The Clinton administration strengthened the economy. The Bush administration seems interested only in shifting blame.
by Gene Sperling
Republicans have never been able to decide whether Bill Clinton's economic policies mattered or not. In 1993, they were sure that Clinton's policies would make a big difference—and we Democrats agreed with them. The difference, of course, was that we predicted his economic plan and deficit reduction efforts would lower long-term interest rates and strengthen investor confidence, while Republican leaders from Newt Gingrich to Dick Armey predicted the initiative would be a "job killer" and produce a recession.
When things got better and the economy was on the way to creating (not killing) 22 million jobs, Republicans had a sudden change of heart. While everyone from Alan Greenspan to Paul Volker to Business Week to Lehman Brothers was giving President Clinton's fiscal policies credit for reducing the deficit and strengthening the long-term investment climate, the Republicans did an about-face, claiming, in effect, that they had been wrong: Clinton's economic policies had no impact on the economy. Time after time, Republicans claimed that everyone else—including themselves and Ronald Reagan (or, as former Treasury Secretary Bob Rubin used to joke, Herbert Hoover)—had a decisive impact on the economy and the falling deficit, everyone except Bill Clinton. Indeed, a favorite Republican joke was to attribute all economic success to "Bill and Al"—and then, after a slight pause, explain, "Bill Gates and Al Greenspan."
Now that it turns out the economy was slowing at the end of 2000 and some corporate malfeasance began in the late 1990s, Republicans have again changed their minds. Never mind that President Clinton sought to limit tax deductibility on excessive CEO compensation, vetoed the Private Securities Litigation Reform Act because he felt it lacked protection for the little guy, and stuck by his SEC Chair Arthur Levitt as he sought to end the conflicts of interest between auditors and consultants. To hear Republicans tell it now, if a CFO was trying to treat leases as a capital expenditure, Bill Clinton must have been the proximate cause. Indeed, as the Associated Press reported in an Aug. 17 headline, the new Republican strategy is simply "Blame Clinton for All Economic Woes."
Well, on behalf of the Clinton economic team, let me say this: We'll take that deal. We will take the blame for whatever the Republicans say went wrong, as long as they are logical and acknowledge that President Clinton must also be responsible for the longest economic expansion, strongest fiscal situation, and greatest period of job growth in our history; a significant increase in productivity; and the lowest unemployment, inflation, and poverty in a generation.
Ultimately, this all-or-nothing approach to assigning blame and credit is not a useful way to judge presidential performance on the economy. More important is whether a president chooses policies that strengthen or weaken the economic fundamentals he inherits; whether his policies instill or undermine economic confidence; and whether his policies promote or inhibit private sector growth and job creation. Bill Clinton was handed the largest nominal deficits in history, a shaky, stop-and-start economy, and an unemployment rate over 7 percent (nearly 10 percent in California and more than 11 percent in West Virginia). There was negative economic growth in the first quarter of 1993. In the face of these economic challenges, he took tough action to cut the deficit, open new markets for trade, and invest in people—action that helped to strengthen the investment climate and lay a solid foundation for economic growth and poverty reduction.
The economy that President Bush inherited was slowing, but was also bolstered by strong productivity, very low unemployment, several years of across-the-board income growth, and the strongest fiscal situation ever inherited by an American president. What our economy needed in 2001 was the type of disciplined economic management that inspires confidence, a continued commitment to long-term fiscal discipline, and a strong, targeted effort to stimulate the economy to avoid a prolonged downturn. Unfortunately, the administration has so far been disappointing on all three counts.
On economic management, the White House has often lacked consistency, clarity, and credibility in its economic message. They have gone from Chicken Little to cheerleader—talking down the economy in December 2000 to generate support for a tax cut, then expressing excessive optimism when that became politically convenient. Top administration officials, including the president, have further eroded their credibility by offering ad hoc investment advice as if they were equity analysts speaking on Bloomberg TV or CNBC.
When investors and American families needed confidence on corporate reform, the president resorted to politics-as-usual speeches instead of treating the matter as a serious economic crisis requiring a bipartisan partnership to address more systemic conflicts of interest. Fortunately, this economic leadership vacuum was filled by Democratic senators like Paul Sarbanes and Tom Daschle, who crafted a strong bipartisan bill that became the basis for serious legislation. President Bush, on the other hand, was widely perceived as having been dragged step-by-step into accepting and ultimately signing the bill. (To his credit, however, the president did—after excessive posturing—accept enough of the health care and job training proposals from pro-trade Democrats to win passage of presidential trade promotion authority.)
As to fiscal discipline, the International Monetary Fund has estimated that the full implications of the president's signature tax cut will drain $2.4 trillion from the budget over 10 years. With the dramatic deterioration in our long-term fiscal situation—in which Bush's tax cut is the largest culprit—our nation desperately needs the kind of politically difficult corrective action President Clinton took in 1993 and President George H. W. Bush and the Democratic Congress took in 1990. What is needed now is for President Bush to call for a grand bargain in which he offers to freeze tax cuts for the well-off in exchange for congressional Democrats and Republicans pulling back on the excesses of their initiatives. This type of sacrifice is easily justified by our need to increase savings for Social Security and Medicare, invest in our children, and save for the unknown cost of addressing future national security crises. Instead, President Bush has resorted to only symbolic veto threats to save a billion dollars here and there while calling for new and extended tax cuts that would drain trillions from the budget over the next two decades. While only two years ago under President Clinton both parties were competing to see who had stronger policies for debt reduction, President Bush's lack of fiscal leadership has now sent the message both home and abroad that the era of fiscal discipline is over.
On the issue of fiscal stimulus, the administration also followed rather than led, and it didn't follow particularly well, either. Remarkably, President Bush's signature tax cut proposal did not include any cuts with an immediate stimulative effect. The administration's one initial stimulus effort—sending out tax rebate checks in 2001—was only added at the request of Democrats. Yet even this effort was far less effective than it could have been had the administration made the rebate refundable, as proposed by many Democrats. Because the administration refused to go along, 34 million lower income taxpayers were denied any tax cut, and an additional 17 million were denied the full benefit other Americans enjoyed. These were exactly the Americans most likely to spend the money and give the economy added juice. Even after Sept. 11, the administration resisted calls for targeted, stimulative tax cuts and strong unemployment and health benefits for those laid off, and instead fought for repeal of the corporate alternative minimum tax, accelerated income tax cuts for earners in high-income brackets, and longer-term investment incentives—cuts the independent Congressional Budget Office explicitly found to be the least effective and least efficient in providing the short-term stimulus the economy needed.
In the end, presidents certainly don't deserve all the credit or all the blame for everything that happens in the economy. But each inherits a certain set of fundamentals, and through action or inaction, either helps promote or discourage conditions conducive to private sector growth and job creation. President Clinton inherited large deficits, high unemployment, a stop-and-start economy, and weak productivity and income growth, and he took tough steps that most neutral observers acknowledge contributed to strengthening the fundamentals of the economy. The current administration has a long way to go before the same can be said of its record. |
