As he celebrates his 100th birthday on Tuesday, Jimmy Carter is known for many things: He is a white southerner who advocated racial integration and equality. He is a Sunday-school Bible teacher who also supports abortion rights. As an ex-president, he has mediated global conflicts and worked to eradicate disease. But Carter must also be remembered for something else: During his term as president, he inaugurated the neoliberal revolution in political economy.
In my work as a historian, I have long sought to understand America’s shift rightward, which began during the late 1970s, and have spent the last 15 years exploring numerous records that have opened up, including the documents at the Carter Presidential Library in Atlanta. Based on this research, I have concluded that Carter was indeed America’s first neoliberal president. In many respects, Ronald Reagan gets too much credit for the transformation in policy that deregulated, de-unionized, and financialized the US economy.
Carter’s instincts on economic policy were deeply conservative, a point emphasized by Carter himself, in his memoirs, as well as by his former aides. To the public, he presented himself as a competent technocrat, managing the economy toward higher efficiency in close cooperation with the private sector, which he actively cultivated. During his single term as governor of Georgia, Carter’s business connections extended from Coca Cola, one of the largest enterprises in the state, to David Rockefeller, the then-president of the Chase Manhattan Bank and dean of American capitalism.
With Rockefeller’s help, Carter became a member of the Trilateral Commission, an elite networking and discussion group, where the Georgia governor was able to interact with some of the most powerful business figures in the world. Then, as president, he expanded his business ties even further, and his intimacy with enterprise seemed more characteristic of a Republican than a Democrat. During his first year in office, The New York Times wrote: “Big business has the ear of Jimmy Carter, Democrat, to a greater degree than was true of Richard M. Nixon or Gerald R. Ford.”
Carter’s economic orientation reflected broader trends. The 1970s were a time of great tumult in the US business community, which began moving radically rightward, toward the free-market doctrines of the economist Milton Friedman, and away from the more moderate views that had dominated American corporations since World War II. In the past, many executives had tolerated or even supported unionization of the workforce, government regulation of the market, and a welfare state for the needy, making peace with the mild redistribution of the social income that resulted from these policies.
During the 1970s, however, broad swaths of corporate America came to reject this perspective, and favored an upward redistribution of resources, from the poor to the rich. In 1974, Business Week declared that many Americans might have to “accept the idea of doing with less so that big business can have more.” To achieve this objective, the article emphasized “the selling job that must now be done to make people accept the new reality” of declining living standards.
The main factor behind this upheaval was rising inflation, which disrupted the economy throughout the 1970s and became worse over time. While inflation affected all income groups, research by the Brookings Institution demonstrated that it had the greatest impact on the very wealthy, whose assets were losing value. Inflation also had a strongly negative effect on the stock market, which showed weak performance throughout the decade. In addition, the rate of corporate profit fell to one of the lowest levels of the postwar period.
In response, business interests and wealthy individuals mounted a political influence campaign, one of the most far reaching in US history, which led to the creation of new lobby groups, think tanks, and publicity agencies—all lavishly funded—that promoted a conservative economic agenda aimed at enriching the already well-to-do. This business mobilization influenced Carter throughout his presidency and intensified his existing free-market instincts. The emerging ideology favored controlling inflation through the use of what were euphemistically termed “austerity measures.” In plain English, the business elite sought to suppress the wages and consumption of the middle and working class, as means of controlling prices.
Despite this pro-business lobbying, Carter began his first months in office with a brief burst of liberal reforms, including stimulus spending on infrastructure improvements, a classic Keynesian-style program designed to raise employment levels. Carter also committed to universal federally supported health care, among other reforms. The new president was trying to appease the party’s liberal wing and, especially, the still-powerful labor unions, which had been crucial to his election.
“Carter’s liberal period didn’t last long.”
Carter’s liberal period didn’t last long. By the end of his first year in office, he abandoned stimulus spending and opted instead for budgetary restraint. With consumer prices rising 6.5 percent in his first year in office, Carter in his 1978 State of the Union address outlined “a lean and tight” federal budget, with little or no expansion in most domestic programs. An analysis in The Wall Street Journal observed that “the budget destroys some old Carter campaign promises” of enhanced social spending and urban revitalization. The budget was bound to anger “blacks and big-city mayors.” The following year, in 1979, Carter went further with direct cuts in most domestic programs. It seemed that he was now running the economy just as an anti-New Deal Republican president would.
