The Economics of Jimmy Carter

In a national election, the people pick a president and for four years thereafter they pick on him. But few presidents have ever picked on their successors after they failed to be reelected. Most have made a graceful exit and enjoyed the sunshine of history. President Jimmy Carter is a rare exception. Since he left office in 1981, he has authored a number of books, some of which are highly critical of his successors. In his latest, entitled Our Endangered Values, he finds grievous fault not only with the economic policies of his Republican successors but also with their moral and cultural values. He is deeply saddened and disturbed by what he calls “America’s moral crisis.”

It behooves us to speak softly and respectfully of a president of the United States, probably the most influential and powerful individual on earth. After all, he managed to rise to this illustrious position with great ability, sagacity, and courage. Mr. Carter rose to the presidency at a time when the American people wanted new faces and new talent in Washington. He was a newcomer, a new sort of Democrat, a kind of “religious liberal” who was concerned about poverty, unemployment, and other social issues. There is no voice louder on such matters than that of the President of the United States, no voice that reaches farther than his; everything he says is heard around the world and everything he does has consequences. But there cannot be any doubt that loud voices, too, may be mistaken and that the results of good intentions may be evil if they build on misinformation, misunderstanding, and misconception. When committed by a president, even a retired president, the consequences may be extraordinarily harmful.

In nearly all his writings, Mr. Carter touches upon economic issues, yet he seems to be rather unaware of the inexorable economic principles that direct and determine economic life. He seems to be unknowing of the natural regularity of the sequence and interdependence of market phenomena. Viewing individual action as good or bad, fair or unfair, just or unjust, he does not see the principles to which one must adjust in order to succeed. Always the censor who approves or disapproves of other people’s actions, he pays no heed to the basic principles of prices and wages that affect individual wealth and poverty. Pointing to the Republican leadership in Washington, for instance, he lodges these charges: ”Despite touting concern for working Americans and private home ownership, key political leaders in Washington have successfully blocked any increase in the minimum wage, which has been held at only $5.15 per hour for eight years and not indexed to accommodate inflation. (In comparison, in U.S. dollars and based on currency values in April 2005, the minimum wage in Australia is $8.66, in France $8.88, in Italy $9.18, in England $9.20, and in Germany $12.74.)” (p. 195)

Mr. Carter undoubtedly would like to see the U.S. government lift its minimum wage at least to French, Italian, English, or even German levels. He obviously is convinced that it is the function and duty of government to set satisfactory wage rates and regulate employment conditions. He seems to be unaware that, in a free society and free economy, wage rates are determined by the value of the services rendered. Consumers determine not only the prices of consumer goods but also those of the factors of production, that is, land, labor, and capital. They determine and pay the wages of every worker.

At free market wages all workers eager to earn wages can find jobs; there is what commonly is called “full employment.” But whenever government or labor unions raise wages above the rates which consumers are willing to pay, institutional unemployment emerges. Minimum wage legislation obviously condemns all workers with personal productivity lower than the minimum to instant unemployment. If the federal government were to raise the minimum wage to French, Italian, or German levels, it soon would boost the rate of unemployment to European levels: in France to 12.1 percent, Italy 9.6 percent, and Germany 10 percent. The actual rates of unemployment of unskilled and uneducated labor, the very class of labor which the minimum wage is supposed to benefit, are much higher; they usually reach 30 to 40 percent. If the class should also differ ethnically, that is, in its religious, racial, national, or cultural characteristics, labor productivity may be lower yet, and the rates of unemployment may be twice as high again. At this very moment, unemployed youths are rioting, burning cars, and battling the police in the suburbs of Paris and across France. Although many rioters are unemployed Muslims who feel discriminated against, many non-Muslims have joined their ranks. Throughout it all, the French president, Mr. Jacques Chirac, proudly defends the French labor market with its $8.88 minimum wage, the 35-hour work week, tough hiring and firing rules, and other throttling labor restrictions. He promptly announced more government spending programs to improve housing, education, employment, and a special training for 50,000 underprivileged teens by 2007.

The French riots remind us of the riots that paralyzed some American cities in the past. Surely, it was unemployed black youths rather than Muslim youths that rampaged and ran amok in Watts in 1965, leaving 34 people dead, more than 1000 people injured, more than 4000 arrested, hundreds of buildings destroyed, and more than 200 million dollars in destruction of property. The same pattern of rioting was seen in New York in 1964 and 1968, in Detroit in 1967, San Francisco in 1966, Washington, D.C. in 1968, Baltimore in 1967 and 1968, and Chicago and Cleveland in 1968. In the Los Angeles riots in 1992, some 50 to 60 unemployed youths were killed. Surely, the nation grieves for the dead and sympathizes with the unemployed. Yet politicians never tire of erecting new employment barriers.

