TIME: Almanac of the 20th Century

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<text> <title> (1970s) Recession & Shortages </title> <history> TIME--The Weekly Newsmagazine--1970s Highlights </history> <link 07721> <link 07545> <link 00777> <link 00174><article> <source>Time Magazine</source> <hdr> Recession & Shortages </hdr> <body> [By the time President Ford delivered his first State of the Union Address in January 1975, sketching a program of tax cuts and tax rebates to consumers, together with energy taxes, inflation was at a 14% rate and the U.S., along with most of the world, was in the worst recession since the 1930s. In the usual result of applying the "law of unintended effects," the worst complainers were the oil-producing countries who had caused the slump.] (March 3, 1975) All is far from well with the Organization of Petroleum Exporting Countries. Because world demand for crude oil diminished sharply in recent months, the cartel is feeling the strain of a rapidly building global surplus, and some prices are beginning to crumble around the edges. Storage tanks in Europe, the U.S. and elsewhere are brimming with oil. In some cases, ships are being turned into floating petroleum repositories. Oil-heavy tankers on the long voyage from the Persian Gulf are being ordered to slow down, because there is no place to for them to unload. Part of the oversupply can be traced to fuel conservation and a relatively mild winter. But the chief reason for collapsing oil demand is that most industrial nations are in the midst of recession--a situation that OPEC's high prices helped create. To maintain their prices in the face of the oil glut, OPEC members have been forced to reduce production substantially from 1974's average 33 million bbl. per day. Shrinking demand is putting an unexpected, if bearable crimp in the oil revenues on which many of the more populous states depend for their ambitious and costly development programs. Iran, for instance, stands to collect $1.7 billion less in revenues this year than the $20.9 billion it received in 1974, unless present pumping levels are increased. Venezuela estimates that its oil income will be down $1.5 billion, from $9.3 billion last year. (January 5, 1976) The energy bill signed into law by President Ford last week represented a full year's effort on the part of Congress, but it pleased almost nobody. Liberals conceded that while it will avert a sudden sharp rise in heating-oil and gasoline prices, it also virtually guarantees that Americans will go on using energy profligately. the controversial bill is politically palatable, but it will leave the nation far from the goal of energy self-sufficiency. Major provisions: OIL PRICES. The average price of crude oil produced in the U.S. will be rolled back from the current $8.75 per bbl. to $7.66 per bbl. in February (imported oil costs roughly $13 per bbl.). The cutback will amount to about 1 cent per gal. for gasoline and home-heating oil, but Federal Energy Administrator Frank Zarb doubts the savings will be passed on to consumers. Reason: all of the rollback will be absorbed by the rising costs of suppliers' operations. Increases in the price of domestic crude oil will be limited to 10% a year until May 31, 1979, when price controls will end unless extended by Congress. ENERGY EFFICIENCY. Beginning in 1977, automobile manufacturers must meet progressively stricter gasoline-mileage standards; by 1985 the average car must get 27.5 miles per gal., an improvement of more than 50% over the current average. Most U.S. automakers complain that meeting the requirements will require an unforeseen technological breakthrough, a relaxation of exhaust-emission standards and a massive switch by consumers to automobiles about the size of General Motors' tiny Chevette, which seats four passengers and gets 32 miles per gal. [President Ford's energy proposals were only the first program that took an unconscionable amount of time for Congress to enact. It was followed by Jimmy Carter's.] (May 2, 1977) So now the one-week blitz was over--the most intensive effort by a U.S. President, in or out of wartime, to rally the nation behind a common cause. A stream of high Government officials sought out television interviews and speech appearances to continue the crusade. And Jimmy Carter had clearly achieved his first, vital goal: he had captured the public's attention and convinced a vast majority of Americans that the nation's energy shortage was genuine and steadily growing worse. The measures were far milder than those suggested by the apocalyptic terms in which he couched the crisis in his Monday-night address to the people, and their mildness would neither rally the country nor solve the energy dilemma. After asking Americans to wage "the moral equivalent of war" in meeting "the greatest challenge that our country will face during our lifetime," Carter put forward proposals that were hardly draconian. (Humorist Russell Baker observed that the acronym for moral equivalent of war is MEOW.) In general, Carter would let domestic oil prices rise to world levels, increase prices of newly discovered natural gas by 20% (to approach oil prices), slap a 5 cents-per-gal. tax on gasoline each year if conservation goals were not met, and use tax