Veterans of former President Jimmy Carter's administration are warning President Joe Biden against making the same mistakes that were made in the 1970s, including acknowledging there is a problem and supporting aggressive measures to bring prices back down.
"The basic problem that this president faces is really not too dissimilar from the one that confronted Carter," W. Michael Blumenthal, Carter's Treasury secretary, said in an interview with The New York Times published Tuesday.
"President Biden faces this dilemma, and it's certainly my hope that he will choose clearly, choose decisively and be very clear not only about the fact that he recognizes that inflation has to be dealt with, but that he is really willing to support painful steps to do that."
Blumenthal, now 96, was removed from the Carter cabinet in 1979. Before that, he and other of the then-president's key advisers met for weekly lunch meetings and mainly offered optimistic forecasts about the economy.
However, by 1978, Democrats lost seats in Congress and Blumenthal lost his seat the following year. Carter lost his bid for reelection in a landslide and the Federal Reserve raised interest rates to the point that the economy entered into a recession.
Republicans are comparing Biden to Carter in midterm arguments.
"Americans suffering from rising prices and the highest inflation in 40 years need to demand the results Presidents Ronald Reagan and Donald Trump gave them," former House Speaker Newt Gingrich wrote last week. "They need to reject the policy failures of Presidents Jimmy Carter and Joe Biden."
Biden and Democrats controlling Congress are facing a similar scenario as Carter and his administration faced, and are trying to settle the nation's inflation after telling the public the matter is transitory.
Biden has been pushing oil refineries to increase production, has called for a three-month gas tax holiday, and has sought help from the Federal Reserve, but Blumenthal and other Carter veterans say Biden must act with more urgency.
But there are parallels to the 1970s. Now, supply chain disruptions that began during the pandemic are hitting up against rising food and energy prices that came with Russia's war against Ukraine. The Consumer Price Index also picked up by 8.6% in May from a year before, and gas is averaging at just below $5 a gallon.
In comparison, in 1973-74, the Arab oil embargo of 1973-74 and the Iranian revolution of 1979 caused gas shortages, driving gas prices up, and inflation reached a peak of 14.6% in 1980, before then-Fed Chairman Paul Volcker raised interest rates to almost 20%, triggering the recession.
The Carter administration, like Biden's, tried several steps to curb inflation, by releasing grain reserves and calling for businesses to cap wages and prices. Further, in his "fireside chat" to the nation, Carter called on Americans to conserve energy at home to ease the shortage of natural gas.
But Blumenthal said Biden should avoid such measures and instead support a substantial interest rate hike. He also said he should abandon his costly legislative package and focus on deficit reduction.
"Inflation fighting comes first," said Blumenthal. "He has to show the recognition to the public that inflation has lasting deleterious effects on the economy and that by trying to take half measures now, you merely prolong the pain of these effects."
Meanwhile, C. Fred Bergsten, the assistant secretary for international affairs at the Treasury Department from 1977 to 1981, called domestic oil price controls that were put in place in the 1970s an "abysmal failure" and urged Biden not to take such steps.
"One lesson from the Carter administration is don't do that," Bergsten, now 81, said. "Energy price controls discourage production and held down the supply side over time."
Rolling back some of the tariffs former President Donald Trump enacted on $360 billion in Chinese goods may offer some inflation relief, Bergsten said.
Tax increases targeted at the wealthy may also be the ticket, but proposals like a gas tax holiday would cause even more inflation and harm Biden's image more, he added.
"Even if Biden doesn't have many alternatives to deal with it, the image is of a lack of decisive and effective management of the country and the economy," said Bergsten, who traveled to Saudi Arabia several times to encourage more oil production.
Barry P. Bosworth, who led the Carter administration's "Wage-Price Council" from 1977 to 1979, said it's clear that the $1.9 trillion pandemic aid package passed in 2021 has caused inflation to grow, and it will be up to Fed to bring it under control.
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