Decentralized markets guided by scarcity pricing and profit-or-loss accounting utilize essential knowledge that is unknown to government central planners. Such Economics 101 was absent from energy policy during the presidency of Jimmy Carter (1977–81). His Administration’s downfall began with the depletionist fallacy that oil and natural gas were running out, and government programs had to correct this alleged market failure.
Background
The father of the 1970s energy crisis was Richard Nixon. His 1971 economy-wide price and allocation controls distorted the energy sector, especially resulting in the Emergency Petroleum Allocation Act of 1973. President Ford replaced Nixon after Watergate and continued down the same interventionist path. Democrat Jimmy Carter was elected in 1976 to challenge Republican energy policy.
Rather than championing energy deregulation to increase supply and reduce demand—thus ending shortages and dismissing an army of bureaucrats—Carter doubled down on the interventionist state. Believing that the economics of oil and gas could only get worse, and peak U.S. production was just ahead, the 39th President championed legislation that:
- Created the U.S. Department of Energy (1977)
- Continued oil price and allocation controls
- Created the U.S. Synthetic Fuel Administration (1980).
- Enacted a Windfall Profit Tax as a condition of oil decontrol (1980)
- Subsidized renewable energies, particularly solar
National Energy Plan of 1977
“One of our most urgent projects is to develop a national energy policy,” Carter stated during his second month in office. “As I pointed out during the campaign, the United States is the only major industrial country without a comprehensive long‐range energy policy.”
On the demand side:
Our program will emphasize conservation. The amount of energy now being wasted which could be saved is greater than the total energy we are importing from foreign countries…. All of us must learn to waste less energy. Simply by keeping our thermostats, for instance, at 65 degrees in the daytime and 55 degrees at night, we could save half the current shortage of natural gas.
And on the supply side:
We will also stress development of our rich coal reserves in an environmentally sound way; we’ll emphasize research on solar energy and other renewable energy sources; and we’ll maintain strict safeguards on necessary atomic energy production.
Two months later, Carter gave his first Energy Address to the Nation. He claimed that the energy crisis was the result of resource inadequacy plus a geopolitically hostile OPEC, and was “the moral equivalent of war.” Sacrifice, not free markets, was necessary. Some quotations:
The oil and natural gas that we rely on for 75 percent of our energy are simply running out.… World oil production can probably keep going up for another 6 or 8 years. But sometime in the 1980’s, it can’t go up any more. Demand will overtake production. We have no choice about that.
To some degree, the sacrifices will be painful—but so is any meaningful sacrifice. It will lead to some higher costs and to some greater inconvenience for everyone. But the sacrifices can be gradual, realistic, and they are necessary.
We must not be selfish or timid if we hope to have a decent world for our children and our grandchildren.
In another national address in November, he stated: “Working with Congress, we’ve now formed a new Department of Energy, headed by Secretary James Schlesinger … and congressional work on the National Energy Plan has now reached the final stage.” On the supply side:
We will use research and development projects, tax incentives and penalties, and regulatory authority to hasten the shift from oil and gas to coal, to wind and solar power, to geothermal, methane, and other energy sources.
And on the demand side:
… we simply use too much and waste too much energy. In order to conserve energy, the Congress is now acting to make our automobiles, our homes, and appliances more efficient and to encourage industry to save both heat and electricity.
Gasoline Lines
Government supply-and-demand programs proved inadequate to prevent motor fuel shortages (gasoline lines) in the spring and summer of 1979. In his “Malaise Speech” to the nation, Carter looked for more government, not less.
I will urge Congress to create an energy mobilization board which, like the War Production Board in World War II, will have the responsibility and authority to cut through the red tape, the delays, and the endless roadblocks to completing key energy projects.
So, the solution to our energy crisis can also help us to conquer the crisis of the spirit in our country. It can rekindle our sense of unity, our confidence in the future, and give our nation and all of us individually a new sense of purpose.
Asking for “the national will to win this [energy] war,” he called for national sacrifice:
I do not promise you that this struggle for [energy] freedom will be easy. I do not promise a quick way out of our nation’s problems, when the truth is that the only way out is an all-out effort…. There is simply no way to avoid sacrifice.
Conclusion
At the height of the 1979 crisis, the Wall Street Journal penned an editorial, Buffer of Civility. Amid the chaos of violence in the gasoline lines, the unsigned editorial closed:
Classical economists used to list among the virtues of the price mechanism that it avoided social strife. It did not set group against group, they taught.… It has worked so smoothly we did not understand what the classical economists meant; today we see. In addition to its economic virtues, the price mechanism is a vital buffer of civility.
Amid the remembrances of Jimmy Carter, one lesson should be never again. Never again, price and allocation controls. Never again, gapism, those government programs to increase supply and reduce demand outside of a real free market. Freedom with the master resource of energy is paramount to a coordinated, expanding economy.
Appendix: Eleven Carter-era Energy Laws
National Energy Conservation Policy Act of 1978; Power Plant and Industrial Fuel Use Act of 1978; Public Utilities Regulatory Policy Act of 1978; Energy Tax Act of 1978; Natural Gas Policy Act of 1978.
U.S. Synthetic Fuels Corporation Act of 1980; Biomass Energy and Alcohol Fuels Act of 1980; Renewable Energy Resources Act of 1980; Solar Energy and Energy Conservation Act of 1980; Solar Energy and Energy Conservation Bank Act of 1980; Geothermal Energy Act of 1980; and Ocean Thermal Energy Conversion Act of 1980.
