1980 Jimmy Carter - Inflation and Oil, Inflation and Oil

The year was 1980, and there were two big topics on everyone's mind. Inflation and the price of oil. From 1972 to 1978, the US saw inflation quickly rise from around 3% to 7%, while oil rose from $3 to about $15. Then from 1979 to 1980 the price of oil doubled to $35 while inflation skyrocketed to over 13%. This abrupt price change came as a surprise to most observers who hand not anticipated such a large increase. In less than 10 years, OPEC increased the real price of oil by 500%. Eventually, such high prices did result in the oil glut of the 1980s, but in 1980 inflation was the talk of the day and there was no denying that there existed a direct relationship between oil and inflation. At least, that is what the experiences of the 1970s had taught us. Inflation was such a big deal, that in Jimmy Carter's 1980 state of the union Address, the word inflation appeared 48 times, only to be surpassed by the word oil which appeared 57 times. Inflation and Oil. Inflation and Oil.

Carter began his talk on inflation, by telling Congress that "Inflation continues to be our most serious economic problem" and restraining it was his "highest domestic priority". He blamed the economic problems that began a decade earlier and insisted that there were no easy answers and no quick solutions. There was some hope, and that hope came in a program of private and public restraint that his administration had been pursuing. That is until OPEC raised the price of oil. He blamed OPEC and the oil increases for more than 3 percentage points of inflation. The biggest challenge to his anti-inflation policy was the price of oil. In his address, he introduced a program that he believed would prevent the high price of energy from doing permanent damage. With this program in place, Carter declared that inflation would slow in 1980 and be even lower in 1981. Carter's program to combat inflation included budget restraint, regulatory reform, wage price guidelines, reducing our dependence on foreign oil, and increasing industrial innovation. To control wages, Carter suggested that the Labor Accord established in 1979 with organized labor would allow the government "to better implement and coordinate with both labor and business" making labor a full partner in the fight against inflation. 

Here is Jimmy Carter's section on Inflation from his 1980 State of the Union Address.

"Inflation continues to be our most serious economic problem. Restraining inflation remains my highest domestic priority.

Inflation at the current, unacceptably high levels is the direct result of economic problems that have been building, virtually without letup, for over a decade. There are no easy answers, or quick solutions to inflation. It cannot be eliminated overnight; its roots in our economy are too deep, its causes are too pervasive and complex. We know we cannot spend our way out of this problem.

But there is hope—for a gradual reduction in the inflation rate, for an easing of the economic pressures causing inflation.

The hope lies in a program of public and private restraint in the short-run and a program to attack the structural causes of inflation over the longer-run. This is the policy I have pursued and will continue to pursue.

Last year was an especially difficult time for anti-inflation policies. OPEC increased its prices by more than 80% and thus added more than three points to the inflation rate. If energy price increases are excluded, inflation last year would have been nearly three percentage points lower.

The biggest challenge to anti-inflation policy is to keep energy price' increases from doing permanent damage, to prevent a dangerous acceleration of the wageprice spiral. My program has been successful in accomplishing this. Inflation will slow this year. In 1981 it should be even lower. This progress is the result of our persistence in the battle against inflation on many fronts:

Budget Restraint: The budget deficit for FY 1979 was lowered to $27.7 billion, more than 50% below the FY 1976 level.

Regulatory Reform: The flood of new, costly government regulations was slowed as our procedures to ensure that we achieve our regulatory goals in the most cost-effective manner took hold.

Wage-Price Guidelines: The guideline standards were followed by the vast majority of unions which negotiated contracts and by nearly every major corporation in the country.

Energy: The energy legislation put into place over the past two years began to reduce our dependence on foreign oil and our consumption of such important energy fuels as gasoline, thereby reducing the ability of oil producing nations to disrupt our economy.

Productivity: We began to introduce policies to increase industrial innovation and thereby productivity; the decline in productivity growth must be reversed if we are to improve our real living standards over the long term.

In 1980, with the Congress' cooperation, we will continue our aggressive fight against inflation on each of these major fronts:

Budget Restraint: The deficit for the FY 1981 budget will be less than half of the FY 1980 budget deficit and will represent a 75% reduction from the deficit I inherited.

Regulatory Reform: We will be pursuing deregulation legislation for the trucking, rail, banking and communications industries, as well as regulatory management reform legislation; these bills will enable us to further eliminate unnecessary regulatory burdens.

Labor Accord: The Pay Advisory and Price Advisory Committees, established as a result of last year's historic Accord with organized labor will enable us to better implement, and coordinate with both labor and business, the private restraint necessary as part of our anti-inflation efforts. The Accord signals a willingness of labor to be a full partner in our fight against inflation.

Energy: We expect to enact major energy legislation—the Windfall Profits Tax, the Energy Mobilization Board, and the Energy Security Corporation—early in this Session; this legislation, when combined with the voluntary and mandatory energy conservation measures that will take an even stronger hold this year, should enable us to further reduce our dependence on foreign oil.

Productivity: We will be implementing our industrial innovation program and further expanding our commitment in the budget to research and development."

In the end, inflation did begin to drop in 1981 as President Carter has promised, but that was only after Ronald Reagan won the election by a landslide, taking 489 electoral votes and winning the popular vote by a margin of 9.7%.

References

Brookings.edu. 2021. Lessons from the 1986 Oil Price Collapse. [online] Available at: <https://www.brookings.edu/wp-content/uploads/1986/06/1986b_bpea_gately_adelman_griffin.pdf> [Accessed 26 October 2021].

Investopedia. 2021. What Is the Relationship Between Oil Prices and Inflation?. [online] Available at: <https://www.investopedia.com/ask/answers/06/oilpricesinflation.asp> [Accessed 26 October 2021].

Presidency.ucsb.edu. 2021. The State of the Union Annual Message to the Congress | The American Presidency Project. [online] Available at: <https://www.presidency.ucsb.edu/documents/the-state-the-union-annual-message-the-congress-0> [Accessed 26 October 2021].