802 Chapter 30 Running on Empty, 1975–1991
inflation, but taxes went up more rapidly
because larger dollar incomes put people in
higher tax brackets. This “bracket creep”
caused resentment and frustration among
middle-class families. “Taxpayer revolts”
erupted as many people turned against
expensive government programs for aiding
the poor. Federal borrowing to cover the
deficit pushed up interest rates and increased
the costs of all businesses that had to borrow.
Soaring mortgage rates made it more
difficult to sell homes. The housing slump
meant unemployment for thousands of car-
penters, bricklayers, and other construction
workers and bankruptcy for many builders.
Double-digit interest rates also hurt small
businesses seeking to expand. Savings and
loan institutions were especially hard-hit
because they were saddled with countless
mortgages made when rates were as low as
4 and 5 percent. Now they had to pay much
more than that to hold deposits and offer
even higher rates to attract new money.
Bad as inflation was in the mid-1970s,
it got worse in 1979 when further instabil-
ity in the Middle East nearly tripled the
price of oil, which now reached $34 a bar-
rel. This sent gasoline far over the $1 a gal-
lon price barrier many had thought
inconceivable. Within months Ford stock,
at thirty-two in 1978, plummeted to six-
teen; its credit rating with Standard and
Poor’s fell from AAA to an ignominious
BBB. Chrysler, the third largest automaker,
tottered near bankruptcy and then fell over
the edge, saved in mid-fall only by a
$1.2 billion federal loan guarantee. From
1978 to 1982, the jobs of one in three
autoworkers were eliminated.“Constant Decency” in Action
“It is a new world,” Carter declared in his first speech
on foreign affairs. In contrast to the shadowy dealings
and sly gambits of the Nixon-Kissinger years, he
would conduct a foreign policy characterized by
“constant decency.” The defense of “basic human
rights” would come before all other concerns. He
then cut off aid to Chile and Argentina because of
human rights violations. He also negotiated treaties
with Panama that provided for the gradual transfer of
the Panama Canal to that nation and guaranteed the
canal’s neutrality. But he said little about what was
going on in a long list of other nations whose citi-
zens’ rights were being repressed.Carter had promised to fight inflation by reduc-
ing government spending and balancing the budget
and to stimulate the economy by cutting taxes, poli-
cies that were very much like those of Nixon and
Ford. He advanced an admirable if complicated plan
for conserving energy and reducing the dependence
of the United States on OPEC oil. This plan would
raise the tax on gasoline and impose a new tax on “gas
guzzlers,” cars that got relatively few miles per gallon.
But in his typical fashion he did not press hard for
these measures.
The federal government made matters worse in
several ways. Wages and salaries rose in response to
The skyrocketing price of oil caused many to champion nuclear energy. But on March
28, 1979, the failure of a cooling system caused the Three Mile Island nuclear reactor
to overheat and generate radioactivity in the Harrisburg region. The reactor was shut
down five days later.