America' 42nd President, William Jefferson
Clinton, is likely to be remembered for the longest-
running business cycle expansion in American history,
which coincided with his two terms.
A fair assessment of his legacy should therefore
begin by asking what, if anything, the President had to
do with the economic growth of the last nine and a half
years. The answer is: well, nothing really.
It is often maintained, by people who have not
looked at the economics, that balancing the federal
budget and moving it to surplus were responsible for
the economic boom that followed.
But there is no foundation for this claim. The
underlying theory is that these budget changes lead to
lower long-term interest rates, because the government
is borrowing less. The lower interest rates then
stimulate more investment and therefore growth.
Even if one accepts the theory-- which is quite a
stretch-- the facts don't fit the case. This was not an
investment-led upswing. And the effects of the post-
1992 budget changes on interest rates are much too
small to have had any noticeable positive impact on
growth, according to any standard model used by
How then to explain the boom? While any
business cycle expansion has multiple causes, two stand
out here. The first, and most important, was a change in
policy at the Federal Reserve about five and a half years
ago. The Fed, which had previously operated under the
theory that six percent unemployment was the best that
the economy could do without accelerating inflation,
abandoned that view. Unemployment was allowed to
fall to its current 4 percent, and growth continued
beyond the point at which the Fed, in the past, would
have pulled the plug.
The second was the stock market bubble: a 14
trillion increase in stock holdings over the last decade
caused many upper income households to spend freely.
This spending, even if it was based on paper increases
in wealth that are now disappearing, provided a
considerable stimulus to the economy-- much the same
as we would get from a large increase in deficit
spending by the federal government.
Mr. Clinton cannot claim credit for the stock
market bubble, nor would he necessarily want to. Nor
did he have anything to do with the Fed's policy shift,
which was probably the most important positive change
in economic policy in the last 20 years.
The economic policies for which the President
can honestly claim responsibility-- e.g., NAFTA, the
creation and expansion of the World Trade
Organization-- served primarily to prevent the majority
of Americans from sharing in the gains from economic
growth. And then there was welfare reform, which
threw millions of poor single mothers at the mercy of
one of the lowest-wage labor markets in the
In short, Clinton's policies continued the upward
redistribution of income and wealth, and punishment
for the poor, that were the hallmarks of the Reagan era.
It was not until 1999 that the median real wage reached
its pre-1990 level, and it remains anchored today at
about where it was 27 years ago.
Clinton's foreign economic policy was similar,
although more devastating. His administration, together
with its allies at the IMF and the World Bank, presided
over the destruction of the Russian economy, helped to
cause and worsen the Asian economic crisis, and
squeezed billions in debt service from the poorest
countries in Africa. Not to mention racking up a record,
economically unsustainable trade deficit for the United
Clinton's legacy is by no means an academic
question. If the economy fares badly over the next few
years, the Clinton era will look quite good by
comparison. The "New Democrat" strategy of
abandoning core constituencies-- especially working
Americans-- in favor of big business and the rich will
be judged an economic and political success.
In reality it was neither: Clinton's fight for
NAFTA cost his party the House in 1994, and the New
Democrats' long-term strategy to win back the South
could hardly have failed more miserably: Gore did not
carry a single Southern state, not even his home state of
Tennessee. So long as Democrats continue to offer the
average American nothing to improve his or her
economic situation, many voters-- and not only in the
South-- will continue to vote against them on the basis
of issues that are irrelevant to their economic well-
George W. Bush may well hand the White
House back to the Democrats in 2004, if his extremist
cabinet nominations are any indication of his political
judgment. But if Bush's successor is to do any good for
America or the world, we will first need an honest
evaluation of the Clinton years.
Mark Weisbrot is Co-director of the Center for
Economic and Policy Research in Washington and Co-
author, With Dean Baker, of "Social Security: the
Phony Crisis" (University of Chicago, 2000)