o
Ford and Carler
Section 3
Guide to Reading
Big Ideas
Economics and Society A weakening economy and growing energy crisis
marred the terms of Presidents Ford
and Carter.
Content Vocabulary
• inflation (p. 718)
• embargo (p. 718) ,
• stagflation (p. 719)
Chapter 21
B
I
during the energy crisis of the 197051 Read on to learn how politics and
Americans' dependency on oil imports led to a serious crisis.
Causes
718
y th tim Rich.a rd Nix n [ ign d, the boom
period Americans had experienc din th n preVt'o
· llS
decades was c ming to an end. Through the 1970s
Presidents Gerald R. Ford and Jimmy Carter attempted
with varying levels of success, to lead the United State:
through both domestic and foreign crises.
HISTORY AND YOU Have you ever heard anyone describe their experiences
Reading Strategy
Organizing Complete a graphic
organizer similar to the one below by
listing the causes of economic problems
in the 1970s.
~
Spotlight Video
IM!1I~lat¥i In the 1970s Americans had to face a slowing economy and
an end to plentiful, cheap energy.
People and Events to Identify
• OPEC (p. 718)
• Helsinki Accords (p. 720)
• Department of Energy (p. 721)
• Camp David Accords (p. 723)
,------,I
•
The Economic Crisis of the 1970s
Academic Vocabulary
• theory (p. 719)
• deregulation (p. 721)
'-_---lh
Section Audio
Economic
Problems
in the 1970s
'-------'
Politics and Economics
After World War II, American prosperity seemed normal. This
prosperity relied on easy access to global raw materials and a strong
manufacturing base at home. In the 1970s, however, prosperity gave
way to a decade of hard times.
A Mighty Economic Machine Slows
Economic troubles began in the mid-1960s when President
Johnson increased federal deficit spending, to fund both the Vietnam
War and the Great Society programs, without raising taxes. This
spending spurred inflation by pumping large amounts of money into
the economy. One measure of inflation, the Consumer Price Index
(CPI) calculates the average price of goods and services purchased by
households. Comparing CPI on a yearly basis during the 1970s shoWS
that the inflation rate rose more rapidly during this decade.
.
Another economic blow came when the price of oil began to nse.
By 1970, the United States had be omc dependent on oil imports
from the Middle Ea t and Afrj a. This was n t a problem as long as
prices remained low, but in 1973, tl1Cl Organization of Petroleum
Exporting Countries (OPEC)-a cartel dominated by Arab countries-decided to usc oil as a political. weapon . In 1973 a war d
erupted between Israel an d its Arab neighl ors. PEe anJl 0 tlJlC
J
port u
an embargo, or trade ban, of p tr I tim t countries that SLlI d
Jsrael. OPEC also raised th e price of crude oil by 70 percenl, all
then by a n tJl er 130 perc nt a few montbs later.
.
Although the emba rgo ended witl1in a few months, oi l p[Jces.
.
d to l1se.
. '1i.'11€ pnce
. 0 j'' a bane I 0 f' cru d e 1'l rose ur."om
In
contmue
, $3j1()d
ca
ns
1973 t $30 in 1980. As oil and gas lin pric s rose, Amcn
less money for other go ds, which conLTibuted t a rec ssion.
· £C 's embargo caused long lines at ~as stations
OPd caused inflation to accelerate rapidly. The U.S.
an ernment responded by imposing pri ce controls.
gOV
~
~
1. Drawing Conclusions What problems did
American consumers face because of the oil
embargo?
2. Specifying In what year, between 1970
and 1990, did gasoline reach its highest
price?
AStagnant Economy
Another economic problem was the decline
of manufacturing. By 1970, many American
manufacturing plants were old and less efficient than the plants Japan and Germany had
bUilt after World War II. In 1971, for the first
time since 1889, the United States imported
more than it exported. Unable to compete,
many factories closed, and millions of workers
lost their jobs. Thus, in the early 1970s,
PreSident Nixon faced a new economic problem nicknamed "stagflation"-a combination of inflation and a stagnant economy with
high unemployment.
