Most progressives were happy to say goodbye to the “aughts,” as dismal a decade as America has endured since the snake-bitten 1970s. But they may be surprised to learn that the U.S. economy’s poor performance on George W. Bush’s watch was actually Bill Clinton’s fault.
So says Michael Lind, who rang in a new year with a retrospective blast on Salon this week against the “New Democrat” policies of the 1990s.
If you lived through the Clinton years, you might recall them as flush times. Some basic facts: The economy grew briskly, creating 18 million new jobs; rapid innovation, especially in information technology and online commerce, bred new businesses and helped to raise productivity in old ones; unemployment stayed low despite a steady influx of immigrants and women coming off welfare rolls; markets rose as the percentage of Americans owning stock jumped 50 percent; homeownership reached a record high (nearly 70 percent); the poverty rate shrank significantly; and the United States ran budget surpluses for the first time in three decades.
Not bad, right? Well, as reimagined by Lind, the 1990s were another “lost decade,” just like the Bush years, with their successive dot.com and housing bubbles, regressive tax breaks, zooming federal deficits and of course, the grand finale – the near-meltdown of U.S. financial markets in the fall of 2008 along with the worst recession since 1982. If the comparison seems, well, strained, no matter. Lind’s real target is what he calls the myth of the “New Economy,” an illusion conjured by Clintonites (PPI comes in for honorable mention here) to justify “neoliberal” policies.
Breaking Down the New Economy
Specifically, Lind takes issue with New Democrats’ claims that the IT revolution helped to spur more robust productivity growth. This is not a terribly controversial point among economists. For example, a 2003 review of over 50 scholarly studies (PDF) by Jason Dedrick, Vijay Guraxani and Kenneth L. Kraemer (cited in Rob Atkinson’s 2007 report “Digital Prosperity“) reached this conclusion: “At both the firm and the country level, greater investment in IT is associated with greater productivity growth.”
It’s true that economist Michael Mandel, a PPI friend and prominent advocate of innovation-centered growth, has argued that U.S. productivity gains after 1998 were overstated. But the fact remains that labor productivity, which grew at an average of only 1.46 percent per year between 1973 and 1995, grew to nearly three percent annually afterwards. That spurt helped to produce the prosperity of the second half of the 1990s, a period which saw incomes grow in a “picket fence” pattern, meaning that all segments of the population saw roughly equal advances. For those years, at least, relative wage inequality narrowed.
Yet rather than give Clinton credit for economic results in the years when his policies actually were in force, Lind invokes the poor performance of the 2000s to condemn the policies of the 1990s. George W. Bush, arguably the worst economic manager since Herbert Hoover, is oddly absent from this revisionist fable.
And what about all the money gushing into the United States during the ‘90s from foreign investors? In Lind’s telling, New Democrats naively assumed that money was chasing higher returns, when in reality foreign lenders were trying to drive up the dollar’s value to make their country’s goods more competitive. Currency manipulation, especially by China, is obviously a problem today. But in the 1990s, the U.S. was not only innovating furiously, it was also growing faster than Europe and Japan, making it a natural magnet for foreign investment.
Finally, Lind challenges the notion that skills gaps are related to wage inequality. There are reams of economic studies showing strong positive returns to educational attainment. (For an excellent discussion, see chapter eight in Creating an Opportunity Society, by Ron Haskins and Isabel Sawhill.) He is probably right that skills disparities alone don’t account for the growth in income inequality over the last several decades, but it seems perverse to argue that Clinton and his allies, as well as President Obama, are mistaken in wanting to see more Americans attend college.
Blaming the New Dems for GOP Sins
As a quick perusal of our website will confirm, PPI in the latter part of the 1990s published a raft of reports that a) documented the rise in relative inequality and b) proposed an array of innovative policies aimed at “expanding the winners’ circle” to include more working Americans. And perhaps Lind has forgotten that Clinton, in his first budget, raised taxes on the wealthy to restore progressivity and thus reduce after-tax inequality. He also got Congress to pass a massive expansion of the “work bonus” (earned income tax credit) for low-wage workers.
The causes of inequality are a subject of lively dispute among economists, but Lind is not hobbled by doubts. The reasons, he asserts, are to be found in the decline of unions, an eroding minimum wage, and unskilled immigrants. Yet by his own account, inequality really took off in the 1970s, when unions were relatively strong. (Plus, it’s strange to blame Democratic policies for growing inequality since 1980, since Democrats controlled the White House for only eight of those 28 years). Moreover, it should be obvious that falling union membership is the consequence, not the cause, of a massive shift in the U.S. employment base from manufacturing to services.
Because it affects only a small proportion of workers (including lots of kids working at part-time jobs), the minimum wage is a slender reed on which to hang the revival of good, middle-class wages in America. And there’s scant evidence to support Lind’s claim that immigration, legal or otherwise, has exerted significant downward pressure on native workers’ wages. The tide of unskilled immigration does have an impact on workers who don’t graduate from high school, but not a very large one.