In using budgetary austerity as a means of controlling inflation, Carter faced a serious constraint: There was a campaign to boost military spending, led by the Committee on the Present Danger, a pressure group supported by retired generals, intelligence officers, and conservative academics, funded by corporate interests and the military-industrial complex. The committee had considerable clout among both Democrats and Republicans, as well as in the mass media. It seemed that business interests wanted to reduce government spending in virtually all areas—except the military. In response, Carter announced substantial increases in military spending in 1979, the first such expansion in a decade. Meanwhile, the president continued to hold down domestic spending in such areas as education and anti-poverty programs. The promised program of universal health care was abandoned, as excessively inflationary.
Carter chose guns over butter, with the main advantage accruing to weapons manufacturers. The Washington Post quoted James W. Beggs, executive vice president of the defense contractor General Dynamics: “Business hasn’t been as good as this since the late 1950s and early 1960s.”
Carter’s military boom runs counter to popular mythology, according to which it was Reagan who showered the military with largesse after a period of post-Vietnam gloom for the Pentagon. Carter’s heightened military spending placed additional pressure on the president to limit spending on social programs, thus intensifying austerity at the domestic level.
Despite Carter’s efforts, inflation continued to increase. The Iranian Revolution drove up oil prices, accelerating the inflation rate. By 1979, US inflation reached 11.3 percent. Carter was under great pressure to impose severe austerity to control prices. By the summer of 1979, the administration established a consensus on the need to raise unemployment as a means of constraining consumer spending. Having resolved to use the Federal Reserve as the main instrument for achieving this objective, Carter set about recruiting an anti-inflation hawk to lead the system.
At first, Carter considered offering the job to his ally David Rockefeller, but he declined, removing his name from consideration. In the end, Carter appointed Paul Volcker, a former vice president of Chase Manhattan and a Rockefeller protégé. On Aug. 6, 1979, Volcker became chairman of the Fed’s Board of Governors, opening a new chapter in US economic history. There was never any doubt about how Volcker intended to control inflation: At a congressional hearing, he stated that “the standard of living for the average American has to decline.” In public, Carter sought to distance his administration from the Fed’s actions, given their exceptional unpopularity. But Volcker was doing exactly what the president had originally appointed him to do, as Carter aide Stuart Eizenstat would later attest. Carter “appointed Mr. Volcker to chair the Fed knowing full well what he planned,” according to Eizenstat.
Carter was acting especially to appease the financial sector, a point that was evident to economists at the time. The University of Massachusetts scholar Gerald Friedman would later reminisce that, among economists gathered in the lounge of the National Bureau of Economic Research on the day Volcker was appointed, “everyone … understood what had happened…. Carter had finally caved to Wall Street’s demand for an aggressive attack on inflation without regard for the social costs.”
The Fed’s policies suppressed consumption by raising unemployment and bankruptcies. As a result, the United States experienced two downturns during the 1980-1982 period, a classic “double-dip” recession. Throughout, Carter and Reagan quietly supported Volcker’s austerity policies, thus establishing a broad continuity of policy between the two presidents. Reagan ended up reappointing Volcker to a second term at the Fed, where he remained until 1987.
For much of the population the results were harsh indeed, with the jobless rate rising to 7.7 percent in August 1980, along with even higher levels of underemployment. Black unemployment reached 14.6 percent. The extended downturn promoted deindustrialization, which permanently eliminated whole classes of high-paying industrial jobs. Record high interest rates led to waves of business failures and foreclosures, especially in small towns and rural areas of the Midwest.
Was this anti-inflation program worth the cost? On the positive side of the ledger, the austerity policies eventually proved effective in bringing down the rate of inflation, which was only 3.2 percent by 1983, and remained low for many decades (up until the recent, post-Covid price hikes). Carter deserves at least equal credit with Reagan for this accomplishment, since it was Carter who first appointed Volcker to the Federal Reserve. Volcker himself became a hero in banking circles, which benefited immensely from the return to price stability. And in general, America’s wealthy classes reaped the rewards, seeing a huge growth in concentrated wealth, returning America to the level of inequality that had characterized the pre-New Deal era.