Economists who emphasized the demand
side of economic theory, including supporters
of I<eynesianism, did not think that inflation
and recession could occur at the same time.
They believed that demand drives prices and
that inflation could only occur in a booming
economy when demand for goods was high.
A.s a result, they did not know what fisc al
V
f"""'-o..
~
~
o
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
Year
'Price of Leaded Regular Gasoline in Constant 2000 dollars.
Source: Energy Information Administration.
policy the government should pursue.
Increased spending might help end the recession, but it would increase inflation. Raising
taxes might slow inflation, but it would also
keep the economy in recession.
Nixon decided to focus on controlling inflation . The government moved first to cut
spending and raise taxes. The president hop ed
that higher taxes would prompt Americans to
spend less, which would ease the demand on
goods and drive down prices. Congress and
much of the public, however, protested the
idea of a tax hike . Nixon then tried to reduce
consumer spending by getting the Federal
Reserve Board to raise interest rates. When
this failed, the president tried to stop inflation
by imposing a 90-day freeze on wages and
prices and then issuing federal regulations
limiting future wage and price increases. This
too met with little success.
"4I@mrnmma Explaining
How did President
Nixon attempt to stop stagflation?
Chapter 21
Politics and Economics 719
Ford and Carter BaUle
the Economic Crisis
'mgm'ali'
When Gerald Ford failed to solve
the nation's problems, Americans turned to political outsider Jimmy Carter to lead the nation.
HISTORY AND YOU Do you think a president
should be a Washington insider? Read how being
an outsider affected Carter's ability to lead.
WlJen Nixon resigned in 1974, inflation was
stilllli gh , despite m any efforts to reduce prices.
Mean w hil e, the unemployment rate was over
5 percent. It w o uld now be up to th e n ew p resident, Gerald Ford, to confront stagflation.
~~ord
Tries to "Whip" Inflation
By 1975, the Am erica n economy was in the
worst recession since the Great Depression,
wi tll unemployment at nearly 9 percent. Ford
responded by launching a plan ca lled WIN"Wllip Inflation N ow." He urged Am ericans to
reduce their usc of oil and gas, and take steps
to conserve energy. The plan had little impact
on the economic situation. The president then
be gan cutting govern m ent spendin g and urged
the Federal Reserve to Jaise interest rates to
curb inflation. He also sou ght to ba lance the
budge t and keep taxes low. He ve toed m ore
than 50 bills that the D em ocratic Con g ress
passed during the first two years of his administration . Th ese efforts fail e d to rev ive the
economy.
Ford's Foreign Policy
In fo reign policy, Ford continued Nixon 's
general strategy. Ford kep t Ki ssinger o n as sec retary of state a nd continued to pursu e detente
with the Soviets and th e Chinese. 1n Au gu st
1975, he met with leaders of NATO and the
Wa rsaw Pact to sig n the Helsinki Accords.
U nder th e accords, the parties recognized the
borders of Eastern Europe established at the
end of World War II. The Sovie ts in return
promised to uphold ce rtain basic human rights,
including the right to move ac ross national
borders. Tlle s ubse quent Soviet failure to
uphold these b asic rights turn ed many
Americans against detente.
120
Chapter 21
Politics and Economics
Ford also met with problems In S lithe
Asia. In May 1 75, S J1 after onlrnu .USt
seized power in C, mbodia, 31llbodjilll 6i11Sts
ca p tured th ' MaY(l.gltez, an Am · ricun ~rc~~
ship traveling near its hores. Calling th~:gQ
zure an "act ofpira \f"F
I'd s nt .,s~.
Ct_
J'
• IvJ.ari
t ret,-i e it. ambocUa secTetly r lea cd ~c
crew shortly before the marin · sa ri" h
IVed
Unaware th
rew was af ·, the n,"'. .
·,nn.
attacked and reca ptured the ship, bUl 4] s
.
d'Ied'111 t I1 batt1e.
