For some time now historians have seen the 1970s as the pivotal decade in the breakdown of the New Deal political and economic regime. As first institutionalized under Franklin D. Roosevelt, this regime had provided high wages and full employment for white, male workers. In the 1960s the civil rights movement, second-wave feminism, and other manifestations of that decade’s political activism forced an expansion of the regime to benefit previously marginalized groups, creating a backlash among its original beneficiaries. This backlash intensified under the economic strains of the 1970s, as high inflation, unemployment, and the beginnings of deindustrialization put an end to the New Deal’s glory days. Richard Nixon and then Ronald Reagan skillfully exploited the internal tensions among the regime’s supporters in the Democratic party, winning over white, working-class voters by focusing their inchoate anger and disappointment on such cultural issues as busing, abortion, and patriotism. This allowed those voters to regain a sense of empowerment and status, even as the administrations they elected went on to eviscerate the strong unions and government regulation that had underpinned the New Deal regime. Even though government activism had been at the core of the New Deal, its erstwhile beneficiaries now agreed with Reagan that government was not the solution, but rather the problem.
In telling this story, historians so far have readily acknowledged the twin oil shocks of 1973 and 1979 as important events during the decade, but have not made them central to their analysis. Now Meg Jacobs argues that the politics of energy was, in fact, critical, as “the failure of the nation’s politicians to address the energy crisis contributed to the erosion of faith that Americans had in their government to solve their problems.” This failure came about because there were three different solutions to the crisis being proposed, with supporters of each solution mutually blocking each other.
The most popular solution was one of New Deal-style governmental activism, championed most vigorously by Senator Henry “Scoop” Jackson, the Democratic chairman of the Senate Interior Committee who had first won election to Congress in 1940. This solution involved rigid price controls on all oil products, including a government-mandated rollback of prices to the levels of late spring 1973, coupled with the mandatory allocation of gasoline to distributors and, if necessary, physical rationing to assure that everyone had equal access to the fuel they needed. Underlying this program was the conviction, shared by a majority of the American public, that the gasoline shortages of 1973/74 were not real, but just a cynical ploy by Big Oil to drive up prices and profit at the expense of consumers.
Jacobs’s book provides a valuable service in pulling together the various facets of the story in a quite readable manner. But does she succeed in establishing her claim that the failure of government to respond to the energy crisis is key to understanding the transformation of American politics? A glance at international comparisons casts some doubt on this.
President Nixon was instinctively opposed to government rationing, having had a bad experience during a short stint working in the federal Office of Price Administration during World War II. Being of the same generation as Jackson, though, he also recognized how important economic issues were to the white, working-class voters whom he hoped to peel away from the Democratic Party; in fact, in 1971 he had first imposed the price controls on oil that Jackson wished to extend. But Nixon’s economic advisers, many of whom had been born after the Great Depression and did not share the New Deal mindset, were far more committed to a neoliberal vision of deregulated free markets, arguing that only the removal of price controls and other government impediments would stimulate new production from American oil companies. Needing the support of conservative Republicans in Congress as the noose of Watergate tightened around him, Nixon listened to the neoliberals and vetoed the comprehensive energy bill championed by Jackson. His successor Gerald Ford finally negotiated a muddled compromise in 1975 with the heavily Democratic Congress, extracting a mechanism for eventual removal of price controls in exchange for an immediate rollback in the price of American-produced oil.
The elevation of a Democrat to the White House did not, however, free the path for Jackson’s program. Jimmy Carter was a Southern businessman who had run to the right of the regular Democratic Party and did not believe in the traditional liberal nostrums; he also had an ascetic streak that put him in sympathy with environmentalists’ arguments that the best solution to the energy crisis was a reduction in use. He sought to encourage conservation by gradually relaxing price controls and imposing additional taxes on energy. This program did not go far enough to satisfy environmentalists; it was also attacked by liberals for daring to raise the price of energy and by conservatives for not ending price controls immediately. As a result, energy policy remained in a muddle, unable to cope with the second supply shock after Iran cut its oil production in early 1979; dismayed voters once again had to deal with long lines at gasoline stations late that spring. During the 1980 election season the politically inept Carter was pummeled both by Ted Kennedy from the left and Reagan from the right, with Reagan emerging as the ultimate victor. Within a week of his inauguration, Reagan ended both price controls and mandatory allocations of oil products.
Jacobs is the first historian to have dug into all of the relevant archives to tell this story, although her digging has not yielded any surprising new twists to what economists and political scientists had already known about the energy politics of the 1970s. Her book nevertheless provides a valuable service in pulling together the various facets of the story in a quite readable manner. But does she succeed in establishing her claim that the failure of government to respond to the energy crisis is key to understanding the transformation of American politics? A glance at international comparisons casts some doubt on this.
