A salute to Carter, deregulation's hero

February 20, 2011|By THOMAS A. FIREY

Feb. 6 would have been Ronald Reagan’s 100th birthday. To honor him, this column celebrates that great champion of deregulation, that reinvigorator of the American economy, that believer in Adam Smith’s invisible hand: Jimmy Carter.

Yes, Carter. It was the peanut farmer from Georgia who pushed the United States toward a market economy, not the one-time actor from California. Reagan certainly shared Carter’s vision on deregulation, embracing with bravado policies that Carter launched with grim solemnity. But Carter laid the groundwork for the United States’ transformation from the economic malaise of the late 1970s to the vibrancy of the following decades. More importantly, only someone with impeccable credentials as a Democrat could have started deregulation. If it took Nixon to go to China, it took Carter to embrace markets.

It’s easy to forget how broadly government intervened in the U.S. economy in the 1960s and 1970s, but many schoolbooks from that era described the nation as having a “mixed economy.” By this, they didn’t simply mean that government regulation limited pollution, promoted consumer safety and mandated a certain level of honest dealing — the sort of role regulation fills today. Rather, much U.S. regulation in the mid-20th century was devoted to restricting what firms could operate in various industries, protecting those firms’ profitability and insulating them from consumers’ demands.

Federal and state regulations mandated that only a few (or less) airlines could fly certain routes, only a few (or less) trucking firms and railroads could serve various customers, only a few banks could open in a town, that everyone had to get their utilities from the local monopoly, and that everyone had to get their phone service from the national monopoly.

This was a great arrangement if you were a shareholder, manager, employee or supplier of a government-sanctioned monopoly or cartel. It was a lousy deal for everyone else. And for the United States in the 1970s, which suddenly faced stiff economic competition from a world fully rebuilt from the destruction of World War II, the rigid, government-protected, non-consumer-responsive nature of so many vital industries was an economic straightjacket.

The problems of U.S. regulation were recognized at least a generation before Carter. John F. Kennedy wanted to deregulate surface transportation, but those plans died with him in November 1963. Lyndon Johnson and Richard Nixon were content with the status quo, but Gerald Ford wanted deregulation — he just lacked the political standing to achieve it.

Enter Jimmy Carter. His administration was not a bunch of Ayn Rand-spouting market enthusiasts who believed unfettered competition would bring economic nirvana. Rather, they understood that U.S. regulation largely served special interests (with the regulated industries being the most special) and government bureaucracies, not the will of consumers. Giving consumers more choices and exposing formerly protected firms to price competition was necessary policy.

Deregulation started with the airlines, where Carter-appointee Alfred Kahn told the public that the luxuries of that era’s air travel — roomy cabins, plush lounges, airline schwag and attractive young stewardesses — were products of exorbitant ticket prices that much of the public couldn’t afford. Deregulation would squeeze out those luxuries (unless the public really wanted them) — along with pilots earning $400,000 a year for 20 hours a month of work — but more people could afford to fly.

Other deregulations followed: Kennedy’s younger brother Ted held a blockbuster Senate hearing on trucking that led to its deregulation. Rail freight followed suit. Carter’s administration began work on telecommunications deregulation, though the final breakup of AT&T and the beginning of long distance competition happened during the Reagan years. Congress enacted several banking reforms and competition forced local banks to branch out, offer more services and better interest rates, and stop working “banker’s hours.” Health care providers and insurers experimented with different coverage models. Energy companies had to become more efficient at extracting, refining and distributing their product.

Not all deregulation met with public acclaim. Many consumers bristled at the rise of managed health care. Banking deregulation began only after many U.S. banks were on the edge of insolvency, and happened too late to avert the savings and loan crisis. Electricity deregulation initially brought lower rates, but prices later rose.

Still, consumers were the clear winners under Carter’s deregulations. Airfares fell by nearly 40 percent, in inflation-adjusted terms, from 1980 to 1996. Rail freight rates fell by 35 percent from 1985 to 2007, and rail productivity doubled. Trucking rates also fell, ushering in the era of “just-in-time” delivery.

Of course, many U.S. industries still benefit from government regulation. States now often step in to protect firms from consumers. Maryland is one of the most egregious culprits, dampening price competition and granting market power to gas stations, funeral homes, lawyers, hospitals — even hospices.

Still, many core U.S. industries are more responsive to consumer demands today than they were in the 1970s, and that helped to fuel U.S. economic growth over the last 30 years. On the 1980 campaign trail, Reagan often joked that economic recovery would begin “once Carter loses his job.” In fact, recovery began in part because Carter did his job. For that, it only seems fitting to praise him, on Reagan’s 100th birthday.

Thomas A. Firey is senior fellow for the Maryland Public Policy Institute and a native of Washington County.

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