism.
During June 1979, 60% of US gas stations were closed due to shortages, and Carter’s poll numbers dropped to even lower depths. Carter noticed that there was a wave of discontent/revulsion sweeping the nation against the federal government and established institutions. Carter returned early from an energy summit in Tokyo, and announced that he would soon speak to the nation on the energy crisis. Soon thereafter, Carter canceled the the speech in order to conduct a summit of his own at Camp David. Carter talked with various segments of US society, including regular citizens as well as governors (including AR’s Bill Clinton). Carter became convinced that the real problem in the nation rested in shortages, especially in terms of political and spiritual energy, of which to Carter seemed to be a greater threat than the actual shortages.
On 15 July 1979, Carter addressed the nation in what would become known as the “Crisis of Confidence” speech. It was sometimes referred to as the “Malaise Speech”, but Carter never used the word malaise in his address - the media focused on that word. In essence, Carter, the religious lay person, lectured/scolded the nation from this pulpit. Carter stated that the efforts of the government had been mixed, but the real problem was a “Crisis of Confidence” towards the government, institutions, and among fellow Americans. Carter asserted that poison was sucking the soul out of the nation. In effect, Carter blamed the citizens for the serious predicaments, such as self-indulgence and parochialism.
Again, Carter wasn’t FDR, in that when Carter scolded the nation, the nation felt scolded, not inspired. It only took a few days for whatever gains Carter experienced from the speech to dissipate, in large part due to a totally unforced error on Carter’s part. According the media, Carter demanded that his entire Cabinet resign, which wasn’t true. Carter was trying to get rid of a few Cabinet members he believed were liabilities, but that nuance escaped the pundits. To the media, and then the public, Carter appeared to have lost control, which is the death knell of any President.
Weeks afterwards, Carter took his first actual forceful step to deal with inflation when he appointed Paul Volcker as Chairman of the Federal Reserve. Volcker created a new way to adjust the money supply, since Fed member banks were not following the Fed’s interest rate hikes. Volcker’s strategy/efforts did tame inflation by late-1982, but unemployment increased as a result as the next Presidential Election approached in 1980. Interest rates were jacked up to 15%, the US dollar stabilized, and the US economy entered into a recession. Carter asked Americans to purchase less on credit in order to assist in the taming of inflation. It was the right medicine at the wrong time: as it turned out, Americans reduced their consumer spending, which led to a huge drop in GDP in 1980.
Weeks afterwards, Carter took his first actual forceful step to deal with inflation when he appointed Paul Volcker as Chairman of the Federal Reserve. Volcker created a new way to adjust the money supply, since Fed member banks were not following the Fed’s interest rate hikes. Volcker’s strategy/efforts did tame inflation by late-1982, but unemployment increased as a result as the next Presidential Election approached in 1980. Interest rates were jacked up to 15%, the US dollar stabilized, and the US economy entered into a recession. Carter asked Americans to purchase less on credit in order to assist in the taming of inflation. It was the right medicine at the wrong time: as it turned out, Americans reduced their consumer spending, which led to a huge drop in GDP in 1980.
During the Presidential Campaign of 1980, Carter couldn’t focus on the economy, or the never-ending Iranian Hostage Crisis, both of which had become no-win situations, so Carter attacked Reagan’s fitness for office. To millions of Americans, Reagan seemed too aggressive against the USSR, as well as on other fronts, and he seemed politically unskilled and perhaps too old. but the chronic malaise led to voters wanting a change in the White House. Carter and Reagan only had one television debate. Reagan asked the nation if they were better off now than they were four years ago, which proved to be a killer phrase against Carter.
During Carter’s Presidency, Americans started to take matters in their own hands more-and-more, which was something that Reagan tapped into during his campaign and Presidency. Carter entered office as “The Redeemer”, but left office as “The Terminator”, a symbol of government futility, and perhaps worse, naivete. Carter became a joke during the Reagan years and beyond, never receiving credit for the things he started that bore fruit (e.g. energy security), and forever being blamed for things beyond his control. That being said, Carter also delayed when he should have acted on the economy, and he committed preventable errors that were no one’s fault but his, most significantly with the Iranian Hostage Crisis. Carter became a symbol, rightly or wrongly, of the awful 1970s, a la disco, leisure suits, and yellow smiley faces.
During Carter’s Presidency, Americans started to take matters in their own hands more-and-more, which was something that Reagan tapped into during his campaign and Presidency. Carter entered office as “The Redeemer”, but left office as “The Terminator”, a symbol of government futility, and perhaps worse, naivete. Carter became a joke during the Reagan years and beyond, never receiving credit for the things he started that bore fruit (e.g. energy security), and forever being blamed for things beyond his control. That being said, Carter also delayed when he should have acted on the economy, and he committed preventable errors that were no one’s fault but his, most significantly with the Iranian Hostage Crisis. Carter became a symbol, rightly or wrongly, of the awful 1970s, a la disco, leisure suits, and yellow smiley faces.