Originally posted Saturday, May 05, 2012
“I’ve spent many hours in the last few months reviewing with my own advisers and with a number of outside experts every proposal, every suggestion, every possibility in eliminating inflation.”
— President Jimmy Carter, televised address to the nation, October 24, 1978
President Jimmy Carter inherited a badly disordered monetary policy, at inception in Bretton Woods a ticking time bomb providing for inherently destabilizing reserve currency dollar, undermined by Lyndon Johnson who bullied our trading partners out of demanding redemption in gold of their undesired dollar surpluses, whose gold window “temporarily” was closed by Richard Nixon, followed by the decent but feckless Gerald R. Ford and Jimmy Carter. In the month that Carter gave this speech inflation was closing in on a 9% annualized rate on its way to more than doubling, from the 5.75% rate of 1976 and 6.5% rate of 1977 to 11.22% in 1979 and 13.58% in 1980. As shown in this speech, Carter was baffled, as baffled as had been his predecessor Gerald R. Ford, and, although he did not grasp it, badly advised. President Carter:
Photograph courtesy of Wikipedia, under Creative Commons License
Inflation is obviously a serious problem. What is the solution?
I do not have all the answers. Nobody does. Perhaps there is no complete and adequate answer. But I want to let you know that fighting inflation will be a central preoccupation of mine during the months ahead, and I want to arouse the nation to join me in this effort.
There are two simplistic and familiar answers which are sometimes proposed — simple, familiar, and too extreme. One of these answers is to impose a complicated scheme of Federal government wage and price controls on our entire free economic system. The other is a deliberate recession which would throw millions of people out of work. Both of these extreme proposals would not work, and they must be rejected.
I’ve spent many hours in the last few months reviewing with my own advisers and with a number of outside experts every proposal, every suggestion, every possibility in eliminating inflation. If there’s one thing I have learned beyond any doubt, it is that there is no single solution for inflation.
What we have, instead, is a number of partial remedies. Some of them will help; others may not. But we have no choice but to use the best approaches we have and to maintain a constant search for additional steps which may be effective.
I want to discuss with you tonight some of the approaches we have been able to develop. They involve action by government, business, labor, and every other sector of our economy. Some of these factors are under my control as president — especially government actions — and I will insist that the government does its part of the job.
But whether our efforts are successful will finally depend on you as much as on me. Your decisions — made every day at your service station or your grocery store, in your business, in your union meetings — will determine our nation’s answer to inflation as much as decisions made here at the White House or by the Congress on Capitol Hill.
I cannot guarantee that our joint effort will succeed. In fact, it is almost certain not to succeed if success means quick or dramatic changes. Every free government on Earth is wrestling with this problem of inflation, and every one of them knows that a long-term disease required long-term treatment. It’s up to us to make the improvements we can, even at the risk of partial failure, rather than to ensure failure by not trying at all.
I will concentrate my efforts within the government. We know that government is not the only cause of inflation. But it is one of the causes, and government does set an example. Therefore, it must take the lead in fiscal restraint.
Carter’s assessment was, of course dead wrong. There were answers. Others, to whom he was not listening, had them. There was a complete and adequate answer. Yes, neither wage and price controls nor a recession would have worked and were correctly rejected. But patently he had not reviewed “every possibility in eliminating inflation.” He turned to “fiscal restraint,” for example, rather than monetary reform. The lack of a sound monetary policy was a major factor undermining his popularity and the nation’s respect for his judgment. His pronouncement “that government is not the only cause of inflation” was, and remains, factually wrong as was soon to be demonstrated.
Had Carter restored the classical gold standard inflation would have come down promptly and without precipitating a draconian recession. Just possibly in the wake of the prosperity certain to have ensued Jimmy Carter would have served a second term and our 39th president’s face might just have been added, by acclaim, to those on Mount Rushmore.
That privilege still belongs to a future occupant of 1600 Pennsylvania Avenue.
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