Washington Monthly - It’s the Monopoly, Stupid

Policy Director Phillip Longman makes clear how unchecked corporate power is fueling inflation.

On the evening of October 24, 1978, President Jimmy Carter sat up straight behind the Resolute desk in the Oval Office, interlocked his hands, and began reading from the prepared remarks laid out in front of him. “I want to have a frank talk with you tonight about our most serious domestic problem,” Carter told the camera. “That problem is inflation.”

Since the summer, the cost of living had been increasing at a rate not seen since the Ford administration. Worse, the new burst of inflation was accompanied by stubbornly high unemployment, creating a return of dreaded “stagflation.” According to one of his key advisers, Stuart Eizenstat, Carter worried that if they didn’t come up with something new and substantive to say that night, “we’ll be laughed at.”

The largest single cause of accelerating inflation during Carter’s term was monopolistic control over the flow of oil, but the president saw no palatable options for breaking up the OPEC cartel anytime soon. Nor, thanks to political opposition from both Big Business and Big Labor, could he put in the kind of mandatory wage and price controls Richard Nixon had once ordered up. 

Also off the table was giving in to Republican demands for dramatic cuts in government spending and higher interest rates. Carter was not yet desperate enough to sign on to that agenda because it risked a wholesale revolt from Democrats to his left like U.S. Senator Ted Kennedy and would quite likely induce a recession.

So Carter played another card: Blame inflation on government bureaucrats.

Carter told the nation that his administration was “cutting away the regulatory thicket that has grown up around us and giving our competitive free enterprise system a chance to grow up in its place.” As evidence, he pointed to a bill he had just signed that stripped the Civil Aeronautics Board of its power to regulate airline fares and routes. “For the first time in decades, we have actually deregulated a major industry,” Carter bragged. “Of all our weapons against inflation, competition is the most powerful,” he explained. “Without real competition, prices and wages go up, even when demand is going down.”

Carter tapped a high-energy Cornell economist turned policy entrepreneur named Alfred Kahn to oversee the dismantling of the CAB, and was so pleased with the result that he elevated Kahn to the new position of “inflation czar.” Later, Carter would double down on the idea that the most powerful tool for fighting inflation was depriving the government of its ability to regulate prices, signing bills that deregulated railroads and trucks, and passing the Depository Institutions Deregulation and Monetary Control Act, which set in motion deregulation of the financial sector. The overarching theory was that if the government would just get out of the way, market competition would lead to greater efficiency and therefore to lower prices for consumers. 

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