The problem with Lind’s attempted deconstruction of the “New Economy” narrative is that it ignores a whole herd of elephants in the room, namely big structural changes in what U.S. firms do and how work is organized. Consider this description by Rob Shapiro, a key architect of the Clinton economic policies:
For the first time ever, U.S. businesses have been investing more in the development and use of ideas and other intangible assets than in physical assets of property, plant and equipment. Moreover, most of the value the economy now produces comes from those intangible assets. In 1984, the book value of the 150 largest U.S. companies—what their physical assets would bring on the open market—accounted for 75 percent of their stock market value; by 2005, it was equal to just 36 percent of the their market capitalization. The idea-based economy has gone from metaphor to reality.
We are left at last with the question of motive. Why is Lind so intent on rewriting the history of the most successful Democratic president in our lifetime, and raising doubts about the economic competence of the first majority-vote winning Democrat – Barack Obama — in the White House since LBJ?
Some progressives find it hard to forgive Bill Clinton for forcing them to acknowledge past mistakes. But failing to recognize your own successes may be even worse.
This item is cross-posted on Salon.
Tags: Barack Obama, Bill Clinton, Business, Clean energy and technology, Democratic Leadership Council, Democratic Party, Economy, George W. Bush, Labor, Michael Lind, New Democrats, New Economy, Progressive Policy Institute, progressives, Progressivism, Taxes
This is the Email I sent Michael Lind:
Nobody in the media likes to give Bill Clinton credit for anything. But the fact is that we enjoyed the largest peace time expansion of the economy under Bill Clinton. As president he cut the employment rate in half, the stock market tripled, the deficit was eliminated and the surplus was so large that we could have paid off the national debt. Under Bill Clinton the incomes of all Americans rose not just the wealthy. Bill Clinton is the only 2 term president never to have experienced a recession.
Bush 43 was soley responsible for the collapse of the economy with his tax cuts for the rich and an unnecessary war in Iraq. Bush demonstrated that a ne`er do well drunken bum is unfit to be president. And being the son of a Bush is not a qualification for elected office..
This is the Email I sent the Washington Post and Harold Myserson:
I am tired of people in the media like Harold Meyerson treating Bill Clinton as if he were a failed president.
But the fact is that we enjoyed the largest peace time expansion of the economy under Bill Clinton. As president he cut the employment rate in half, the stock market tripled, the deficit was eliminated and the surplus was so large that we could have paid off the national debt. Under Bill Clinton the incomes of all Americans rose not just the wealthy. Bill Clinton is the only 2 term president never to have experienced a recession. Bill Clinton`s record as president makes him the most successful president since FDR. Bill Clinton should be treated with the same respect by Democrats that the GOP treats Reagan whose sorry legacy was Iran Contra and a 4 trillion dollar debt. If Obama is half as successful as Clinton our country will be very fortunate indeed.
newsflash Mr Marshall. Clintons “boom” years (think first WTC attack) were only made possible because he DID NOT fight the war on terror. He left that for Bush.
Bill Clinton presided over a perfect storm and had very little to do with the economic boom of the 1990s.
Point One: Clinton benefited from the end of the Cold War and the attendant decline in defense spending.
Point Two: Clinton benefited from the technological revolution which exploded on his watch and which would have exploded had Beelzebub sat in the Oval Office.
Point Three: Bill Clinton benefited from the maturation of the Baby Boom cohorthad arrived at its peak earnings years and which en masse was throwing money at financial assets of every variety.
Point Four: If one credits Bill Clinton for the boom of the 1990s, then employing the same logic Barack Obama is responsible for the current debacle. i do not think so!
Point Five: Bill Clinton enjoys iconic and rock star status in many quarters. I do not understand that. He presided over a an electoral catastrpohe which surrendered control of Congress to Republicans after sixty years od Democratic hegemony.
Point Six: I would submit that the bad taste which his indiscretion with Ms Lewinsky left in the collective mouths of the electorate ( and I did not realize that there is an horrific pun there until now) was the main reason for the election of Bush the Son. Had Clinton resigned following his perjury and had Al Gore ran for President as an incumbent, then Bush the son would never had the opportunity to be a Modern Accidency.
Thanks for your reactions. I agree with your point that Clinton was the beneficiary of a confluence of forces that helped to feed the prosperity of the second half of the 1990s. But while Presidents don’t control demographic and technological developments, their policies can intelligently reinforce or foolishly undercut positive structural trends. I’d argue that Clinton’s did the former across the board, on trade, innovation and competition, fiscal discipline, rogressive taxation, work-based social policy and radical education reforms like charter schools. Bush, on the other hand, squandered budget surpluses, made the tax code regressive, starved public investment, fought the clean energy imperative, and of course, stood by and did nothing as the mortgage bubble inflated and financial speculation grew ever more reckless. The point is, Clinton’s policies buttressed the favorable economic developments of the 1990s, Bush’s helped to derail them, and Obama has inherited the unenviable task of cleaning up the mess.
[...] Will Marshall on the Clinton economy. [...]
[...] Most progressives were happy to say goodbye to the “aughts,” as dismal a decade as America has endured since the snake-bitten 1970s. But they may be surprised to learn that the U.S. economy’s poor performance on George W. Bush’s watch was actually Bill Clinton’s fault. So says Michael Lind, who rang in a new year with a retrospective blast on Salon this week against the “New Democrat” policies of the 1990s. Read more… [...]
