Chapter One: The Clinton Economy: "The Best Economy Ever"
"Mr. President...your commitment to fiscal discipline, which, as you know, and indeed have indicated, has been instrumental in achieving what in a few weeks...will be the longest economic expansion in the nation's history." -- Alan Greenspan, Chairman of the Federal Reserve (1/4/00).
"The deficit has come down, and I give the Clinton Administration and President Clinton himself a lot of credit for that. [He] did something about it, fast." -- Former Federal Reserve Chairman Paul Volcker, Audacity (Fall 1994).
"Clinton's 1993 budget cuts, which reduced red ink by more than $400 billion over five years, sparked a major drop in interest rates that helped boost investment in all the equipment and systems that brought forth the New Age economy of technological innovation and rising productivity." -- Business Week (5/19/97).
"[This is] the best economy ever [because] on the policy side, trade, fiscal and monetary policies have been excellent, working in ways that have facilitated growth without inflation. The Clinton Administration has worked to liberalize trade and has used any revenue windfalls to reduce the federal budget deficit." -- Goldman, Sachs & Co. (March 1998).
"I believe this will lead to a recession next year. This is the Democrat Machine's recession, and each one of them will be held personally accountable." -- Rep. Newt Gingrich (R-GA) Republican press conference (8/5/93).
When my Grandma Begala tells my kids stories about the Great Depression -- one in four working people unemployed, bread lines and soup lines stretching around the block, rich men jumping out of windows and poor men living on the streets -- it is literally impossible for me to imagine just how bad things were. They were that bad.
I fear that when I'm in my eighties, telling my great-grandchildren about the Clinton economy, it may be impossible for them to imagine just how good times were. They were that good.
And, even though it's only been two years, memories fade. The Republican blame machine has been working overtime, hammering away relentlessly at America's accomplishments, hoping you'll forget the winning ways and broad prosperity of the Clinton Era. They'd like to convince us that our nation was never that strong, never all that smart, never that successful.
And yet, we were. As Casey Stengel used to say, "You could look it up."
So, let's look it up.
The heart of any economy is its ability to generate jobs. When President Clinton took office, nearly 10 million Americans were unemployed. And the private sector was sputtering to create jobs -- in fact, during the previous Bush presidency, what little job growth we did see was driven in large part by the government sector. Under President Clinton, by contrast, the American economy generated 22.88 million new jobs. More jobs than had ever before been created under a single administration. More jobs than Presidents Reagan and Bush Senior together created in twelve years. And 91 percent of the Clinton jobs were in the private sector.
If generating jobs is the heart of an economy, reducing poverty is its soul. We've had periods of macroeconomic growth that had very little effect on poverty rates. That's because all the benefits of the growth went to a few people at the top of the economic pyramid. Such was the case during the Reagan years. During Reagan's entire presidency, only 77,000 Americans were lifted out of poverty. Not even enough to sell out Royal-Texas Memorial Stadium for a Texas Longhorn football game. A paltry 0.24 percent reduction in the poverty rate. Pathetic.
Under President Clinton's economic policies, 8.2 million Americans were lifted out of poverty. Enough to populate all of New York City. President Clinton's economic policies caused a 21 percent reduction in the poverty rate -- the greatest reduction since Lyndon Johnson's Great Society and the strong economy of the 1960s.
(By the way, under George Herbert Hoover...err...Walker...Bush, the number of Americans suffering in poverty increased by 6.5 million.)
Why the disparity? It's the difference between a temporary boom for a few, and sustained prosperity for many -- what John F. Kennedy called "a rising tide (that) lifts all boats."
And lift all boats the Clinton economy did. Both the African-American and Hispanic poverty rates fell to their lowest levels on record. The number of African-American children in poverty fell nearly 33 percent, to an all-time low.
Child poverty was the most shameful and painful measure of our economic performance in our past. President Clinton attacked this persistent problem and made more progress than anyone thought possible. His policies reduced poverty among children by almost 30 percent -- the biggest decline since the '60s. President Clinton raised 4.2 million children out of poverty. President Reagan, on the other hand, championed policies that focused on the fortunate few. His administration lifted only 50,000 kids above the poverty line. We still have a long way to go before we can honestly say that no child has been left behind. Of course, if poor kids could eat speeches, Dubya would have fed the world by now. But his abandonment of President Clinton's focus on child poverty will haunt us for years to come.
Lifting All Boats
Under President Clinton, the typical American family's income increased by $7,418 after adjusting for inflation. This is more than twice the increase in income during the Reagan-Bush years. In fact, as Gene Sperling, the brilliant chairman of the National Economic Council under President Clinton has documented, "during the Reagan-Bush era, 60 percent of households had no gains in income -- and the bottom 20 percent saw incomes decline 4 percent."