penalties on "gas guzzler" cars and rebates on small cars to encourage purchasers to select energy-efficient autos. To many liberals, this was not going far enough. "Large Chevy owners will now have to switch to small Chevies. I don't consider this a sacrifice," said Tom Quinn, special assistant on environmental protection to California Governor Jerry Brown. Beyond the rather modest sacrifices Carter asked of most individuals, his program offered some incentives for saving fuel. Both homeowners and businesses could receive tax credits for installing insulation, storm windows and weather stripping in their buildings. Overall, the package seemed well designed to wend its way past the broadest political hazards. It appeases some conservatives by letting oil and gas prices rise--but does not offend liberals by removing controls completely or allowing the producers to reap higher profits. It encourages coal production and conversion, as well as a speedier expansion of nuclear power plants, without lifting environmental safeguards. (August 1, 1977) Can Americans really be persuaded that less is more? The nation's automakers, who for years emphatically argued precisely the opposite, are now betting heavily the answer is yes. With the start of the annual model changeover period, they have begun a massive retooling effort in which they will spend a record amount, some $2.5 billion, to bring about the broadest changes since Detroit sprouted tail fins in the 1950s. Now the industry's favorite new verb is "downsizing," and the products that will begin appearing in the showrooms in about eight weeks will define what that means: cars that are shorter, lighter, and, if not cheaper to buy, at least easier on gas. In the process, the industry will introduce no fewer than 13 new or substantially altered model lines and drop several others, while further blurring the already fuzzy categories of car size. A 1978 full-size car will be about as big as a 1977 mid-size model, and a 1978 intermediate will look more like a 1977 compact. A good many of the new names due to appear in showrooms will be carried by subcompacts being introduced to do battle with the smaller, zippier imports, such as the Honda Civic and Volkswagon Rabbit, whose sales are booming. GM's current entry in their field, the trim little Chevette (base price: $3,225, v. $3,499 for a Rabbit), was introduced in 1975, but Chrysler now plans to follow with the country's first front-wheel-drive subcompacts, the Dodge Omni and Plymouth Horizon. Ford, too, will offer a front-wheel-drive subcompact, the Fiesta, though the car will be built by Ford subsidiaries in Europe and shipped to the U.S. American Motors' entry in the subcompact field will be the Concord, a shorter, lighter version of the Hornet, which is being shelved. There are signs that motorists are not overjoyed with this solution. GM officials conclude that when the company trimmed down its bigger cars this year, many buyers deserted to Ford and Chrysler. Now, with the whole industry downsizing, big-car addicts will find fewer alternatives. (August 15, 1977) While friends and congressional supporters applauded, Jimmy Carter whipped out a black pen and scrawled his signature across an inch-thick bill. With that simple ceremony in the White House Rose Garden last week, the President brought into being the Department of Energy, the first new Cabinet agency to be established since the creation of the Department of Transportation in 1966. In another Rose Garden ceremony, James Schlesinger was sworn in as the first Secretary of Energy. It was a fitting climax to a week that witnessed an impressive flurry of successes for Carter's energy program. At the onset of his presidency, Carter had selected energy as the test case by which he was willing to be judged. Now, only 130 days after he sent his first energy message to Congress, the results were rolling in faster and more favorably than almost anyone had dared to predict. In addition to the creation of the Department of Energy, the House last week passed the President's package of energy legislation almost unwrapped: no more than a few ribbons were torn off. The Senate is likely to act favorably on it when Congress returns next month from its August recess. (October 24, 1977) The ingratiating smile was gone. The blue eyes were ice cold. The voice, normally subdued, even soporific, was suddenly brittle. Not since John Kennedy assailed steel-industry leaders 15 years ago for abruptly raising prices had an American President so harshly attacked a band of business executives. Jimmy Carter accused U.S. oil companies of seeking "the biggest rip-off in history," of trying to "rob" American consumers, of "potential war profiteering" in the battle over energy. Declaring that "enormous amounts of money" are involved in his beleaguered energy program, the President charged that "the oil companies apparently want it all." The outburst of presidential wrath at a televised press conference last week was no accident. It was a deliberate, carefully calculated tactic in Carter's fight to salvage his priority package of energy legislation, which is being gutted in the Senate. It also reflected his genuine fear--and that of advisers like Energy Secretary James Schlesinger--that unless Congress acts