For ordinary Americans, however, the effects of austerity proved less positive. Carter liked to suggest that the decline in living standards was only a temporary sacrifice, to be followed by improved conditions, but this turned out to be a false hope. Data from the Economic Policy Institute and the US Census Bureau show that workers’ compensation remained depressed for decades after the 1980-1982 downturn, even as the overall economy grew. The average full-time, year-round male worker earned $54,000 in 1977, adjusting for inflation; 40 years later, in 2017, his average salary had declined to $52,000.
Carter’s adoption of neoliberalism went well beyond anti-inflation policies. As president, one of his top priorities was to reduce or eliminate the array of business regulations that emerged from the New Deal. The idea of deregulation was a central feature of the Friedmanite economic doctrine, and it was rapidly gaining elite support during the 1970s. This doctrine was first implemented on a large scale during the Carter presidency.
Carter began his deregulatory thrust with the airline industry. Since the New Deal, airlines had been heavily regulated by the federal government, boosting both corporate profits while maintaining the wages of airline employees. Carter’s Airline Deregulation Act of 1978 proposed to phase out the regulations and abolish the Civil Aeronautics Board. While some airlines opposed the move, most of corporate America enthusiastically endorsed the idea, as a means of advancing the free-market principles that they increasingly venerated.
The business-funded American Enterprise Institute had long advocated such deregulation; the National Association of Manufacturers directly endorsed it. Deregulation became so popular that even some prominent liberals like Ralph Nader jumped on the bandwagon and endorsed a free market for airline travel. The 1987 act passed Congress with bipartisan support and was signed into law.
Although the act was hailed as a major accomplishment, it failed in its main objective of lowering ticket prices. Research by Northwestern economist Robert Gordon later concluded: “There was no change in the real price of airline travel in the decades after the 1978 deregulation act.” Following deregulation, airline companies consolidated and used monopoly power to raise prices. This outcome might have been prevented through vigorous enforcement of antitrust laws, but the administration showed little interest in antitrust, which had effectively gone out of fashion. In his co-authored memoirs, Carter’s attorney general, Griffin Bell, barely mentioned the topic of antitrust enforcement, underscoring its low priority for the administration.
The deregulation of air travel set the stage for similar measures in trucking and rail transport, which took place at the end of the Carter presidency. Carter also began the process of deregulating the pharmaceutical industry. One of the main effects of deregulation was to lower wages, which declined across multiple industries. The trucking industry became “sweatshops on wheels,” according to a later academic study.
The man who spearheaded these efforts within the Carter administration, economist Alfred Kahn, was frank about his anti-labor views. In a later interview, Kahn stated: “I’d love to see the Teamsters to be worse off. I’d love to see the automobile workers to be worse off.” Overall, there was a “Seething Impotence in the Labor Camp,” according to a 1978 article in Forbes, partly due to the president’s lack of interest. When Carter in 1979 bailed out the ailing Chrysler Corp. with massive federal aid, the company was required to implement extensive cuts in pay and benefits for its unionized workforce. The generational assault that crippled private-economy labor unionism, then, was already in full swing under Reagan’s predecessor—Jimmy Carter.
Carter also deregulated the financial industry with the 1980 Depository Institutions Deregulation and Monetary Control Act, which proved “a gift to the banking community,” according to financial journalist Nomi Prins. It deregulated the setting of bank interest rates. The long-term effect of the act was to supercharge the financial sector, contributing to the financialization of the economy and the growth of speculative activities; such financialization would in time demand federal bailouts—using public funds—when speculative activities went badly, especially for banks that were “too big to fail.”
“One may wonder whether Carter regrets his neoliberal economic policies.”
On tax policy, Carter signed into law the Revenue Act of 1978, which lowered the levy on capital gains, offering a major windfall for business interests. Barron’s effusively praised the tax legislation, with an article headlined, “No More ‘Soak the Rich.’” Carter also increased deductions for Social Security, augmenting the tax burden on lower-income groups. The move away from progressive taxation—as a means of reducing wealth inequality—had its origins in the Carter presidency.
One may wonder whether Carter regrets his neoliberal economic policies. In 2017, the ex-president publicly revealed that he had voted for the Sen. Bernie Sanders in the Democratic primary the previous year, rather than the establishment candidate, Hillary Clinton. In explaining his vote, Carter lamented the decline of the American middle class and the concentration of wealth that had occurred in recent decades. The bitter irony is that Jimmy Carter played a pioneering role in bringing about our age of inequality and concentrated wealth and power.