The NYT Lowenstein may have missed this: WSJ~~That '90s Show
A return to Clintonism wouldn't be a return to peace and prosperity.
Wednesday, July 28, 2004 12:01 a.m. EDT
Ah, the glorious, roaring 1990s. Bill Clinton got elected, raised taxes on the rich so that the budget deficit and interest rates fell, and thus kicked off one of the great booms in economic history. Then Al Gore lost the 2000 election--sorry, had it stolen--President Bush cut taxes, and the economy more or less immediately went to hell.
In case you've missed the speeches, this is one of the major story lines emerging from this week's Democratic conclave in Boston. As Mr. Clinton boasted in his Monday stemwinder, he left America in 2001 with "peace and prosperity." So elect John Kerry, we are told, and he'll take us back to the Clinton policies, starting once again with a tax increase that will reduce the deficit and return us to the happy days before Osama bin Laden, Enron, and the "middle-class squeeze."
This all sounds so good that even we'd like to believe it. There's just the small matter that it isn't even close to being the real economic history of the 1990s. Allow us to recall a few of the missing details amid this nostalgia trip, starting with the fact that the Clinton years began by inheriting a recovery that was finally gathering steam. The economy grew by more than 4% in 1992, including 4.5% in the fourth quarter, too late to re-elect George H.W. Bush but enough to give the Clinton era a running start.
Mr. Clinton did pass a tax increase in the summer of 1993, but only after Senate Democrats stripped out his new BTU tax and Senate Republicans killed his spending "stimulus." The expansion stumbled in early 1993, no doubt partly on tax-hike uncertainty, then revived late in the year. In 1994 stock markets were flat but interest rates actually rose throughout the year, peaking on the very day in 1994 that Republicans took Congress. That turned out to be the real start of the 1990s boom.
In economic policy, the rest of the decade was a stalemate between Mr. Clinton and the GOP majority on Capitol Hill. The Republicans prevailed on a capital-gains tax cut and the balanced budget, which Mr. Clinton first resisted and then embraced in part to block (successfully) GOP entitlement reforms. Congress actually cut discretionary federal spending in 1995, for the first time since 1981, and defense spending continued to fall.
A kind of virtuous Beltway gridlock took hold, with Washington doing little to get in the way of the private-sector's natural animal spirits. As the telecom and tech bubbles expanded, taxes from rising capital gains and stock-option payouts boosted federal revenues to a post-World War II high as a share of GDP (20.9%). And with budget surpluses rolling in, both parties began to spend like liberals once again after 1998.
Then the bubble burst--not in 2001, but starting in 2000. The tech-heavy Nasdaq peaked in March of Bill Clinton's final year in office. The National Bureau of Economic Research now says the economy shrank by 0.5% in the third quarter of 2000--albeit too late for voters to feel it that November. After a fourth quarter blip in growth, the economy slipped into recession by the formal definition (at least two consecutive quarters of declining GDP) in the first half of 2001.
In other words, the "Bush recession" began for all practical purposes on Mr. Clinton's watch. The spectacular popping of the dot-com bubble also meant that at least some of the wealth created in the late 1990s had been an illusion. While productivity gains and much of the growth were real, the over-investment in telecom and other areas was so great that it has taken years to recover.
As we later learned, the corporate scandals that burst into public view in late 2001 also began in the 1990s. Set aside who and what caused them, this timing meant that the Bush Administration had to clean up after the scandals, and the regulatory costs associated with that cleanup (Sarbanes-Oxley, etc.) caused a further delay in the recovery of business confidence and spending.
With all of this, as well as the aftermath of 9/11 and the war on terror, the amazing thing is that the recession was so short and mild by historical standards. The economy has now been expanding since late-2001, moving to more rapid growth in mid-2003 after the Bush marginal rate tax cuts were accelerated. There have been mistakes (too much non-defense spending) and budget deficits have returned, but the U.S. has led the rest of the world out of the doldrums. Despite the current political fighting over jobs, today's national jobless rate of 5.6% is about where it was (5.4%) when Mr. Clinton took credit for prosperity while campaigning for re-election in 1996.
All of this is relevant today because the Kerry Democrats want Americans to remember the 1990s as a Periclean-Clinton Age, while blaming the Bush Administration for the costs of cleaning up after the bubble and fighting the war on terror. If only we'll return to the Clinton mix of tax hikes to finance more spending on health care and education, they now say, the boom will return. As you can see, that wasn't--and wouldn't be--the half of it.
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