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By abandoning the principles of New Deal liberalism in favor of market-oriented policies, President Carter severed the party from the ideals that had long defined its identity.
As Americans—and much of the world—struggle to comprehend the chaotic downward spiral of U.S. politics, the passing of the 39th president, James Earl Carter Jr., has unsurprisingly sparked a wave of collective nostalgia. Many obituaries lean toward hagiography, celebrating his rise from humble beginnings in rural Georgia to the White House, his Nobel Peace Prize, and his tireless humanitarian work, both during his presidency and in later years.
This praise is both understandable and, to an extent, warranted. Carter’s honesty, integrity, and faith—rare qualities in any era—stand in stark contrast to the perceived deficiencies of today’s political leaders.
Yet Carter’s legacy demands a more critical examination. His presidency, long dismissed as inconsequential, was in fact a pivotal turning point in American history, particularly for economic management. It marked the beginning of a fundamental shift away from the New Deal liberalism that had defined Democratic economic policy for decades, and toward the market-oriented framework that would come to characterize neoliberalism. This transformation not only laid the foundation for many of the challenges that continue to plague American politics but also reshaped the Democratic Party itself. Carter’s presidency, therefore, is not just a historical curiosity; it is a key moment in understanding the economic and political trajectory of the United States today.
TO EXPLAIN HOW AN UNKNOWN PEANUT FARMER rose to the highest office in the land, many point to the atmosphere of national trauma surrounding the 1976 election. The Vietnam War and the Watergate scandal had left the nation deeply disillusioned, and Carter’s promise to restore morality and integrity to a disgraced political system struck a chord with voters. Many political analysts of the time argued that following decades of postwar prosperity, average Americans were no longer swayed by economic appeals and had shifted their focus to cultural and social issues such as racial integration, women’s rights, and questions of war and peace. In this new political landscape, white Southerners and conservative, ethnic blue-collar workers—once critical pillars of Democratic support—had begun abandoning the party in droves.
The election of 1976 appeared to challenge these arguments. In the wake of the 1973 oil crisis and the deep recession of 1974-1975—the worst economic downturn since the Great Depression—most voters identified unemployment and inflation as their top concerns. Although Carter was an unfamiliar figure, his position as the Democratic nominee allowed him to align himself with the party’s long-standing reputation for economic prosperity and fairness. His campaign appealed to the party’s base and key stakeholders by endorsing expansive liberal policies, including a comprehensive national health insurance plan and a Full Employment Bill. Though Carter’s support for these programs appeared lukewarm to some observers, many voters took his promises at face value.
Carter’s victory appeared to challenge the notion that the economic appeal of New Deal liberalism had lost resonance with voters. The election had a clear class dimension. Carter won nearly 60 percent of blue-collar workers and union households, while also securing strong support from lower-income whites and Blacks in the South. This raised hopes of building a post–civil rights, biracial coalition in the region that could revitalize the Democratic Party’s base in the aftermath of the civil rights era. As The New York Times observed, “[T]hose with modest means turned out in plenitude, and in Mr. Carter’s behalf,” with 62 percent of voters in the lowest income bracket casting their ballots for him.
Yet Carter’s presidency marked a conservative shift in the Democratic Party’s approach to economic management. Since the Great Depression, the party had built its reputation as the champion of working- and middle-class prosperity, firmly committed to using the federal government to manage the economy and address the most glaring inequities of the free market. This was achieved through the creation of a welfare state, regulation of key industries, protections for organized labor, and a steadfast dedication to maintaining high employment.
For decades, many Americans judged these policies by their tangible results. In the postwar era, the material improvements in their lives were unprecedented. Rising living standards brought not only better wages, housing, and health care, but also intangible benefits: greater economic security, personal independence, and access to education.
