Prosperity Reigned on His Watch

Let’s remember that Bill Clinton ran on a campaign of, “It’s the economy, stupid,” and I would suspect that the portion of calories he spent on the economy was well over 50 percent. I think what the big debate is going to be—and I predict that we’ll see tons of Ph.D. theses addressing the issue—is how much credit historians and economists will give Bill Clinton for the remarkable economic performance of the 1990s.

By all measures, the economic performance was remarkable. We had low inflation, extraordinarily low unemployment, far below what we thought was possible at the beginning of the decade. We converted a record deficit into a record surplus in the span of eight years, something I don’t think anybody would have predicted.

And you add all that up—and Alan Blinder (economist and former vice chairman of the Federal Reserve) has been quoted in another context saying that if you had had to place a bet in 1992 on what the macro outlook would have looked like at the end of 2000, the outcome that we actually reached was probably a one in a million shot. That’s how extraordinary the performance was in the ’90s.

Just one piece of evidence to support that is that from 1995 to 2000, we had something that was totally unexpected: we had productivity growth, which is the engine for the growth of living standards, essentially advancing at 3 percent a year, the fastest pace of sustained advance since 1973. That recent growth, occurring toward the end or the middle of the end of an expansion, is something that no one would have predicted.

So now the question is, how much credit does Bill Clinton get for this? I’m going to give you my first draft—it is totally unscientific, purely judgmental and anecdotal. I would assign Bill Clinton approximately a third of the credit for this, with the other two-thirds being split between Alan Greenspan and the enormous energy and vitality of the private sector.

Let me cite six policies which make up that one-third, or at least support the view that Clinton had something to do with this.

Number one, overall budget policy. We had two deficit reduction packages, one in ’93, which was the bigger, and a smaller one in ’97. The ’93 package, by the way, was not as big as the Bush deal in 1990, something that people forget. And so I think any fair historical reading of the decade would have to give substantial credit to Bush senior as well as Bill Clinton for turning us toward a deficit reduction path. And we all know the fateful decision by President Bush to embrace the tax increase probably cost him re-election.

But in any event, budget policy was critical. The ’93 budget package was passed by one vote. The ’97 package probably never would have happened had it not been for the ’94 elections, where the Republicans came in and swept Congress and forced Clinton from a budget, which was basically $200 billion in deficit, to a much more aggressive deficit reduction package. But taken as a whole, that deficit reduction package lowered interest rates and helped sustain the recovery.

Second, early support of free trade, both NAFTA and the World Trade Organization. I underscore the word “early.” Toward the end of the term, Clinton, I think, lost a lot of enthusiasm for free trade and helped contribute to the debacle in Seattle. But that early support of NAFTA and the World Trade Organization helped encourage global forces to contain inflation, and spurred economic growth around the world.

Third, the strong dollar policy. Give big credit to former Treasury Secretary Bob Rubin, who ran against the conventional wisdom that in the face of a very large trade deficit you should talk down the dollar so that American goods will get cheaper and, thereby, you can close the deficit. Rubin had exactly the opposite view. He said always talk up the dollar. And Larry Summers continued afterward. And I think their approach is the new conventional wisdom, something I think will be embraced by the new Bush administration. You don’t talk down the dollar because a strong dollar basically allows you to run a low inflation economy. That approach helped Alan Greenspan keep the economy going because he didn’t have to worry about inflation as much as he would have otherwise.

Fourth, the various financial rescues. The aid to Mexico and the IMF rescues in Asia came under heavy criticism from the conservative wing of the Republican Party and also from the left. The administration, nonetheless, supported these rescues, and I would argue in retrospect that these moves helped keep the expansion going here and contained the damage in Asia. We may see a change in policy toward the IMF in the Bush administration, but certainly in the 1990s these rescues kept things going.

Fifth, welfare reform. It unexpectedly brought a lot of people into the labor force, particularly those at a low educational level. This helped contain inflation because we didn’t run out of workers. People will say that Bill Clinton simply caved in to the Republicans and eventually embraced something that was advocated by Republicans. But give Bill Clinton credit for having the courage to sign welfare reform and realize the rather unexpected and remarkable results that have followed so far.

And, finally, the shift in policy toward antitrust enforcement at the margin also was an anti-inflation force. With very aggressive antitrust enforcement, American firms knew they were not going to fix prices, there was a cop on the beat. It also had the effect of putting a lid on inflationary pressures.

Add all that up and I think you can make a respectable case that Clinton deserves a third of the credit for what happened in economic performance.