President Carter
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So Senator Long, who normally would not have been caught dead with such liberal, proconsumer senators as Metzenbaum and Abourezk, worked with them to kill the compromise. John Tower, a conservative Texas Republican, lined up against the bill with the liberal standard-bearer, Ted Kennedy. Amoco was working hand in glove with its mortal enemy James Flug, my frequent visitor from the consumer group Energy Action. The U.S. Chamber of Commerce, almost always on opposite sides from the AFL-CIO and the UAW in any political battle, coordinated efforts to strike down the compromise and the tax provisions of the bill.22
As the floor vote came closer, feelings were raw. Senator Don Riegle, a Michigan Democrat, told me he was leaning against the bill but might shift if it appeared we would lose. But he took a hard and I felt undeserved shot at Schlesinger as “the worst choice for secretary; he can’t deal with people.”23 The most colorful comment came from Senator Joe Biden, never known for rhetorical restraint even as he rose to become vice president of the United States. He declared himself “against the bill, but I would like to stick it up Senator Kennedy’s ass.”24 He was offended by his fellow liberal’s vociferous opposition and told me he might be able to help us keep the compromise alive by voting against any motion to send the bill back to die in the Conference Committee.
For the majority in Congress who had not served on any of the relevant committees, the details of the president’s much-compromised program were new and prompted many of the questions we had long debated. We developed a detailed set of talking points to go through the main arguments in favor of this fundamental reform—nationwide availability of natural gas at predictable prices to help substitute for imported OPEC oil; protection for the dollar abroad and against predatory energy prices at home; and much else. We pointed up that opponents had offered no alternatives, had entered into a marriage of convenience to block the bill, and that the continuation of two separate markets for natural gas, one within producing states, the other when gas flowed between states, was harmful because the country needed cheaper gas to fulfill its energy needs from our own resources. These were indeed powerful, irrefutable facts. But the political opposition to deregulation relied on emotion as much as logic.
I was nevertheless impressed how genuinely conscientious and even bipartisan most were about their vote. They realized it was important to the president and the country. John Danforth of Missouri, a tall, impressive ordained Episcopal priest as well as a highly intelligent, thoughtful politician, expressed his belief in decontrol but was concerned that the complex package was an invitation to litigation and uncertainty. I told him the complexity was an inevitable by-product of the competing interests that had to be accommodated to reach a final deal. Then in a spirit totally alien to today’s politically divisive atmosphere, this Republican senator said, “If I vote for it, it is because I do not want to hurt the president.”25
Senator Joe Clark, a Pennsylvania Democrat, called with a number of questions: How much would the plan cost homeowners? Would it help increase the domestic supply of gas, and how would it affect our balance of payments? Would the Federal Energy Regulatory Commission be able to administer such a complex law? I answered his questions and was comforted when he ended the conversation by saying, “You guys are awfully convincing.”26
But many also had their price. One of the Senate’s most notable Republican conservatives, Strom Thurmond of South Carolina, told Schlesinger we would get his vote in exchange for continued federal support for the Barnwell nuclear waste site in his home state. We guaranteed it.27 Senator John Heinz, a Pennsylvania Republican and heir to the eponymous ketchup fortune, told Treasury undersecretary Tony Solomon that he wanted a “cheap trade” for his natural-gas support,28 which turned out to be only a request for assurance that we would properly fund the Environmental Protection Agency.29 Senator DeConcini had a strange request: a White House commitment that the Department of Energy hire no additional employees.30 This was so bizarre that the best I could offer was a general commitment to review employment levels closely. His underlying message was hardly a courageous one: He would oppose the bill unless we needed his vote to win. And then there was the Clinch River reactor, which had assumed a life of its own. Centrist Republicans Charles Percy of Illinois and Mark Hatfield of Oregon sought and obtained reassurance that Carter had not folded to obtain McClure’s vote.31
* * *
For others, leverage resided in some of the other important and controversial initiatives the president had laid before Congress, without realizing how his proposals made him vulnerable on energy, where every vote counted. The two most controversial proposals would reform the tax system by cutting some treasured deductions and cut pork-barrel spending on local water projects by vetoing the annual public works bill. House Majority Leader Jim Wright warned that if Carter vetoed the public works bill it would cost him thirty to forty votes on deregulating natural gas.32 Yet when I sat down with the president, vice president, and the congressional relations staff the next day, Carter told us he was going forward with a veto despite Wright’s warning. Mondale, obviously not thrilled with the news, said that next year “We must avoid another ‘hit list’”—as the first list of pork-barrel water projects was dubbed by its powerful supporters. He urged the staff to pick a small list of genuinely objectionable projects to make Carter’s point about wasteful spending.33
Other important bills on which the Hill needed to act before the midterm elections involved highways and mass transit, the Small Business Administration, vocational rehabilitation, tuition tax credits, and still more. All would have to be negotiated to obtain the votes of legislators with local interests or face the meat ax of a presidential veto that might kill an entire program. Carter got the point and said: “I will try to avoid vetoes.”34 But in fact he felt he would not avoid a veto over the water projects funded in the public works bill.