soon to reduce U.S. dependence on imported oil, the inevitable consequences will be oil and gas shortages and a further mammoth, inflationary deficit in the U.S. balance of trade. The nation is now spending an appalling $45 billion a year to import oil, and the estimated trade deficit for this year is as high as $25 billion, compared with $5.9 billion last year. [The Carter "emergency" energy plan languished for more than a year as the Senate bickered over how to decontrol the prices of oil and especially natural gas. Meanwhile, inflation continued apace and had an especially devastating effect on one large group of Americans: homeowners.] (May 8, 1978) As inflation pushes housing prices through the roof, property taxes are shooting up as well, ripping gaping holes in family budgets and sending homeowners into angry protests against local taxes and spending of all sorts. Says James Tobin, president of the National Taxpayers United of Illinois: "People are in a rebellious mood. They feel school taxes are out of control when they have to pay for courses on kindness and ethnic studies, while reading and writing skills decline." Spontaneous taxpayer crusades are popping up from Connecticut to Oregon. In Idaho and Arizona, homeowners are pushing petitions to limit property taxes. In Florida, a proposed state constitutional amendment would force a 29% rollback in local property taxes and require a two-thirds vote of the legislature to increase taxes in the future. Legislatures in at least ten other sates are considering property relief of one form or another. The most dramatic protest is in California, where 1.5 million people have signed petitions and forced a statewide vote to be held June 6 on Proposition 13, the so-called Jarvis-Gann initiative. If approved, Jarvis-Gann would force all property to be reassessed at the market value that prevailed in 1975-76 and prevent local authorities from increasing the assessments in the future by more than 2% a year, at least until the property is sold. After that, the rate would be based on what the new owner paid. The amendment would produce an immediate cut of as much as 60% in property taxes for homeowners. (June 19, 1978) That sound roaring out of the West-what was it? A California earthquake? A Pacific tidal wave threatening to sweep across the country? Literally, it was neither: figuratively, it was both. That angry noise was the sound of a middle-class tax revolt erupting, and its tremors are shaking public officials from Sacramento to Washington, D.C. Suddenly all kinds of candidates in election year 1978 are joining the chorus of seductive antitax sentiment, assailing high taxes, inflation and government spending. The full significance of the revolt--and it is nothing less than that--was made plain by the magnitude of the victory won by proponents of California's now famous, or infamous, Proposition 13: 4.2 million voters supported the measure, overwhelming by nearly 2 to 1 the 2.3 million who refused to go along. It was as though millions of the state's taxpayers had thrown open their windows like the fed-up characters in the movie Network and shouted in thunderous unison: "I'm mad as hell--and I'm not going to take it any more!" [In October 1978, Carter went on the attack against inflation again, reinstating wage and price guidelines to stem the rising tide, promising to curb government deficits that were driving up interest rates and taking measures to stem a worldwide run on the dollar. Once again, however, all efforts were set at nought by another round of huge petroprice rises. They were accompanied by massive new shortages caused by the turmoil in Iran's oil fields arising from the revolution that toppled the Shah.] (January, 1, 1979) If Jimmy Carter tried to describe one of his worst nightmares, he might report that he had imagined seeing a group of Arab oil ministers waving AK-47 Soviet rifles above their heads and dancing like dervishes on the tennis court of the Hilton Hotel in Abu Dhabi. The reason for their jubilation, in this nightmare, was that they had just engineered a huge increase in the price of crude oil. Unfortunately, this was no Arabian Nights fantasy but sobering reality last week. Several Arab ministers really did take part in a "Dance of the Rifles" to celebrate the sixth price boost by the Organization of Petroleum Exporting Countries since 1973, and potentially one of the most devastating. While the Carter Administration had optimistically expected a modest increase of between 5% and 10%, the 13 OPEC nations agreed on a 14.5% hike to be imposed in stages at three-month intervals in 1979. The timing could hardly have been worse. Carter must cope with an intolerably high rate of inflation, expected to be 9.5% for 1978, and the prospects of a recession next year; the OPEC decision significantly augments both problems and makes them that much harder to deal with. (April 9, 1979) After two days of stormy meetings, the OPEC minister agreed to raise their prices for the second time in a little more than three months--on this occasion by 9%, bringing the cost of a barrel of the marker crude, Saudi Arabian light oil, to $14.55 per bbl. Though that alone would fatten OPEC's already bulging bank accounts with an additional $20 billion annually from the