However, by the mid-1970s, the economic dynamics that had underpinned the postwar boom had unraveled. Once the unrivaled power in the wake of World War II, the United States now found itself just one player in an increasingly globalized economy. The nation was grappling with soaring energy costs, intensified global competition, sluggish productivity growth, and widespread deindustrialization. These forces contributed to the emergence of stagflation—a previously nonexistent phenomenon characterized by high inflation, stagnant growth, and persistent unemployment. Unlike his Democratic predecessors, who had the luxury of distributing the spoils of economic progress, Carter faced a far harsher reality. His presidency was defined not by abundance but by scarcity, forcing him to confront challenges that would reshape the party’s economic philosophy.
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President Carter spoke to the nation from the Oval Office on July 15, 1979, asking the country to “join hands” to solve the nation’s energy problems.
WHILE CARTER’S CAMPAIGN CAREFULLY CRAFTED his public image as a humble peanut farmer and Sunday school teacher, his defining views on foreign and economic policy were shaped elsewhere—most notably through his involvement with the Trilateral Commission. Established in 1973 by David Rockefeller, chairman and CEO of Chase Manhattan Bank, the Commission’s membership was primarily composed of representatives from the international business, banking, and finance sectors, which had grown in strength and influence over the preceding decades. The Commission’s central goal was to create optimal conditions for foreign investment and the free flow of capital in an increasingly globalized economy. Rather than relying on what it saw as outdated national frameworks, it advocated for greater policy coordination among the dominant industrial regions of North America, Japan, and Western Europe. While wielding no direct authority, its ideological influence was unmistakable in the Carter administration, which featured over 40 former members.
Carter’s experience as governor of Georgia further shaped his views. He came to believe that many government programs were inefficient and poorly managed, fostering skepticism of large-scale federal interventions. In Carter’s view, the economic crises of the 1970s could not be solved through traditional New Deal–style policies. Instead, he advocated reducing the size of government, balancing the budget through welfare and tax reform, deregulating key industries, and expanding global trade. These views ran in contrast to a generation of liberal Democrats, many of the party’s major stakeholders, and much of its voter base, who remained committed to the interventionist principles of New Deal liberalism.
Once in the White House, Carter made efforts to engage with liberal Democrats, labor unions, and other key party activists. However, these groups often criticized him for prioritizing the appearance of cooperation over genuine collaboration. Despite introducing initiatives such as national health insurance, full employment, welfare reform, and labor law reform, Carter’s overriding focus on reducing the size and cost of these programs frequently undermined their broader goals. The result was often watered-down legislation that failed to gain strong support from stakeholders and left congressional Democrats increasingly frustrated with his leadership.
Carter’s difficulties were compounded by his inability to advance major parts of his agenda, most notably energy and tax reform. While these initiatives aimed to address pressing national issues with equitable solutions, Carter’s reluctance—or inability—to negotiate and build coalitions in Congress severely limited their effectiveness. By the time both programs were enacted, they fell short of their initial promises.
In an era of soaring inflation and rising living costs, many Americans came to view the sacrifices demanded by Carter’s policies as disproportionately affecting ordinary workers. Despite Carter’s assurances that burdens would be fairly distributed, this perception alienated the very constituencies he sought to help. It also fueled an anti-tax revolt, and a growing sentiment that the federal government was out of touch with the struggles of ordinary citizens—two themes later championed by Ronald Reagan.
Despite growing discontent, Carter’s economic performance remained relatively solid during his first two years in office, helping to deflect some criticism. Yet this stability unraveled in late 1978 when the Iranian revolution triggered a second oil crisis, sending inflation soaring into double digits. In response, Carter embraced fiscal discipline as the solution, promising to halve the FY1980 federal deficit, with much of the spending reductions coming from employment and social welfare programs. He also appointed Paul Volcker as Federal Reserve chair, signaling a shift toward strict monetary policies designed to combat inflation.
Any potential benefits of these measures were overshadowed by Carter’s controversial decision in March 1979 to decontrol oil prices, based on the belief that higher prices would encourage conservation. Instead, inflation continued its upward spiral, and voters were outraged by the astronomical windfall profits accrued by oil producers. The resulting combination of rising costs and the perception of favoritism toward corporate interests only deepened public frustration, further eroding Carter’s standing with the very constituencies he was elected to support.