We respect and esteem President Carter’s concern for the poor and underprivileged, and we applaud The Carter Center, a nonprofit organization that seeks to resolve international conflicts and improve public health around the world. It does not surprise us that, since Mr. Carter left the presidency in 1981, he earned a Nobel Peace Prize for his humanitarian work. Yet we cannot ignore his want of perception of the inexorable principles of human action and cooperation and his amazing faith in his particular brand of political action.

President Carter never tires of expounding his displeasure and irritability about the income and wealth of many capitalists and about government policies that seem to favor the rich. “Almost every decision made in Washington since 2000,” he laments, “has favored the wealthy, often at the expense of middle-class working families and the needy, and fundamental legislation on taxation and expenditures has been designed to perpetuate those trends.” (p. 191) And further below, “our unprecedented deficits mean that there will be fewer funds for maintaining – much less increasing – existing levels for health, education, welfare, housing, environmental quality, or the creation of jobs.” “Conservative true believers,” he charges, are squeezing domestic programs from Social Security to Medicaid, Medicare, Head Start, and other humanitarian programs for the purpose of “another massive reduction in the tax burden for the richest families in America.”

Mr. Carter seems to be unaware that most rich people are investors and builders of facilities of production, creating jobs and increasing labor productivity. The lion’s share of great family wealth usually consists of certificates of ownership of means of transportation, communication, and many kinds of manufacture. Workers do not create jobs nor contribute to the improvement of the apparatus of production. Yet American wage rates and standards of living are substantially higher than many others in the world because of the capital accumulation and investment by farsighted wealthy entrepreneurs.

Mr. Carter deplores the thought of any reduction in inheritance taxation which in the past consumed as much as 77 percent of a rich man’s estate. Surely, the tax does not immediately and visibly destroy capital equipment such as steel mills, railroads, or refineries, but it forces owners or their heirs to sell all or part of the taxed estate in order to raise the cash needed for tax payment. The loss in productive investments – the factories and stores not built, the oil wells not drilled – will never be seen, but consumers must pay higher prices for fewer goods and workers earn less for their efforts. All lose but the beneficiaries of the transfer process.

The victims of painful estate taxation tend to redirect their efforts toward less productive pursuits or create wealth that is less visible to estate tax collectors. The tax may induce them to join the rapidly growing “underground economy,” where personal wealth takes the form of jewelry, precious metals, art objects, collector’s items, etc. They may shift their wealth to safer shores abroad and accumulate income and wealth in foreign places. Or they may just cease to be productive and instead openly embark upon consumption of their accumulated wealth. Their reaction may explain the rapid growth of the luxury industries that cater to ostentatious consumption. It may also illustrate why many old corporations that were founded by eminent entrepreneurs are now owned by many thousands of small stockholders who wield little control over their corporations. These are managed by attorneys with political knowledge and legal and regulatory expertise; there are no ownership requirements or interests, which readily explains why, in recent years, conglomerates have been the rage, and reckless mergers and acquisitions have made the news. These corporate executives engage in empire-building, their pay rockets beyond sight, and multimillion-dollar severance packages provide golden parachutes. Mr. Carter heavy-heartedly observes the conditions and calls on legislators, regulators, and tax collectors to implement new policies that reinforce the causes.

As the 39th president of the United States Mr. Carter had an unprecedented opportunity to improve the situation and guide the nation out of political and economic disarray. With Presidents Nixon and Ford in the White House the economy had plunged from one crisis to another. Most troublesome of all were the soaring inflation, a deepening recession, and a painful energy crisis. With President Carter in the White House the rate of inflation unfortunately accelerated. The purchasing power of the American dollar, computed in 1967 dollars, was worth 55 cents in 1977; by 1980 it had shrunk to 41 cents. In 1977 the index of consumer prices, according to Department of Labor Bureau of Labor Statistics, stood at 181.5; it hovered at 246.8 in 1980. In 1977 the average unemployment amounted to 6.991 million; in 1980 it stood at 7.637 million. During the same period, Federal unemployment insurance taxes which obviously increase the cost of labor, according to Treasury Department statistics, rose from $92.61 billion to $139.27 billion. The number of Americans living in poverty, according to Department of Commerce, Bureau of the Census statistics, amounted to 24.7 million in 1977 and to 29.27 million in 1980. Federal outlays, according to the Office of Management and Budget and Treasury Department, soared from $409 billion in 1977 to $590.9 billion in 1980, budget deficits from $53.6 billion to $73.8 billion, and the Federal debt from $709 billion to $914 billion. And in matters of energy crisis, the President strongly urged Congress to continue price controls on natural gas, impose heavy taxes on crude oil and fuels used by industry, and rebate energy-tax revenue to consumers.

Economists may ponder about the prime author and mover of such policies. Yet, politicians are not troubled by such reflections; they are guided by public opinion and sentiment. But whatever they may do, ye shall know them by the fruits of their policies.

December 3, 2005

Dr. Hans F. Sennholz [send him mail] was professor and chairman of the department of economics at Grove City College. See his website.

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