This history shows that you cannot make elite policymakers do what they do not wish to do, simply by ordering them to do it. You can write the law. You can specify the tools that should be used. You cannot make policymakers use them if they don’t want to.
James K. Galbraith
Government is the problem.
The era of big government is over
I'm going to make some assumptions moving forward. First, I'm going to assume that Bob Somerby is implying a bit of intellectual dishonesty (see how this theme is expanding?) on the part of historian Rick Perlstein:
Did Carter really say that: We were intrigued by the highlighted part of Rick Perlstein’s op-ed column in praise of Hubert HumphreyHere is the paragraph from Perlstein's Times piece:
''Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy,'' President Carter said in his 1978 State of the Union address, a generation before Bill Clinton said almost the same thing, cementing the Democrats' ambivalent retreat from New Deal-based government activism.Somerby is kind enough to provide a link to a draft copy of Pres. Carter's 1978 State of the Union address:
We need patience and good will, but we really need to realize that there is a limit to the role and the function of government. Government cannot solve our problems, it can't set our goals, it cannot define our vision. Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy. And government cannot mandate goodness. Only a true partnership between government and the people can ever hope to reach these goals.So, yes, Carter said it. Mystery number one solved, easily enough.
Those of us who govern can sometimes inspire, and we can identify needs and marshal resources, but we simply cannot be the managers of everything and everybody.
What began as a post defending historian Rick Perlstein from any potential implication of intellectual dishonesty has turned, after just a few hours perusing the historical record available on the internet, into an examination of the record of the Carter Administration's approach to economic policy - in broad terms - in light of the legislative commands of Humphrey-Hawkins. What I found, quite simply, was that Carter not only kept the law at arms length; his late-term attempts to deal with the phenomenon of "stagflation", via Paul Volker's chairmanship of the Federal Reserve Board, was diametrically opposed both to the spirit and letter of that law. Furthermore, Carter was far more within a historical continuum that includes Ronald Reagan's insistence that "government is the problem" and Bill Clinton's declaration that "the era of Big Government is over," than the more activist, traditionally liberal approach offered by the legacy of the late Hubert Humphrey in general, and this last piece of legislation to bear his name in particular.
What follows is a quick glance through to the past in order to make clear (a) that Perlstein's use of the quote from Pres. Carter, is faithful to its intent in the speech in which it was given; (b) far from reframing and restructuring legislative and executive approaches to fiscal, monetary, and employment policy, the Humphrey-Hawkins Act is, by and large, a dead letter; and (c) despite a signing ceremony in which Carter joined with Humphrey's widow, Muriel (who had been appointed to the seat upon her husband's death) and Rep. Augustus Hawkins, as well as Coretta Scott King, Carter's approach to these policy matters continued in a far more conventional mold, including supporting the decision by Fed Chair Paul Volcker to end the economic stagnation of the end of his term through tight money policies that, in the end, raised unemployment above ten percent by 1982, violating both the letter and spirit of Humphrey Hawkins. In all this, Carter led where Reagan and Clinton would follow.
What is known as the Humphrey-Hawkins Act is officially the Full Employment and Balanced Growth Act of 1978. This link includes the full text of remarks made by Pres. Carter and the sponsors of the bill in a signing ceremony at the White House on October 27, 1978. The bill had a long and difficult road through Congress.
Full employment is already a statutory objective of the U.S. government. I know—I helped to write the law.In the March/April, 1978 edition of Working Papers For A New Society, Galbraith wrote a scathing article (.pdf) entitled, "Why We Have No Full Employment Policy". After an initial glance at events in the first year of Carter's Presidency, including vocal criticisms from industry and business, Galbraith writes:
In 1976, as a young staffer for the House Banking Committee, I was tasked to a working group led by Congressman Augustus F. Hawkins; Leon Keyserling, the second Chair of the Council of Economic Advisers; and other liberal stalwarts. Together, we drafted what in 1978 became the Humphrey-Hawkins Full Employment and Balanced Growth Act.
. . . The Senate cut the planning heart from the bill. The press was hostile. Enactment changed nothing at the Carter White House.
Whatever Carter's critics did, they should have been pleased. Instead of accelerated public service employment, youth employment, and public works, we were offered a $25 billion tax cut, tilted toward business. Tax reform is mostly "deferred," and the special treatment is capital gains is secure. Welfare reform is apparently a Congressional dead letter, and along with it funds to double the present 700,000 public service jobs. . . .In October, the bill became law, yet there isn't a word of the event - surely if as historic and important as both supporters and detractors claimed - in Carter's published memoirs of his Presidency, Keeping the Faith.
These events, inevitably, will strengthen the view that Carter has shifted rightward since the election. In truth, ideologies don't change so quickly. Perceived conditions have changed, but the government's underlying approach to short-run economic policy dates at least from the Tax Reduction Act of 1975. It is "steady recovery at all costs". On the numerical short-run objectives - and on their paramount importance - Carter's Administration hardly differs from Ford's.
