Despite his political shortcomings, Gerald Ford received the Republican presidential nomination in 1976 and ran against James Earl (Jimmy) Carter, a little-known former governor of Georgia, who used his “outsider” status to his advantage. Shaping his campaign with Watergate in mind, Carter stressed personal character over economic issues. As a moderate, postsegregationist governor of Georgia, Carter won the support of the family of Martin Luther King Jr. and other black leaders. Carter needed all the help he could get and eked out a narrow victory.

The greatest challenge Carter faced once in office was a faltering economy. America’s consumer-oriented economy depended on cheap energy, a substantial portion of which came from sources outside the United States. By the 1970s, four-fifths of the world’s oil supply came from Saudi Arabia, Iran, Iraq, and Kuwait, all members of the Arab-dominated Organization of Petroleum Exporting Countries (OPEC). The organization had been formed in 1960 by these Persian Gulf countries together with Venezuela, and it used its control of petroleum supplies to set world prices. In 1973, during the Nixon administration, OPEC imposed an oil embargo on the United States as punishment for its support of Israel during the Yom Kippur War with Egypt and Syria. The price of oil skyrocketed as a result (see “Crisis in the Middle East and at Home” in chapter 28). By the time Carter became president, the cost of a barrel of oil had jumped to around $30. American drivers who had paid 30 cents a gallon for gas in 1970 paid more than four times that amount ten years later.

Energy concerns helped reshape American industry. With energy prices rising, American manufacturers sought ways to reduce costs by moving their factories to nations that offered cheaper labor and lower energy costs. This outmigration of American manufacturing had two significant consequences. First, it weakened the American labor movement, particularly in heavy industry. In the 1970s, union membership dropped from 28 to 23 percent of the workforce and continued to decline over the next decade. Second, this process of deindustrialization accelerated a significant population shift that had begun during World War II from the old industrial areas of the Northeast and the Midwest (the Rust Belt) to the South and the Southwest (the Sun Belt), where cheaper costs and lower wages were enormously attractive to businesses (Map 27.2). Only 14 percent of southern workers were unionized in a region with a long history of opposition to labor organizing. Consequently, Sun Belt cities such as Houston, Texas; Atlanta, Georgia; Phoenix, Arizona; and San Diego, California, flourished, while the steel and auto towns of Youngstown, Ohio; Flint, Michigan; and Johnstown, Pennsylvania, decayed.

These monumental shifts in the American economy produced widespread pain. Higher gasoline prices affected all businesses that relied on energy, leading to serious inflation. To maintain their standard of living in the face of rising inflation and stagnant wages, many Americans went into debt, using a new innovation, the credit card, to borrow collectively more than $300 billion. The American economy had gone through inflationary spirals before, but they were usually accompanied by high employment, with wages helping to drive up prices. In the 1970s, however, rising prices were accompanied by growing unemployment, a situation that economists called “stagflation.” Traditionally, remedies to control inflation increased unemployment, yet most unemployment cures also spurred inflation. With both occurring at the same time, economists were confounded, and many Americans felt they had lost control over their economy.

President Carter tried his best to find a solution. To reduce dependency on foreign oil, in 1977 Carter devised a plan for energy self-sufficiency, which he called the “moral equivalent of war.” Critics called the proposal weak. A more substantial accomplishment came on August 4, 1977, when Carter signed into law the creation of the Department of Energy, with responsibilities covering research, development, and conservation of energy. In 1978, he backed the National Energy Act, which set gas emission standards for automobiles and provided incentives for installing alternate energy systems, such as solar and wind power, in homes and public buildings. He also supported congressional legislation to spend $14 billion for public sector jobs as well as to cut taxes by $34 billion, which reduced unemployment but only temporarily.

In many other respects Carter embraced conservative principles. Believing in fiscal restraint, he rejected liberal proposals for national health insurance and more expansive employment programs. Instead, he signed into law bills deregulating the airline, banking, trucking, and railroad industries, measures that appealed to conservative proponents of free market economics. Carter’s foreign policy, however, turned out to be less of a continuation of the policies of the Nixon administration’s principles (see “Carter’s Diplomacy, 1977–1980” in chapter 28).