Consider, for example, New Zealand, where the government succeeded in implementing a coherent energy policy. Here price controls, which had been first implemented in the 1930s, remained in place, supplemented in 1975 by a stiff addition to the gasoline tax to encourage energy conservation while still eliminating price volatility. After the second oil shock of 1979 demonstrated the continuing vulnerability of New Zealand’s energy supply, Robert Muldoon, the bull-headed prime minister who dominated the right-of-center government, pushed through an ambitious program of infrastructure development (called the “Think Big” project) that involved the construction of a synthetic fuel plant and upgrades to the main refinery to allow conversion of the country’s abundant natural gas into motor fuel—a political success that Carter could only dream of. But this whole agenda unraveled when the collapse of global oil prices in the mid-1980s rendered the output of the new domestic plants uneconomic. In reaction to the economic (rather than political) failure of the Think Big project, neoliberals captured the levers of economic policy in the Labour government that was elected in 1984, pushing through a program of free-market deregulation that was even more radical than Reagan’s in the United States. So here New Deal-style governmental activism was also abandoned (albeit by a government that had leftist rather than retrograde leanings on social issues) even though the political response to the energy crisis had been far more successful in the 1970s.
As this case shows, Milton Freeman and the other neoliberal ideologues were, in fact, correct in arguing that the long gas station lines plaguing the United States in the spring of 1974 were a result of misguided government policy. Jacobs rightly points out that gas station shortages had appeared as early as the summer of 1973, even before Arab members of OPEC embargoed the flow of oil in the wake of the Yom Kippur War.
Consider, too, the example of West Germany, which, despite a far more redistributive welfare state, did not have price controls. As a result, oil distributors in the winter of 1973/74 could supplement their stocks with product that was still available on the Rotterdam spot market, confident that they could pass on the high spot prices to consumers. Retail prices did skyrocket; for heating oil, which in the frigid German winter was the most important petroleum product, the price tripled. But there were no lines at gas stations, no panic at the pump. As a kid growing up in West Germany in the 1970s, my memory instead is of the fact that I could finally sleep in on Saturday mornings, as the elevated cost of heating oil meant the authorities could no longer afford to heat school buildings for the traditional half-day of instruction on Saturdays.
As this case shows, Milton Freeman and the other neoliberal ideologues were, in fact, correct in arguing that the long gas station lines plaguing the United States in the spring of 1974 were a result of misguided government policy. Jacobs rightly points out that gas station shortages had appeared as early as the summer of 1973, even before Arab members of OPEC embargoed the flow of oil in the wake of the Yom Kippur War. These shortages were the result of distortions produced by Nixon’s imposition of price controls in August 1971, which removed the incentive for oil companies to augment their dwindling production. Ever since Reagan removed price controls, we have had long gas station lines only once, for a couple of days in the Southeast in 2005 after Hurricane Katrina interrupted the physical distribution of gasoline in that portion of the country. Even when skyrocketing demand in East Asia bumped up against constrained supply in 2007 and 2008, there were no shortages at gas stations. Prices did spike, causing enormous grousing—but also providing the incentive for the fracking revolution that has now once again led to a global oversupply of oil. As galling as it may be for a liberal like me to admit, Reagan was actually right on this particular issue. But as the West German case also shows, the absence of price controls can coexist quite well with a strongly redistributive welfare state and other leftist social positions.
More fundamentally, it appears to me that the New Deal regime collapsed not due to political contingency, but due to more fundamental structural factors in the economy.As recent work by economic historians Alexander J. Field and Robert J. Gordon has argued, the extraordinary economic boom of the postwar years was fueled by substantial productivity growth enabled by the exploitation of transformative technologies, especially electrical motors and the internal combustion engine.By the early 1970s, though, the limits of growth had been reached—not due to finite resources, as claimed by the Club of Rome in its famous 1972 report, but because all of the possible productivity enhancements had now been wrung out of these breakthrough technologies (there would be a further boost in productivity around 2000 due to the spread of computer technology, but it was far smaller than the earlier boosts produced by the novel means for harnessing energy).It just so happened that the end of high productivity growth coincided with the waning of American hegemony in the world economy, as Western Europe and Japan completed their post-war reconstruction and oil producers, later joined by the developing economies of East and South Asia, flexed their economic muscles.
The New Deal regime flourished during America’s economic golden age, which made high wages and full employment seem so easy to achieve. Once that golden age ended, it was inevitable that expectations would need to be readjusted in a frequently painful process. In particular, the assumption that government activism could assure an abundant supply of fuel at cheap prices (or guarantee the availability of jobs, as envisioned in the original Humphrey-Hawkins Full Employment Act) necessarily had to be abandoned.
The New Deal regime flourished during America’s economic golden age, which made high wages and full employment seem so easy to achieve. Once that golden age ended, it was inevitable that expectations would need to be readjusted in a frequently painful process. In particular, the assumption that government activism could assure an abundant supply of fuel at cheap prices (or guarantee the availability of jobs, as envisioned in the original Humphrey-Hawkins Full Employment Act) necessarily had to be abandoned. And it was in fact abandoned, not just here but elsewhere in the developed world as well, with the failure to address the energy crisis just one of the factors pushing it aside. What was a contingent result in the United States, a result that did not obtain in either New Zealand or Germany, was that the abandonment of economic activism would be combined with social ultra-conservatism and a hawkish foreign policy stance. And for explaining that contingent result, one probably still needs to look at the conflicts over social and cultural issues in the 1970s as well as at the failed politics of energy.