SCr_
Vlcemen
The Election of 1976
~he presidential race pitt d .G raId Ford
agam t James Earl Carter, Jr., r JImmy Carte '
'is he liked to be called. A Emmer gOY · [nor ~f
Georgia, Cart'T had no politi a] experienc In
Washingt n. Carter took advantag Fhis Outsider status, promising to r stoTe honesty to
the f deral govemment, H e also prol11 is d n .w
program for energy developm nl., tax ref0 011,
welfare reform, a nd. nati n a l h allh are.
Ford characterize d Carter a s a liberal whOSe'
social programs would produce higher rates
of inflation and require tax in cre ases. For many
vote rs, h owever, Carter's ima ge L1S Cl moral
and upstanding individual, unlJinted by
Washington politics, made him '-HI attGJCl ivL;
candidate. In the end, Carter narrowly defeated
Ford with 50.1 percent o f the popular votc [(1
Ford's 47. 9 p ercent, while capturing 297 elee
tora1 votes to Ford's 240.
Carter's Economh; P licm
es
M ost of Carter's d o m estic policies wert'
intended to fix the economy. A t first h e tri cd In
nl
.
end the receSSlOn
and reduce unemp 10 yll1C
by increas.ing gOY rnm -nt sp>nding and cut-
ting taxes. When inflation surged in 1978, hd
changed his mind. He delayed t he tel u~s ;~:Ir
vet ed the sp nding programs h had .h1l1( _
brcl Li. ~
proposed. He tried to ease '£IJ
U1 Ll tn
.,
. teq~sl rate..
in g th m on ' y supply and ralsJl1g In •.
In the end, none of his eEf rts .u ~ ed~~~ se riarter believed that th nob.on sm. n oil.
ous problem was its dcpendenc pn for ·Ig -ked
..
.
. ' he a~
111 one of hIS first national addl es5~, , "sillg
•
AmenCaJ1 t
"
.If
;]g(1 ll1st II
supp rt a war •
!Jotlt
.
"
. d' isj n a
energy onsump tto ll .
UI .. Alll riC' 11
energy wiU test the character f th 'd'l1 t all j
Pc pi and th abili ty f th · presl r .w t d.
Congress to govern tl1is nation, " 'Drl'
When p(esident Ford failed to solve the nation's
.onomic problems, voters decided to give
~a5hington outsider Jimmy Carter a chance.
inflation and Unemployment Rates
-
14
12
~ 10
~ 8
~
t
Inflation
6 l ~"~~- ~·~~~~-~--~~~~
4
2
o
"
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990
Year
source: US. Department of Labor; Bureau of Labor Statistics,
Analyzing ~~~~""""-':"_;;I;;;"..,"'-----"""
Presidential
Candidate
Popular
Votes
% of
Popular
Vote
Electoral
Votes
40,825,839
39,147,770
50.15%
48.09%
297
240
1. Analyzing In what areas of the country did
Carter receive the most votes? Why do you think
this was so?
o
2. Interpreting What was the trend for both
* Eight electors in Washington voted for Ford and one
unemployment and inflation after 1976?
Carter proposed a national energy program
to conserve oil and to promote the use of coal
and renewable energy sources such as solar
power. He also convinced Congress to create a
Department of Energy, and asked Americans
to reduce their energy consumption,
Meanwhile, many business leaders and
economists urged the president and Congress
to deregulate the oil industry. They believed
that regulations, first imposed as part of
President Nixon's price control plan, made it
very difficult for oil companies to make a profit.
They claimed they lacked the spare capital
needed to invest in new domestic oil wells.
T~is in turn kept the nation dependent on foreIgn oil.
. Carter agreed to support deregulation but
lf1sisted on a II windfall profits tax" to preven toil
(;Ol;'l1panies fr m vercharging consumers.
~ri~i , argued that the tax conflicted with the
aSle tdea f deregulation, which was to free up
ca pitaJ for lise in find ing new sources of oil.
