How was the economy during the Carter administration?

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Some historians divide the economic history of the Carter Administration into two roughly equal periods. During the first half, the nation was experiencing a time of recovery from the severe recession from 1973 to 1975. At the end of that period, investment was at its lowest level since the 1970 recession and unemployment was at 9%. During the last half of the Carter Presidency, the nation experienced double-digit inflation and with very high interest rates, oil shortages, and slow economic growth.

The U.S. economy grew during 1977 and 1978 and unemployment declined from 7.5% in January 1977 to 5.6% by May 1979. Over 9 million net new jobs were created during that time and real median household income grew by 5% from 1976 to 1978. Private investment grew by 30% from 1976 to 1979, and home sales and construction grew another one third by 1978.In 1979 the energy crisis ended this period of growth. Both inflation and interest rates rose, while economic growth, job creation, and consumer confidence declined sharply. The Federal Reserve Board had adopted a "loose money policy" which contributed to higher inflation, rising from 5.8% in 1976 to 7.7% in 1978. When crude oil prices were suddenly doubled by OPEC, the world's leading oil exporting cartel, this forced inflation to double-digit levels, averaging 11.3% in 1979 and 13.5% in 1980. The sudden shortage of gasoline as the 1979 summer vacation season began to worsen the problem.Carter tried to follow Richard Nixon's example and asked Congress to impose price controls on energy, medicine, and consumer prices. He was unable to do this because of strong opposition from Congress. Carter had the authority to deregulate prices of domestic oil, under the Energy Policy and Conservation Act of 1975, and he used this option on July 1, 1979, as a means of encouraging both oil production and conservation. Oil imports, which had reached a record 2.4 billion barrels in 1977 (50% of supply), declined by half from 1979 to 1983.In August 1979 Carter asked for the resignations of several cabinet members, including his Secretaries of the Treasury, Commerce, Energy and Transportation. He appointed G. William Miller as Secretary of the Treasury, and he named Paul Volcker as Chairman of the Federal Reserve Board. Volcker pursued a tight monetary policy to bring down inflation. Initially the economy slowed down and unemployment rose. Inflation did not return to low single-digit levels until 1982, after Carter's presidency. The Federal Reserve raised the discount rate from 10% to 12% within two months. Carter then enacted an austerity program by executive order, stating that inflation had reached a "crisis stage". Both the inflation rate and the short-term interest rates reached 18 percent in early 1980. Fixed rate investments became less valuable. On March 14, 1980, President Carter announced the first credit control measures since World War II. All of this led to a sharp recession in the spring of 1980. The sudden fall in GDP during the second quarter caused unemployment to jump from 6% to 7.5% by May. Output in the auto and housing sectors fell by over 20%, their weakest level since the 1975 recession. Carter phased out credit controls in May, and by July, the prime rate had fallen to 11%. Inflation eased to under 13% for the remainder of 1980.Lower interest rates and easing of credit controls sparked a recovery during the second half of 1980. The hard-hit auto and housing sectors would not recover very much. GDP and employment totals returned to pre-recession levels by the first quarter of 1981. The markets began to rise and a resumption in growth prompted renewed tight money by the Fed and the prime rate reached 21.5% in December 1980, the highest rate in U.S. history under any President.The Carter Administration remained fiscally conservative during both growth and recession periods, Carter vetoed numerous spending increases while enacting deregulation in the energy and transportation sectors. Federal budget deficits throughout his term remained at around the $70 billion level reached in 1976.

The troubled economy as well as the Iran hostage crisis contributed to Carter loss of the presidency to Ronald Reagan in the 1980 election. The popular vote was 50.7 percent or 43.9 million popular votes for Reagan and 41 percent or 35.5 million for Carter. Independent candidate John B. Anderson won 6.6 percent or 5.7 million votes. Carter's support was not concentrated in any geographic region, and Reagan won over 90 percent of the electoral vote, leaving Carter with only six states and the District of Columbia. Reagan carried a total of 489 electoral votes compared to Carter's 49. Carter's defeat marked the first time an elected president failed to secure a second term in a general election since Herbert Hoover in 1932.

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Linda Ronstadt-"Poor Poor Pitiful Me"

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Carter, from Georgia, put many Georgians in important posts within his administration. This, in part, caused people to think of him as a regional leader rather than a national one.

The nation’s economic troubles continued under the Carter Administration. The new president faced a variety of problems, including: stagnant wages, inflation, the loss of good-paying manufacturing jobs, and poor benefits offered to non-union workers. Carter had promised to combat inflation by balancing the national budget, reducing government spending, and cutting taxes (these were similar strategies to those undertaken by Presidents Nixon and Ford). He also proposed to raise gasoline taxes and penalize gas guzzling cars in an attempt to reduce American dependence on overseas oil. Carter proved unable to get most of his plans through Congress. President Carter’s proposal to overhaul the nation’s welfare system failed and efforts to renovate the system floundered for almost a decade. See the dramatic increase in gasoline prices in the gas prices interactive.

Three Mile Island Nuclear Generating Station

One of Carter’s provisions called for increased use of nuclear power, an idea that lingered from earlier in the Cold War. This idea had many critics and even more so after the Three Mile Island Nuclear Generating Station in Pennsylvania suffered a partial meltdown in 1979.

Cars wait in line at a gas station

The president also faced a major problem with the nation’s energy supply. The United States depended heavily on the Organization of Petroleum Exporting Countries (OPEC)—a cartel of Middle Eastern oil-producing nations—for its energy supply. In both 1973 and 1976, OPEC drastically raised the price of crude oil. This caused gas shortages around the world. As gasoline became expensive and scarce, Carter proposed a complicated and sweeping plan to decrease consumption and dependence on petroleum. Congress refused to pass the plan. Rising oil costs combined with unemployment and inflation to severely hurt both the nation’s economy and the faith of the people in the government, and President Carter.

Iranians burning an American flag

Shortly after taking office, President Carter announced that he would worry less about communism and more about human rights. His support of human rights issues met mixed results during his presidency but paved the way for important international human rights gains in the 1980s and 1990s.

The low point of Carter’s foreign policy dealings came with the 444-day Iranian Hostage Crisis of 1979-1980. In 1980, Carter authorized a rescue attempt that went wrong with eight American soldiers dying and the mission being aborted. Iranians found the mutilated bodies of some of the dead American soldiers, and television cameras carried video of them holding the bodies in the air and dragging them through the streets.

The Election of 1980

In 1980, America was in an undeniable state of gloom. Jimmy Carter had angered the nation by boycotting the 1980 Olympics in Moscow to teach the Soviets a lesson for invading Afghanistan, hostages had been held in Iran for over 400 days, gas prices were excruciatingly high, gas rationing was implemented, the United States military had been cut drastically, interest rates on home loans were 21 percent, and the upper tax bracket for federal income taxes was about 70 percent.

Shining City on a Hill

Republican Ronald Reagan announced that he would seek the nomination for the presidency, with George Herbert Walker Bush as his running mate. Reagan’s optimism in the midst of the national angst drew people to him. In one of his most memorable lines from the campaign trail, Reagan said: “A troubled and afflicted world looks to us…pleading for us to keep that rendezvous with destiny…and become that shining city on a hill.” Though his message would evolve to include a greater emphasis on defeating the Soviet Union, his early speeches made clear his belief that taxes and government had to be downsized. During one of the Presidential debates Reagan quipped: “Recession is when you neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”

Reagan defeated Carter 51 percent to 41 percent in the popular vote, and Republicans gained control of the Senate for the first time since 1954.