Clinton will go down as a transitional president, mediocre at best. Recent surveys of historians have already slotted him in the middle of the pack.
During Clinton’s presidency, the U.S. economy benefited from two significant events; the end of the Cold War and the resultant “peace dividend” when our armed forces were downsized, and the enormous growth in worker productivity that came out of technological advances in the computer industry.
Clinton’s first instinct was to spend the peace dividend, but Robert Rubin and Al Gore dissuaded him from pursuing that course. Bob Woodward has documented that fact in one of his books.
It is too bad that Clinton did not spend part of that dividend on anti-terrorism activities.
As for the wealth that was “created” during the Bubble, much of that wealth had already disappeared by the time Clinton left office. The Nasdaq index which peaked at 5,132.52 on March 10, 2000, had already declined 46.02% to 2,770.38 by the time GWB took the oath of office on January 20, 2001. Unfortunately, we are still paying the price for the Clinton-era accounting scandals.
Regardless, earlier this month Robert Samuelson, no fan of GWB, made the point that presidents either get too much credit or too much blame for economic developments.
Presidents can't control the economy, because it's the complex consequence of the ambitions, hopes, fears, visions and talents of nearly 300 million people. Business cycles have distinct personalities. Competition, new technologies and market pressures all exert enormous influence.
Presidential Prosperity Games
By Robert J. Samuelson
Wednesday, December 21, 2005; A31
It's not the president, stupid. We Americans play the simplistic game of personalizing the economy's success or failure. The president is a hero or a bum. He creates or destroys prosperity. This, of course, is make-believe. In a $12 trillion economy, the president's influence -- for good and ill -- is usually modest. Still, the game suits Republicans and Democrats, the press and the public. We constantly replay it, no matter how much ignorance and misinformation it generates. In the latest version, the White House wants you to believe that the economy's swell and that George Bush is responsible.
The pitch is half true. The economy is strong, but Bush isn't the cause. Consider some standard economic statistics:
For the past three years, gross domestic product (the economy's output) has grown at an annual rate of nearly 4 percent -- almost as good as the late 1990s.
Payroll jobs have increased by nearly 4.5 million since May 2003.
The unemployment rate of 5 percent is lower than the average for the 1990s (5.7 percent).
Productivity -- output per hour worked -- has been rising at a 3.3 percent rate since early 2003, faster than even the 1995-2000 average of 2.7 percent.
Good stuff. The White House's bubbly appraisal isn't just fluff. Households' net worth -- what people own minus what they owe -- is a record $51 trillion. If today's economic performance continued forever, we'd all be blessed. The trouble (for the White House, at least) is that many Americans don't seem impressed. In November, the Conference Board's consumer confidence index stood at 98.9, where an index of 100 indicates confidence levels in 1985. In 1985 unemployment was 7.2 percent.
Economic performance (now good) and economic psychology (now mediocre) have, to some extent, become disconnected. Why? One reason is that Americans have developed perfectionist standards. We expect total prosperity and are disappointed by anything less. There should be no doubts or deficiencies. Today's include high energy prices, high health care costs, Hurricane Katrina's aftermath and a possible real estate "bubble."
Greater job insecurity also subverts Americans' sense of well-being. Since 1979 the research firm ISR has asked workers to react to this statement: "I am frequently concerned about being laid off." In 1982, when unemployment averaged 9.7 percent, 14 percent answered yes. In 1996, when unemployment was 5.4 percent, the response reached a high of 46 percent. This year (average unemployment: 5.1 percent), the anxiety level is 35 percent. Because workers feel more threatened, no given amount of income or wealth provides as much satisfaction as it once did.
The explanation for this paradox -- lower actual unemployment, higher anxiety about unemployment -- is that corporate practices have changed. Twenty-five years ago, big companies fired career workers only as a last resort, notes John R. Stanek, ISR's chairman. Workers felt safe unless their company was desperate. Now executives routinely engage in "downsizing" and "outsourcing" to improve profitability. "They're more socially acceptable," says Stanek. "They've become the norm" -- and can affect almost anyone.
The White House's PR campaign won't succeed unless it lowers the public's collateral anxieties (which also embody other worries -- Iraq, terrorism, avian flu). Even then, the campaign doesn't deserve to succeed, because its main message is false. That message: Bush's tax cuts explain the economy's success.
The 2001 and 2002 tax cuts probably cushioned the severity of the 2001 recession and its aftermath. But the White House is now arguing that its 2003 tax cut was critical in increasing economic growth. The centerpiece of that legislation was a cut in the maximum tax rate on corporate dividends to 15 percent. One aim was to raise stock prices by making shares more attractive. Higher stock values would then cause consumers to spend more -- the wealth effect. But a new study by staff economists at the Federal Reserve finds little independent effect of the dividend tax cut on stock prices.
Even economists who dispute the study think the White House exaggerates. "It's preposterous that the dividend tax cut created 4 million new jobs," says Kevin Hassett of the American Enterprise Institute. The stock market's "wealth effect" on consumer spending has been dwarfed by the spillover from the housing boom. From the end of 2001 to September 2005, households' real estate wealth increased 53 percent, to $19.1 trillion. Over the same period, households' stock and mutual fund wealth rose 6.9 percent, to $10.2 trillion. The housing boom in turn stemmed more from the Federal Reserve's lower interest rates than any Bush policy.
Every president seeks bragging rights for prosperity. If you substitute "deficit reduction" for "tax cuts," the Clinton administration made claims similar to the Bush administration's. "Deficit reduction" supposedly ignited spectacular economic growth. In truth, the economy's spectacular growth (and a surge in tax revenue) explained deficit reduction more than the reverse. The first budget surplus in 1998 was largely unpredicted. In 1995 President Bill Clinton had proposed balancing the budget over 10 years.
Presidents can't control the economy, because it's the complex consequence of the ambitions, hopes, fears, visions and talents of nearly 300 million people. Business cycles have distinct personalities. Competition, new technologies and market pressures all exert enormous influence. To be sure, government policies matter, and presidents set some policies. But the long time lags from when presidents act to when the economy fully reacts often mean that the largest impact occurs after they've left office. On that score, the excessive federal spending and debt of the Bush years suggest a dubious legacy.
© 2005 The Washington Post Company
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