On July 15, 1979, Carter delivered his now-infamous “Crisis of Confidence” speech. In it, he blamed the nation’s struggles on what he described as a moral and spiritual decline, accusing Americans of “worship[ping] self-indulgence and consumption.” By shifting much of the responsibility for the crisis onto the public, Carter appeared to overlook structural issues like rising inflation, energy shortages, and economic stagnation, which were the true root causes of the turmoil.
Initially, the speech was well received, with many Americans appreciating its candor. However, three days later, Carter fired his entire cabinet, fueling the perception of an erratic presidency without direction. As economic conditions continued to deteriorate, the speech’s tone came to symbolize Carter’s perceived inability to lead effectively during a time of crisis. What began as an appeal for unity and resilience was ultimately interpreted as a lecture in blame-shifting. Carter’s approval ratings plummeted to record lows, sinking even below those of Nixon during the height of the Watergate scandal.
AS THE 1980 ELECTION APPROACHED, liberal and labor factions of the Democratic Party grew increasingly hostile toward the president. Many accused him of using unemployment to reduce inflation, a policy anathema to Democrats. They began to focus on convincing Sen. Edward Kennedy (D-MA) to mount a primary challenge; many believed he would be a defender of the party’s traditional values of fairness and equality.
Recognizing that re-election was impossible without the support of the party’s base, the Carter White House attempted to repair its strained relationship with organized labor. Lane Kirkland, the newly appointed head of the AFL-CIO, made it clear that any reconciliation would require a significant shift in the administration’s economic policy. In September 1979, both parties signed the National Accord. Under the agreement, labor unions would moderate wage demands in exchange for greater influence over policymaking, with the shared goals of achieving full employment and expanding social services.
Kirkland saw the Accord as a foundation for moving toward a European-style social democracy, envisioning a more collaborative relationship between labor and government. However, the White House appeared to view the agreement less as a transformative policy framework and more as a tactical maneuver to neutralize labor’s growing support for Kennedy. This perception undermined the Accord’s credibility and limited its potential to heal the rift between Carter and the labor movement.
Harvey Georges/AP Photo
President Carter talks with Charles Schultze, his chief economic adviser, during a meeting in the Oval Office on January 11, 1978.
To address the nation’s long-term structural weaknesses, many on the left argued for a more expansive industrial policy. Kirkland, ever proactive, partnered with investment banker and longtime Democratic adviser Felix Rohatyn to formulate a bold proposal: a Reindustrialization Financing Corporation tasked with steering investment into new infrastructure and manufacturing technology, while also aiding distressed regions and industries deemed vital to the national interest. The corporation’s board would include representatives from government, business, and labor, and it would be funded through a combination of public and private capital. To further integrate labor into the process, Kirkland proposed leveraging employee pension funds, ensuring that unions would be a “partner, not a special interest.”
The plan found support among liberal Democrats, who saw it as a potential centerpiece for the upcoming presidential campaign. However, it faced strong opposition from Carter’s free-market proponents. Council of Economic Advisers chair Charles Schultze and special adviser on inflation Alfred Kahn were particularly vocal in their criticism. They argued that the proposal would allow organized labor and big business to use government resources to shield themselves from necessary competition, ultimately creating inefficiencies and monopolies. As Schultze bluntly put it, “Too often … large business and large labor combine to screw the public.”
Carter sided with Schultze and Kahn. Rather than embracing the industrial-policy proposal, he doubled down on his existing economic agenda. This included the deregulation of major industries—including airlines, railroads, trucking, and banking—that would have major ramifications for decades, weakening worker power, exacerbating financial crisis, and setting the stage for the post-pandemic supply chain crunch. Rather than industrial policy creating monopolies, there are now four major airlines, six big railroads that have carved up the country, and a more consolidated banking sector than we’ve seen in decades.
