Clinton's Economic Legacy
Buffalo News, Jan. 14, 2001
Knight-Ridder/Tribune Media Sevices, January 8, 2001
The Sunday Gazette Mail, January 14, 2001
Atlantic City Press, January 14, 2001
America' 42nd President, William Jefferson Clinton, is likely to be remembered for the longest-running business cycle expansion in American history, which coincided with his two terms.
A fair assessment of his legacy should therefore begin by asking what, if anything, the President had to do with the economic growth of the last nine and a half years. The answer is: well, nothing really.
It is often maintained, by people who have not looked at the economics, that balancing the federal budget and moving it to surplus were responsible for the economic boom that followed.
But there is no foundation for this claim. The underlying theory is that these budget changes lead to lower long-term interest rates, because the government is borrowing less. The lower interest rates then stimulate more investment and therefore growth.
Even if one accepts the theory-- which is quite a stretch-- the facts don't fit the case. This was not an investment-led upswing. And the effects of the post-1992 budget changes on interest rates are much too small to have had any noticeable positive impact on growth, according to any standard model used by economists.
How then to explain the boom? While any business cycle expansion has multiple causes, two stand out here. The first, and most important, was a change in policy at the Federal Reserve about five and a half years ago. The Fed, which had previously operated under the theory that six percent unemployment was the best that the economy could do without accelerating inflation, abandoned that view. Unemployment was allowed to fall to its current 4 percent, and growth continued beyond the point at which the Fed, in the past, would have pulled the plug.
Mr. Clinton cannot claim credit for the stock market bubble, nor would he necessarily want to. Nor did he have anything to do with the Fed's policy shift, which was probably the most important positive change in economic policy in the last 20 years.
The economic policies for which the President can honestly claim responsibility-- e.g., NAFTA, the creation and expansion of the World Trade Organization-- served primarily to prevent the majority of Americans from sharing in the gains from economic growth. And then there was welfare reform, which threw millions of poor single mothers at the mercy of one of the lowest-wage labor markets in the industrialized world.
Clinton's foreign economic policy was similar, although more devastating. His administration, together with its allies at the IMF and the World Bank, presided over the destruction of the Russian economy, helped to cause and worsen the Asian economic crisis, and squeezed billions in debt service from the poorest countries in Africa. Not to mention racking up a record, economically unsustainable trade deficit for the United States.
Clinton's legacy is by no means an academic question. If the economy fares badly over the next few years, the Clinton era will look quite good by comparison. The "New Democrat" strategy of abandoning core constituencies-- especially working Americans-- in favor of big business and the rich will be judged an economic and political success.
George W. Bush may well hand the White House back to the Democrats in 2004, if his extremist cabinet nominations are any indication of his political judgment. But if Bush's successor is to do any good for America or the world, we will first need an honest evaluation of the Clinton years.