The raw politics of the dilemma made a veto a huge risk for the president. To my mind, a half-dozen pork-barrel water projects were far less important when weighed against the energy bill that the entire administration had been pushing for almost eighteen months. But Carter believed his credibility was on the line, after backing away from a veto the previous year. He was caught in intense political cross fire. The next day Corman, the California liberal who had courageously agreed to support the natural-gas compromise, urged the president not to veto the public works bill lest he endanger not only the energy bill but also tax reform and Carter’s political standing across the West.35
At the same time the reformist Watergate babies came out in favor of a veto of this pork-barrel legislation. The excruciatingly difficult trade-off between the president’s strong environmental and fiscal instincts and the imperative of pushing his signature energy package through Congress came to a head in an Oval Office meeting on October 3. All the president’s most trusted advisers were there, along with Schultze and Blumenthal of the economic team. Carter clearly felt beleaguered. He said: “I had wanted to move early in my administration with an anti-inflation program but have been convinced by Stu and others not to do so. But I feel strongly about the public works bill; it is wasteful federal spending. I do not want to give up, although the veto count does not look encouraging. I know they would override my veto if I sent the bill back to them today. We need to build up support for a veto with the media and by other means. Time is on our side.”36
This was Carter at his most politically courageous. With the natural-gas compromise and energy package in the balance, he was willing to make his point to the public and to Congress even if his veto was overridden—a decision contravening those who see Jimmy Carter as politically weak. While his political judgment in vetoing this bill was certainly open to question, no one need question his will and strength of character.37
As the political game played out, Carter won both ways. His veto of the water projects held, and did not undercut the natural-gas compromise, although the fight was bitter to the end. During the day of October 4 and after midnight
on October 5, the Senate voted 57 to 42 to pass the natural-gas compromise. Abourezk damned it as a “lousy, stinking” bill,38 but Senate majority leader Byrd had it right, calling the vote a legislative milestone that ended decades of bitter impasse. The bill created the first unified nationwide market for natural gas, as prices of newly discovered gas were allowed to rise by about 10 percent annually, until 1985, when all price controls would be lifted. It created incentives for the production of a clean-burning domestic source of energy, which has been a key part of America’s increasing energy independence in the twenty-first century.
I must admit to a bittersweet feeling about the outcome. If we had stood firm on our deregulation campaign promise, and not let Schlesinger persuade the president to abandon it, I believe we could have avoided the eighteen-month impasse that stalled progress on the other elements of our package. The drawn-out battle also changed the perception of the president from a bold and effective leader to an ineffective one. Too often he came to be seen only as a man of symbolic principle that overshadowed his more complex and lasting accomplishments. Years later Schlesinger ruminated that he should have proposed to the president natural-gas deregulation tied to a windfall profits tax, as the president later did with crude oil, to gain liberal support.39 If only he had had this epiphany when we needed it.