During the Reagan-Bush era, the richest 20 percent of families saw their incomes rise dramatically, while the poorest families fell further and further behind. By contrast, in the Clinton era, every income group, from the richest to the poorest, saw income gains of at least 15 percent, adjusted for inflation, and the poorest 20 percent of families experienced the largest income gains -- 24 percent in real terms.
The income of the typical African-American family increased a remarkable $8,854, or 35 percent, after accounting for the effects of inflation. And the gains made by those with the most ground to cover were the most striking. Consider this: from 1981 to 1992, the poorest 40 percent of African-American families saw their incomes fall by an average of 10 percent; during the Clinton administration, those same African-American families saw their incomes rise by an amazing 51 percent.
For Hispanic families, the difference between the 1980s and the 1990s was similar: between 1981 and 1992, the poorest 80 percent of Hispanic households saw their incomes drop by an average of 6.7 percent; during the Clinton administration, the poorest 80 percent of Hispanic families experienced an average income increase of 25 percent.
So, never again wonder why Bill Clinton is so beloved by the poor, by African-Americans and by Hispanic-Americans. It's because his policies helped them live the American Dream -- a dream that had been nothing more than the stuff of pious, pompous lectures under the Republicans.
Taxes: Higher on the Idle Rich; Lower on the Working Poor
When it came to taxes, President Clinton's ideas were not new. They were as old as the biblical invocation that "From everyone who has been given much, much will be required."
President Clinton's 1993 economic recovery package included an increase in the top marginal rate from 31 percent to 39.6 percent, which applied only to income above $250,000 a year. It also called for an increase in the federal gas tax of less than a nickel, and subjected the Social Security benefits of high-income retirees (whose average wealth was in excess of $1 million) to taxation.
Even as he raised taxes -- primarily on the very rich -- Clinton cut taxes deeply for the working poor. He greatly expanded the Earned Income Tax Credit -- a tax incentive that rewards low-income people for working. Ronald Reagan signed the first EITC bill into law. President Clinton expanded it to make 15 million low-wage working families eligible. Combined with an increase in the minimum wage (from $4.25 to $5.15 an hour), Bill Clinton did more to reward, encourage and sustain low-wage working men and women than any president in history.
This was followed by a middle-class tax cut, signed into law in 1997. That law created a $500 per child tax credit, which, when combined with the Earned Income Tax Credit, meant that most middle-class and lower-income Americans had received real and meaningful tax cuts from President Clinton -- even as we eliminated the deficit.
The Deficit and the Debt
When Bill Clinton was elected president, the deficit was the highest in history -- $290 billion per year. In fact, in January 1993, the Congressional Budget Office projected that, in the year 2000, the annual federal budget deficit would be $455 billion, and reach a staggering, crushing, astronomical, economy-choking $653 billion in 2003.
These projections may have been good mathematics, but they didn't take into account the political will that President Clinton, Vice President Gore, and the House and Senate Democrats summoned to address the fiscal crisis.
Bill Clinton promised, above all, hope. And he delivered it in abundance. Shortly after Clinton took office, the Financial Times wrote, "The market opened markedly higher as investors and dealers got their first chance to react to Sunday's comments by Mr. Lloyd Bentsen, the new treasury secretary, which suggested the White House views cutting the deficit as a top priority."
And the Wall Street Journal, just days after the president announced his economic recovery package, reported, "The spectacular bond market rally accelerated yesterday, with long-term Treasury bond yields plunging to another record low as investors rushed to embrace President Clinton's economic package."
By taking on the budget deficit -- which Ronald Reagan once dismissed as "big enough to take care of itself" -- President Clinton restored faith in America's fiscal policy. His policies freed up funds for private investment by reducing the deficit premium, the increase in interest rates caused by the federal government's borrowing (which crowded out private borrowers). This in turn unleashed a wave of investment and productivity that spurred the long-term, broad-based economic strength of the Clinton era.
Investing in People
Clintonomics was about more than fiscal policy. As the private sector was investing in new plants and equipment, technology and infrastructure, the government was investing in an even more precious resource: people.
President Clinton's budgets were designed to help people make the most of the new opportunities, with a heavy emphasis on education. He made the largest single investment in higher education since the GI Bill: doubling financial aid by greatly expanding Pell Grants, increasing the availability and affordability of student loans and work-study programs, establishing Educational IRAs and creating the Hope Scholarship and Lifetime Learning tax credits for college. Clinton also increased investments in education technology, charter schools, Head Start and other education programs. He created a welfare-to-work tax credit that encouraged employers to hire long-term welfare recipients, and assisted communities in moving welfare recipients into lasting, unsubsidized jobs. His Gear-Up initiative helped 700,000 low-income, middle-school students prepare for college, and 150,000 more have saved for college by serving their country in AmeriCorps.