IN NOVEMBER, THE ELECTORAL LANDSCAPE shifted dramatically as the Iranian hostage crisis provided Carter with a desperately needed surge in support heading into the primaries. Just a month later, the Soviet invasion of Afghanistan further fueled a wave of patriotic sentiment. A president whose competence had been routinely questioned now appeared politically untouchable. This newfound momentum, combined with the reluctance of many party stakeholders to openly oppose a sitting president, enabled Carter to reclaim the Democratic nomination. Kennedy’s challenge fell short, though he did weaken Carter.
However, the respite was short-lived. By March, inflation had soared to a staggering 18 percent, with the Treasury issuing a dire warning of a “new and now universal perception … that inflation is out of control.” In response, Carter announced an additional $13 billion in budget cuts, vowing that no area of government would be spared. Yet, conspicuously, his pledge to increase real defense spending by almost 25 percent by 1985—made in response to the crises in Iran and Afghanistan—remained untouched, highlighting the contradictions in his approach to fiscal discipline.
To combat inflation, the White House and the Federal Reserve imposed strict consumer credit controls. However, these measures were far more effective than intended, plunging the economy into a disastrous election-year recession. In the second quarter of 1980, the annual GDP rate dropped by a staggering 9.6 percent—the largest quarterly decline in the postwar era—and by July, unemployment had climbed to 8 percent. Schultze acknowledged that “unemployment in this recession is perhaps even more than usually concentrated among blue-collar males holding industrial jobs.” Unemployment in the manufacturing sector exceeded 10 percent, while specific industries such as housing construction and automobile manufacturing were hit particularly hard, with joblessness in the latter peaking at an alarming 29 percent.
Under growing economic and political pressure, the White House and the Federal Reserve abruptly reversed course, adopting a looser monetary policy. However, this shift came too late to stave off disaster. Inflation remained in double digits through Election Day, while unemployment stayed high at 7.5 percent. The combination of soaring prices and widespread job losses only deepened public frustration, effectively sealing Carter’s fate in the 1980 election.
ON THE CAMPAIGN TRAIL, CARTER TOUTED his deregulation agenda as “the greatest economic program since the New Deal.” In contrast, the Reagan campaign made a concerted effort to court disaffected Democrats. Rather than focusing on divisive cultural issues, Reagan’s advisers strategically steered him away from his socially conservative positions, urging him to emphasize “pocketbook issues” in an appeal to elements of the old New Deal coalition. Reagan consistently argued that his supply-side tax cuts would spur investment, generate full employment, and ultimately increase tax revenues—enabling the government to maintain high levels of social services.
As The New York Times observed, “the Republicans are trying to look like Democrats this year,” highlighting their efforts to project concern for the working class, the poor, and minorities. By framing themselves as the party of economic prosperity, Reagan and his team sought to rebrand the Republican Party in a way that resonated with voters facing economic hardship.
Carter’s presidency represents a critical turning point in the history of the Democratic Party and the nation. By abandoning the principles of New Deal liberalism in favor of market-oriented policies, Carter severed the party from the very ideals that had long defined its identity and earned it the loyalty of working- and middle-class voters. His administration’s embrace of deregulation, budget cuts, and limited federal intervention signaled a departure from the expansive economic policies that had sought to address inequality and provide economic security for ordinary Americans.
While Carter may have acted out of a genuine belief that these shifts were necessary to confront the economic challenges of the 1970s, the consequences of this ideological pivot have been far-reaching. His policies laid the groundwork for the neoliberal consensus that has dominated American politics for decades, prioritizing market efficiency over social safety nets and economic protections that many Democratic voters once relied upon. This shift alienated key constituencies, undermined organized labor, and contributed to growing economic inequality—problems that persist to this day.
As we continue to grapple with the fallout from stagnant wages, deindustrialization, and the erosion of government safeguards, it is clear that the legacy of Carter’s presidency remains deeply relevant. His tenure not only reshaped the Democratic Party but also set the stage for many of the economic and political struggles we face today. The question for Democrats moving forward is whether they will continue to operate within the framework Carter helped create or reclaim the bold, interventionist policies that once defined the party’s commitment to fairness, equality, and economic justice.