The Humphrey-Hawkins Full-Employment Bill of 1976 [it was still dated from its date of introduction, not having passed when this was published in spring, 1978], as a news event, typified the misrepresentations characteristics of this issue [full employment]. By itself, the bill would neither end unemployment nor bankrupt the Republic; . . . What it did contain were directives, guidelines for the formation of employment programs and economic policies in the future, that could have led to dramatic program and policy changes. But not necessarily.
What the 1976 bill did not leave to executive discretion was the principle that full employment take an absolute priority in the formation of economic policy. The Employment Act of 1946 prescribes "maximum employment, production, and purchasing power" as coequal policy goals; Humphrey-Hawkins would have replaced this with a flat commitment to 3 percent adult unemployment within four years. Other objectives, notably price stability, would have to be sought within the confines imposed by this commitment. The Nixon-Burns use of restrictive monetary and fiscal policies (1969 and 1973) to generate unemployment in the interest of containing inflation would have been forbidden.(emphasis added)
The overriding weakness of Humphrey-Hawkins (strangely, given the extravagant claims of both supporters and opponents) was that it did not go far enough in reordering economic policy. . . . In a compromise in early 1976, when Senator Humphrey became a principle co-sponsor of what had been the Hawkins-Reuss Bill in the House, a provision guaranteeing jobs as a matter of enforceable right was replaced by the "interim objective" of 3 percent adult unemployment within four years, thus permitting coverage of teenagers and disproportionately unemployed minorities to remain vague. . . .
In the 1977 version, which Carter supports, a largely symbolic statement becomes exclusively so. The "right" to employment becomes merely a "goal," the "Full Employment and Balanced Growth Plan" is subsumed in to the President's annual economic report, the explicit injunction that price stability "shall not ne sought through any weakening of the goals and timetables related to reduction of unemployment" has disappeared.
As Galbraith makes clear in his article, printed before the passage of Humphrey-Hawkins, the bill Carter supported, the bill that became law, was a toothless expression of "goals" and reports, without any specific policy prescriptions, except, as his 2011 article makes clear, what has become known as the "dual mandate" of the Fed both to keep unemployment low as well as inflation, and report biennially on progress toward these goals.
Paul Volcker, Carter's 1979 choice to head the Federal Reserve Open Market Committee (FOMC), saw "killing inflation was his number one priority."
Volcker realized he risked putting the economy into recession.Had Volcker in any way operated against Reagan's policy preferences, he would never have been renominated for Fed Chair in 1983. This alone shows that, despite the complaints that Carter was some odd creature called "tax-and-spend" liberal, in fact his fiscal and monetary policies were fundamentally indistinct from Reagan's. Furthermore, while signed and heralded with much pomp and circumstance, the Humphrey-Hawkins Full Employment Act of 1978, while making full employment a specific goal of our government's economic policy, it has been honored in the breach more than by following any of its proposals or mandates.
Interest rates soared. While the 3-month Treasury Bill was climbing from 8% in September of '79 to 12.5% by year end, the Fed wasn't counting on long-term rates rising as well, from the 9.2% level in September to 10.1% by December 31st. [In most normal environments, as the Fed is increasing short interest rates (the only thing they can influence directly), the longer end of the yield curve responds positively. Since the longer end represents "inflation expectations," by raising short rates you would expect
to eventually slow the economy and dampen inflation fears. Thus, the premium that investors demand for buying longer-term instruments should narrow, not widen.]
Into early 1980 interest rates across the board continued to rise and the economy tipped into recession (a mild one but an important one as far as the presidential election of 1980 was concerned). By the end of the first quarter, the long bond was yielding 12.3%. Treasury Bills were to peak that year in the second quarter, 15.6%. The inflation rate for the first quarter of 1980, as measured by the CPI was 14.6%.
Reagan won the election that November  and, as soon as the votes were tabulated, Volcker began to tighten interest rates more. The federal funds rate, which had averaged 11.2% in 1979, peaked at 20% in June 1981. The prime rate rose to 21.5% in '81 as well.
Treasury Bills hit 17.3% and the long-term bond was on its way to 15.3%.
By July 1981 the nation was in recession, and it would be a long, ugly one. [Economists choose November 1982 as the month the recession ended.] The manufacturing sector was decimated plus the combination of high interest rates and an expensive dollar sharply reduced American exports, particularly hurting farmers.
All in all, I believe both the spirit and letter of Rick Perlstein's quote from Pres. Carter's 1978 State of the Union speech as representative of an emerging consensus regarding the role of the federal government in fiscal, monetary, and employment policy in contrast to a far more activist position represented by the late Sen. Hubert Humphrey is sound. So, I eagerly await Bob Somerby's upcoming column to see if he claims otherwise.