THE LAST PIECES OF THE PUZZLE
With the Senate approval of the natural-gas compromise finally out of the way, we could turn our attention to the last pieces of the puzzle—the tax features of the energy bill and our broader tax reform to close tax loopholes in return for lowering rates. One of the more egregious demands came from Senator Bentsen, who asked to maintain a huge tax break for oil companies. Treasury’s tax staff hated the idea,40 but Secretary Blumenthal reluctantly agreed in hope of obtaining support for the natural-gas bill from oil-patch senators. We had no choice but to yield. Nevertheless, Bentsen was not done. Just before the Senate’s natural-gas vote on October 6, he demanded further tax write-offs for drilling wells that came up dry. This was worth tens of millions of dollars to producers. Jim Wright, also from Texas, called me directly and said the dry-hole exemption was critical to correct an error from a 1976 tax bill. Then he made it clear we had no choice: “I made this commitment to our producers, and it is the reason I am supporting the energy bill. I cannot support the energy bill without it.” We could hardly ignore the threat from our own Democratic majority leader.41
From the start, there was an inherent conflict between the two bills. The tax reform bill tried to limit deductions ranging from a Texas oilman’s drilling costs to a Madison Avenue adman’s infamous three-martini lunch to make the tax code fairer and simpler, and help pay for middle-class tax cuts. But our energy package was simultaneously adding new tax incentives for alternative energy sources like solar and wind power, and imposing tax penalties and higher prices for oil and gas, and a gas-guzzler tax. We were distracted by the tax reform battle now reaching a climax and working at cross-purposes with the energy tax bill. What had been a balanced revenue plan in the president’s original energy plan had been transformed into costly new energy tax credits, thanks to Senator Long and the energy bill conferees.
Meanwhile the tax reform bill was being loaded down with giveaways, in part to win votes for the energy bill. To Russell Long, everything was connected—including the president’s energy bill and his tax reform proposals. Robert Shapiro, staff director of the Joint Tax Committee, warned me that “a lot of crap” was being added to the tax reform bill. “Don’t worry,” he said, “Senator Long will knock out these items in conference.” Given what I knew about Long’s idea of tax reform, I was not at all as sure as this congressional tax expert.42
The energy taxes, which the House had largely passed more than a year before, were eviscerated by Long in the Senate. After a fifteen-hour filibuster by the ornery Senator Abourezk, the Senate accepted all the recommendations of the Conference Committee on each of the five separate measures, ending with a 60–17 endorsement of the tax measure.
Now the final action rested with the House. The Speaker had withstood great pressure to hold off action until the Senate completed votes on all five parts of the president’s program, which he would then roll into one bill for an up-or-down vote. He waited impatiently for Abourezk to tire himself out, which he finally did at 12:30 a.m. on October 15. Now came the hour of judgment on O’Neill’s bold strategy. At 2:45 a.m. the House began to debate the energy package. The most dangerous hurdle was a determined motion by liberal Democrats and conservative Republicans to split off the natural-gas compromise from the more popular bills, and then kill it.
The House Rules Committee, which the Speaker normally has in his hip pocket, had divided 8 votes to 8 on whether to take up the whole energy package intact as O’Neill wanted. To switch one vote took a day of heavy lobbying by the Speaker and the White House in what the lead Republican, Clarence Brown of Ohio, described as “the most pressurized arm twisting we have since President Carter took office.” Once he had the committee’s 9 to 5 approval, the bill moved to the floor, and after further pressure on wavering liberal Democrats, the vote in favor of keeping the package intact was a squeaking margin of 207–205.