I agree with the comments that Clinton is sometimes derided by the press but I also think it is very misleading to state that Bush derailed the economy after he took office from Clinton. I am a fan of both presidents but since Bush is the target I am going to play devils advocate.
1) Bush inherited the aftermath of the internet bubble.
2) Lower taxes helped push the economy out of that collapse.
3) Lower interest rates accompanied by a plethora of other factors, most not attributable to Bush, caused the economic meltdown. Lower taxes didn’t case the economic meltdown. The war did not cause the economic meltdown.
I always ask this question and I never get an answer: what specific policy or law under Bush was a direct cause of the economic meltdown? Please list them and cite some studies that show a causal relation between his policies and the economic meltdown. If you find any, also list the Democrats who opposed those policies and laws.
Also:
“Bush, on the other hand, squandered budget surpluses,” – Bush was left with an economy in shambles due to the internet bubble. There was no surplus when he took office and the projections made under Clinton were just that, only projections based on unrealistic growth.
“made the tax code regressive, starved public investment,” – Lower taxes have been proven to stimulate economic growth (but not in all situations I must add). The tax cut at the beginning of his first term led to economic growth and an increase in gross tax receipts. This is supported by the federal tax data. Additionally, nondefense discretionary outlays by Bush were higher than any other president in the history of the US, in fact higher than LBJ, who held the record before spendthrift Bush came into office. Stating that public investment was starved is simply not supported by the data.
“fought the clean energy imperative, and of course, stood by and did nothing as the mortgage bubble inflated and financial speculation grew ever more reckless.” – Concerns about inflated asset prices were addressed by the Fed. The Fed ignored it. So did Congress, including the Democrats. Placing the blame on Bush’s shoulder is misplaced. Furthermore, under Bush’ reign some folks in DC did attempt to reign in Fannie and Freddie, two GSAs that are directly responsible for the crisis, yet they were stopped by Congressional Democrats.
Could Bush have done more to stop the economic bubble that arose from housing? I doubt anyone could have done it. Both Democrats and Republicans have pushed the ideal that home ownership a driver of wealth and that is not true. Furthermore, the main cause of the housing bubble and the internet bubble was the feds policy to inflate asset prices. The Greenspan put, accompanied by irrational exuberance, caused the stock market to soar to unrealistic heights under Clinton. Low interest rates accompanied by another round of irrational exuberance, supported by government policies that pushed mortgages on individuals who should not have purchased homes (including both sub-prime borrowers and irrational investors who expected home prices to increase more than 10% a year forever) caused this mess.
The gist is that if this nation is ever going to get out of this mess and it needs to properly identify what caused it. Attributing the stock market boom or bust to Clinton and the housing boom and bust to Bush is like telling a cancer patient they have the flu. In the end the patient is going to die because the underlying disease has been overlooked because of political blindness.
I’ve lost hope. I don’t expect anything to change. I look at the current administration and all I see is the same political rhetoric. Bush caused this mess? Wall Street greed caused this mess? Evil bankers caused this mess? Higher taxes will encourage foreign and domestic firms to build factories in the US, rather than in China, where the taxes and labors costs are lower? Increasing health insurance premiums for small businesses will encourage firms to hire more employees? I’ll go put a tourniquet on my right arm even though the left one is bleeding.
I have my own take on Clintonomics. In my view, targetted tax cuts helped stimulate the econmy without raising the deficit, as wasteful Keynesianism would have done, and is doing now. Fiscal responsibility freed the market to do what it does best. Targetted spending, which they called investment, did the same. A host of entitlements served the middle class. And the modest tax increase on the rich helped bring us back to fiscal sanity. After daring to tax the rich, their media attacked him unmercifully. And the ding bat crowd are still repeating every baseless accusation. It’s too boring.
How’s this Mr. Chase?
Bush’s runaway spending scared hell out of the market. His refusal to reregulate big finance caused the Wall Street derivative melt down and mortgage crisis in the banks. His tax cuts only for wealthy hoarders did nothing to stimulate the economy, unlike cuts for millions of middle class people who would have spent their winfalls and thus fueled economic activity.
And please don’t ask for economic studies. Economists got us into this mess, and none of the in crowd saw it coming. Their game is in using cherry picked, irrellevant data fragments to prove anything they want. It’s tired beyond words, but still useful to uneducated types with an axe to grind.
The Fair Housing act in 1997 pushed by Clinton and many Dems in Congress set this ball in motion. The banks followed suit with the understanding that they would be bailed out for following government mandates if this scheme collapsed. I am no fan of Bush but to his credit he did demand a review of this program 14 times since 2004. He was snubbed and threatened with being called a racist by Barney Frank and others who had over sight of Fannie,Freddie and FHA programs.
The banks also went through significant deregulation during the Clinton administration. Also…did’nt Enron and other corporate ponzi schemes occur during the late 1990′s?
The fact is our system has been messed up for decades by an overreaching government and it does not much matter who is in charge. We need to fix it ourselves and demand that our government get out of the way.