Nt.ln the sum mer f 1979, instability in the
lddle Ba t PI' d ue d a second major fuel
short"ag and deepened the nation's economic
Carter
Ford
voted for Reagan.
problems. Under increasing pressure to act,
Carter made several proposals in a televised
address. In the speech, Carter warned about a
"crisis of confidence" that had struck" at the
very heart and soul of our national will." The
address became known as the "malaise"
speech, although Carter had not specifically
used that word. Many Americans felt that
Carter was blaming the people for his failures.
President Carter's difficulties in solving the
nation's economic problems lay partly in his
inexperience and inability to work with
Congress. Carter, proud of his outsider status,
made little effort to reach out to Washington's
legislative leaders. As a result, Congress
blocked many of his energy proposals. The
president also failed to set clear goals for the
nation. Instead, he followed a cautious middle
course that left people confused. By 1979,
public opinion polls showed that Carter's
popularity had dropped lower than President
Nixon's during Watergate.
~itlm;m' Summarizing To what did
President Carter devote much of his domestic agenda?
Chapter 21
Politics and Economics
721
Carter's Foreign Policy
Morality in Foreign
'Mt;1P.mi' Carter attempted to reestablish the
Pre idel;1t arter S l the tone f r I .
' L'
'
1 pee ~ wh 'lIsI fOre'19n
polic 11.1
l iS maugura
" ur omlmtmen
'
'
t t 1:,\urnan rightsn 1e aid,
ab clute. , , , The powerful must nOI 1l1usl b
perse
the weak, and human ignity .
Cllt
'tl lli'S for ig111LI~t- I,-e
d Al ·n g WIl
n1
.l ance,
team- w hic11 included AndrewYOLl11 01\)POI,icy
A c..'
A
' n am
.b
l ) fleS!
L-uL1Can
menca
assaO
Or toIthe
U .
Nati ns-- arter strove to achi.ev- thes nil d
The p reSident pUl his principles int pgoal,s.
. L . A
. rr.
racbc
IJ1 ab.n I1lerlca, u remove a l1l,jorsyrnb
.
,.
1
01 f
US
.. mtetv n tl omsm, le agreed t oi ve D..
o · rulla11la
con trol ofthe Panama Canal, which I-he U .
.
ru td
States had bwlt and perated for ov r 60 y
.,
ears.
In 1978 the Senate ratifled tw Panama C I
.
I. l
ed
ana
tr atJes, W lie 1 tran s ~erre can trol f the canal
United States as a moral force for good on the
international stage but had few successes.
HISTORY AND YOU Do you think a leader's personal morality should shape policy? Read how
Carter applied his moral code to foreign policy.
In contrast to his uncertain I >aders hip at
home, Carter's for ign poHey was more clearly
defined. A man of str ng re ligi llS beliefs,
Carter argued that the United States must try
to be "right and honest and truthful and
decent" in dealing with other nations. Yet it
was on the internatiopal front that Carter suffered one of his most devastating defeats .
/I
to Pa nama n December 31,19 9.
-
PRIMARY SOURCE
Jimmy Carter and the Middle East
During his administrati~, ~;y Carter faced a nu~b~ 0
challenges in the Middle East. His foreign policy there met
with mixed success.
A The Soviet Invasion of Afghanistan
The Soviet invasion of Afghanistan shattered detente.
Carter responded by imposing a grain embargo, but it
did not force the Soviets to pull back .
... The Iranian Hostage Crisis
The Ayatollah Khomeini (right) led a revolution in Iran
in 1979. Fifty-two Americans were taken hostage.
Carter's inability to negotiate their release hurt his
reelection campaign.
A The Camp David Accords
In 1978, Carter helped negotiate a peace
treaty between Egypt and Israel. Above,
Egyptian President Anwar Sadat. Carter, and
Israeli Prime Minister Menachem Begin sign
the accords.
Analyzing ~~~:::::!_ _---..