U.S., Western Europe and Japan, as well as more foreign exchange from the have-not nations of the Third World, the cartel also moved to allow individual members to stick on whatever price- gouging surcharges and premiums they think they can get away with. That made official policy a tactic that many producing countries have been following all winter anyway. Finally, as if to add insult to financial injury, the OPEC representatives went out of their way to try to put the blame for the increase on the industrial countries, which they chide for not curbing both energy consumption and the inflation that is eroding the value of their petrodollars. (April 16, 1979) When he announced his first energy policy, way back in 1977, Jimmy Carter summoned the nation to a "moral equivalent of war," which was to be fought through a highly complex program of tax incentives and other gimmicks, and focused on conservation as the key to solving the nation's twin problems of declining oil production and rising dependence on price-gouging foreign suppliers. The new plan that he outlined in his plain-spoken, 23-minute Oval Office address last week was far simpler--and much more likely to be effective. Henceforth, old-fashioned marketplace economics is to be the basic engine to spur not only fuel saving but also a much needed, intensified search for new domestic supplies. But as Carter promised, the change will be painful: during the coming months and years, U.S. oil prices will leap up, forcing consumers to dig even deeper into their pockets to pay for gasoline and heating oil and giving an upward kick to the country's already hurtful inflation. The new policy also promises much political pain and peril for Carter. The essence of his program is to strip away the controls that have held the cost of domestically produced crude oil at artificially low levels ever since the post-embargo days of 1974. Next month, using Executive authority, he will order a gradual phase-out of the controls so that they will be entirely eliminated by Oct. 1, 1981, when by law they would have expired anyway. To prevent handing what he sees as an unearned bonanza to the oil companies, Carter called on Congress to enact a "windfall profits tax." It would skim off about half the $13 billion or so of extra revenue that oil firms stand to get as the price of domestic crude oil, which now averages $9.45 per bbl., rises to the world level. At the moment, that figure is $14.55 for OPEC oil. Under Carter's plan, the proceeds of the oil tax would be funneled into an Energy Security Fund that would bankroll the development of alternative energy sources such as solar power and coal gasification, help low-income families pay for the rising cost of fuel and stimulate the development of energy-efficient mass transit systems such as rail and bus service. (July 2, 1979) Gasoline lines, which once seemed a temporary California phenomenon, were snaking through the suburbs of Washington and streets of Manhattan, and by last week had spread all up and down the Eastern seaboard. Seven states--Connecticut, Florida, Maryland, New Jersey, New York, Texas and Virginia--and the District of Columbia had to begin odd-even allocation. Independent truckers, who charge that rising fuel prices are depriving them of a livelihood, started a strike that soon led to food shortages, scattered violence and threats of worse to come. Although the Department of Energy had contributed to the gas shortage by urging oil companies to build up the depleted stocks of heating fuel, it was disclosed last week that home fuel prices will be a paralyzing 80 cents per gal. by next winter (up almost 50% from last winter) and there will be shortages too. Across the U.S., as citizens struggle with the irritation of gas lines and dollar-a-gallon prices, a large number persist in believing that the whole mess has been deliberately contrived by the oil companies, aided and abetted by Government collusion or ineptitude. Washington in fact cannot evade the charge of bungling. A few weeks ago the Department of Energy was predicting that gasoline supplies would be more plentiful in June than in May. Now officials confess that they have no idea how much gas drivers can count on buying for the rest of the month, the summer, the year. (December 24, 1979) It was a $6-per-bbl. Saudi shocker, and it could not have come at a more anxious moment. Four days before the 13 member nations of the Organization of Petroleum Exporting Countries were to sit down in Caracas for their fourth price-raising session in a year, the cartel's biggest producer took preventive action. In a surprise announcement that whipped the money markets into a frenzy and sent gold leaping to yet another all-time high of $462 per oz., the desert kingdom of the House of Saud, long regarded as the quintessential OPEC moderate, announced one of the biggest increases in the cartel's 19-year history. The Saudi move amounted to a startling 33% jump from its previous price of $18 per bbl., to $24, and it means still more inflation for the world. Other so-called OPEC moderates also posted increases. Venezuela, the cartel's fourth largest producer, moved from $20 per bbl. to $24, while Qatar and the United Arab Emirates went from $21.50 to about $27.50. </body> </article> </text>