Suddenly Millicent Fenwick, a tall, slender liberal New Jersey Republican and aristocratic former editor of Vogue, who enjoyed puncturing the bloated egos of her male colleagues in both parties and who was reputed to be the model for the fictional congresswoman Lacey Davenport in the Doonesbury comic strip, walked elegantly to the well of the House. As everyone watched with suspense, she picked up an orange card, changing her vote from “Aye” to “Present” and throwing the vote into a tie at 206 to 206. It was heart attack time. President Carter had applied special attention to another moderate Republican, Congressman Tom Evans of Delaware. Knowing it would make him an outcast in his party, Evans nevertheless voted “Aye.”43 When Carter called Evans to thank him for his last-minute support, the congressman broke into tears recalling the abuse he had received from his Republican colleagues.44
To forestall any more switches, the Speaker banged down his large gavel, and the package was saved. At 7:30 a.m. on October 15, 1978, a bleary-eyed House voted 231–168 to send the completed bill to the president, almost eighteen grueling months after his proclamation of the moral equivalent of war. It seemed an eon ago. An exhausted president had stayed awake following the proceedings through the night. He then went to Camp David, swam, bicycled, read some books, and slept.45
Shortly after 9:00 a.m. on November 9, 1978, in the East Room of the White House, flanked by the congressional leaders he had pressured, the president signed the five major energy bills joined together. He said that together they provided about two-thirds of the energy savings originally proposed. The main omission arose from Congress’s refusal to authorize a tax on oil that could be refunded to the American people. Carter promised: “This is something we will pursue through administrative or congressional action next year.” (He did, and it passed in 1979.) The president declared its passage represented a declaration of “our intent to control our use of energy and thereby to control our own destiny as a nation,” and he was right. For the first time the nation had the foundation of a comprehensive energy program, with strong incentives for conservation at its heart.46
ENERGY TWO: THE SHAH AND GASOLINE LINES
Any euphoria over signing the energy bill quickly ended as we had to decide how to honor the president’s Bonn summit pledge to allow U.S. oil prices to rise to world levels by the end of 1980 without blowing the gaskets on domestic inflation. I summed up the problem in a memo on January 3, 1979, with a question for Carter that only the president of the United States could answer: “Should our energy policies and international commitments on energy be deferred or delayed in their implementation so as to minimize the near-term inflation effects which an increase in U.S. prices to world levels would entail?” I had never seen Carter more troubled, less certain of how to move. He told us the worst political s
cenario for him would be rising energy prices pushing up inflation further as he faced the people in November 1980.47
But events were taking over. Oil prices were already strengthening because of the political upheaval in Iran, and in mid-December, 1978, OPEC took advantage of the situation to announce a 15 percent price increase that threw a dagger at the pledge Carter had made six months before at Bonn to our allies in the name of the United States. That is when ordinary Americans also felt the point of that dagger at the gasoline pump.
There is an old adage that it is better to be lucky than good. It is no excuse to say that luck and good fortune are often as important to a president’s success as his own policies. But the gods were against us, because in the midst of these traumatic decisions an era ended on January 16, 1979: The Shah of Iran was deposed and fled Tehran, yielding power to a radical Islamic movement. Iranian oil production came close to a standstill, with Iranian production dropping from almost six million barrels per day in 1976 to a little over one and half million in 1980, a squeeze of more than five percent, in a global oil market of about sixty million barrels per day. We now faced the second oil shock of the 1970s, and we did not manage it well. I would wake up early each day working on how to cope with this added crisis when we still had not resolved how to handle the president’s pledge to move to a world price level that no one could have imagined at Bonn.
Within days after the Shah of Iran fled his country, spot-market prices doubled to $22 a barrel in the panic, and by the end of the decade, crude oil would be trading at $42 a barrel—ten times the $4 price ten years before. The president sent Schlesinger to Saudi Arabia, and Carter personally called Crown Prince Fahd to request more production. He responded in a move still famous in the kingdom: Fahd disappeared for two weeks into the desert, and when he surfaced, Saudi Arabia started pumping up to 11 million barrels of oil a day, up from of 8.5 to 9.5 million. This left only a small shortfall in the world energy market. So why was there a price panic that would double energy prices from February 1979 to February of the election year 1980, and lead to pernicious and politically destructive gasoline lines?