1. Specifying What was Carter's major
success in foreign policy?
2. Theorizing Why was the Middle
East a major focus of Carter's foreign
policy?
722
Chapter 21
Politics and Economics
Most dramatically, rutcr singled out the Soviet Union as a
. lator o£ human rights. He strongly condemned, for example,
~e 5 vi t practice of imprisoning those who protested against
g vcrnl11 nt. R lati ns between the two superpowers suffered
t further etback when Soviet troops invaded the Central Asian
aation of Afghanistan in Decem ber 1979. Carter responded by
~11pD ing an embargo on the ale of grain to the Soviet Union and
~Oy -ottiJ1g tb 1 0 ummel' lympic Ganl.es in Moscow. Under
the after admini baD n, d ~ tent , eroded further.
\,e
rriMmph and Failure in the Middle East
It was in the volatile Middle East that President Carter met
both his gr atest foreign pohey tliumph and his greatest failure.
In 1978 Cart r helped broker a historic peace treaty, known as
the Camp D avid Accor ds, between Israel and Egypt-two
nations that had been bitter enemies for decades. The treaty was
formally si!mcd in 1979. MoSL o ther Arab nations in the region
opposed the treaty, but it m rked a first step to achieving peace
in th Middle East.
Just months after the Camp David Accords, Carter had to deal
with a crisis in Iran. The United States had long supported Iran's
monarch, the Shah, because Iran was a major oil supplier and a
buffer against Soviet expansion in the Middle East. The Shah,
however, had grown increasingly unpopular in Iran. He was a
repressive ruler and had introduced Westernizing reforms to
Iranian society. The Islamic clergy fiercely opposed the Shah's
reforms. Opposition to the Shah grew, and in Januaty 1979 protesters forced him to flee. Art Islamic republic was then declared.
The new regime, led by religious leader Ayatollah Khomeini,
distrusted the United States because of its support of the Shah. In
November 1979, revolutionaries stormed the American embassy
in Tehran and took 52 Americans hostage. The militants threatened to kill the hostages or try them as spies.
The Carter administration tried unsuccessfully to negotiate
for the hostages' release . In April 1980, as pressure mounted,
Carter approved a daring rescue attempt. To the nation's dismay,
the rescue mission fail ed when several helicopters malfunctioned and one crashed in the desert. Eight servicemen died in
the accident. Hamilton Jordan, President Carter's chief of staff,
described the atmosphere in the White House the day after the
crash. The president "looked exhausted and careworn . . .. The
mood at the senior staff meeting was somber and awkward.
I sensed that we were all uncomfortable, like when a loved one
dies and friends don't know quite what to say."
The crisis continued into the fall of 1980. Every night, news
programs reminded viewers how many days the hostages had
?een held . The president's inability to free them cost him support
In the 1980 election. Negotiations continued right up to Carter's
ast day in office. On January 20, 1981, the day Carter left office,
ran released the Americans, ending their 444 days in captivity.
i
Summarizing What was President Carter's main
?
Section 3 REVIEW
Vocabulary
1. Explain the significance of: inflation,
OPEC, embargo, stagflation, Helsinki
Accords, Department of Energy, Camp
David Accords.
Main Ideas
2. Describing How did the OPEC embargo
affect the U.S. economy?
3. Specifying What were two ingredients
in Carter's failure to achieve success in his
domestic policy?
4. Identifying What crisis in the Middle
East occurred during the Carter
administration?
Critical Thinking
5. Big Ideas How did Carter attempt
to deal with the nation's energy crisis?
6. Organizing Complete a graphic orga-
nizer by listing the ways in which
President Carter applied his human rights
ideas to his foreign policy.
7. Analyzing Visuals Study the pho'to-
graph of the hostages on page 722 .
What effect do you think images such
as this one had on Ame ricans who were
living or traveling in other countries?
Writing About History
8. Expository Writing Write an essay
identifying what you believe to be Carter's
most important foreign policy achievement.
Explain your choice.
Histo
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