Lots to learn from Carter’s inflation efforts
“America has the greatest economic system in the world,” President Joe Biden told a joint session of Congress in his State of the Union address. “Let’s reduce government interference and give it a chance to work.”
Those were not the words of a Republican but of a Democrat — Jimmy Carter. Carter articulated this objective Jan. 23, 1979, and backed it up by negotiating and signing three major new laws that lastingly transformed daily life in America, overwhelmingly for the better.
The legislation reduced heavyhanded government regulation of the trucking, freight rail and commercial air travel industries, unclogging the arteries of U.S. transportation and helping lay the basis for future innovation and noninflationary economic growth.
With the announcement this last Saturday that Carter, 98, had entered hospice care, Americans are considering the legacy of a president often branded a failure — not without justification, given that he presided over high inflation and unemployment, as well as international crises from Iran to Central America, before losing his reelection campaign to Ronald Reagan in 1980.
To note the positive long-term impact of his deregulation campaign, however, is to assign Carter a different, more surprising, label: pragmatic supply-sider.
That might seem a contradiction in terms to those who know supply-side economics only as Republican tax-cutting orthodoxy, which arose under Reagan’s aegis as a conservative antidote to the high-inflation, slow-growth miasma that plagued the United States and other capitalist countries in the late 1970s.
Yet the notion that individuals and firms can become more productive in response to incentives is a widely accepted economic principle to which Carter — as he indicated in his 1979 State of the Union — also subscribed and on which he acted. As of his inauguration in January 1977, U.S. airlines, interstate trucking and freight rail were all performing well below their potential, creating inefficiency and higher costs throughout the economy. And in each industry, the source of the problem was the same: a thick web of New Deal-vintage government controls that set fares and schedules by fiat.
As of January 1979, Carter had already signed the Airline Deregulation Act of 1978, the first step in a consumer revolution that would see fares plunge and air travel change from a privilege to a routine event. As of 1971, fewer than half of Americans had ever flown; by 2021, the figure was 90 percent.
The Motor Carrier Act for trucking came in July 1980, followed by the Staggers Rail Act for freight rail in October of that year, less than a month before voters went to the polls. Yes, America in 1980 was still a country where it was possible to legislate during a presidential campaign. It was also, as Carter proved, a country in which it was possible to overcome the entrenched opposition of special-interest groups, such as incumbent trucking companies and the Teamsters union. They had enjoyed a government-protected quasi-cartel under the previous rules, which limited market entry by new competitors. Interestingly, research suggests that one effect of the Motor Carrier Act was to open up jobs for Black drivers from which they had been excluded.
Thus did Carter’s reforms demonstrate that, in politics and public policy, there’s a big difference between favoring free markets and doing what businesses want.
Another distinction they illustrate: the difference between regulation of prices and output, which usually does not work as well as letting markets determine such matters, and regulation of health, safety and environmental pollution, at which government has a comparative advantage.
After the 1980 laws, safety on the roads and rails, and in the air, generally improved even as companies cut costs and expanded services pursuant to the opportunities. Yet the risk remains that cost-cutting pressure could lead businesses to take chances with health and safety - the train derailment in East Palestine, Ohio, might be a case in point - so there is a need for regulatory vigilance.
Inevitably, the dynamic transportation market ushered in by Carter has stabilized and given rise to issues of its own. Today, just five companies dominate freight rail; four passenger airlines have about two-thirds of the market in commercial aviation; and the trucking industry, though not highly concentrated, faces labor shortages. The status quo, in short, seems ripe for disruption.
One unintended negative longterm consequence of trucking deregulation was to undermine multi-employer pension systems upon which tens of thousands of Teamsters relied; the systems lost funding when firms that had previously paid into them buckled under competitive pressure and went out of business. In 2022, Congress bailed the pensions out to the tune of $36 billion.
Still, there is much that Carter’s party could learn from his approach as they attempt to deal with inflation and lagging productivity in today’s economy. He understood that, sometimes, the best thing government can do is to stop making things worse.