In 1994, President Clinton signed legislation creating Early Head Start for early childhood development, which helps ensure that kids begin school ready to learn. And, for adults who feared being left behind in the New Economy, Clinton nearly tripled resources for dislocated workers through his Universal Re-employment Initiative, and reformed the nation's patchwork system of job training by setting up one-stop job centers under the Workforce Reinvestment Act of 1998.
Creating Jobs by Expanding Trade
Clinton believed firmly that, as a country with only 4 percent of the world's population, but 20 percent of its productive capacity, America had no choice but to embrace free trade. We needed the overseas markets, and, he often noted, with all of the world's countries and cultures represented among our citizens, the United States was the best-positioned nation on earth to master globalization.
Even though the Republican Congress refused to grant him Fast-Track Trade Promotion Authority, President Clinton negotiated nearly 300 free and fair trade agreements. And, during his presidency, U.S. exports of goods and services grew by 72 percent -- to top $1 trillion for the first time. Exports alone supported 1.4 million new American jobs -- jobs that paid as much as 16 percent above the national average.
Clinton's commitment to free trade caused him an enormous amount of pain from some of his best friends and strongest supporters. Trade has long been an issue that divides Democrats, but Clinton would not budge from his commitment to free trade. He angered unions and many loyal Democrats by fighting for passage of the North American Free Trade Agreement (NAFTA) in 1993. He won approval of Permanent Normal Trade Relations with the People's Republic of China -- another issue that cost him dearly among his fellow Democrats. He successfully completed the Uruguay Round of free trade talks, fought for the first-ever African and Caribbean Basin trade bills, and dramatically expanded efforts to fight child labor and expand basic education around the world.
Despite the enormous pressure from his friends and supporters in organized labor, Clinton resisted protectionist tariffs on imported steel. As his political adviser, I thought the call was easy; helping steelworkers is smart politics. But Clinton knew that tariffs would do more damage than good, might set off retaliatory taxes on American goods, and do nothing to address the fundamental problems in the steel sector. So Clinton refused steel protectionism. His Republican successor, as we shall see, was neither as strong nor as principled.
Opening Markets at Home
Clinton brought the same zeal he showed in promoting American goods and services overseas to his quest to revitalize the inner cities. He created Empowerment Zones to spur local community planning and economic growth in distressed communities through tax incentives and federal investment. Thirty-one Empowerment Zones and 95 Enterprise Communities leveraged over $10 billion in new private sector investment, creating thousands of new jobs. He also sought to put the capital back in capitalism by creating Community Development Financial Institutions, which loan money to small businesses in the inner city. He embarked on what he called "new markets trips" to inner cities and Native-American tribal lands -- bringing corporate executives and investors with him in much the same way that presidents and cabinet officials had traditionally brought American investors to explore new markets overseas.
Clinton also strengthened the Community Reinvestment Act, which encourages big banks to lend money to hard-pressed areas. According to the National Community Reinvestment Coalition, the Community Reinvestment Act has spurred more than $1 trillion in financial commitments to low- and moderate-income borrowers and neighborhoods -- and 98 percent of those commitments occurred on President Clinton's watch.
Reducing the Size of the Federal Government
Clinton did all this -- and more -- while reducing the federal workforce by 270,000 positions. So, the next time some right-wing government hater says Clinton was a big-government liberal, you tell him or her that Bill Clinton presided over the smallest federal workforce -- in absolute numbers, not even adjusted for population size or anything else -- since John F. Kennedy.
Clinton -- with enormous help from Al Gore -- reinvented the federal government, making it leaner and more effective than it had been in a generation. Government spending as a share of the economy, 21.2 percent under Bush Senior, was cut to just 18 percent -- the lowest level since 1966.
Right-Wing Myths about the Clinton Prosperity
1. "It'll never work." The surest proof that the Clinton economic recovery plan represented a complete rejection of Reaganomics is the viciousness with which it was attacked by the Republicans. Here are just a few of the naysayers' comments from 1993:
• "I believe this will lead to a recession next year. This is the Democrat Machine's recession, and each one of them will be held personally accountable." Rep. Newt Gingrich (R-GA)
• "We are buying a one-way ticket to a recession." Sen. Phil Gramm (R-TX)
• "It's like a snakebite. The venom is going to be injected into the body of this economy; in our judgment it's going to spread throughout the body and it's going to begin to kill the jobs that Americans have." Rep. John Kasich (R-OH)
• "I really do not think it takes a rocket scientist to know this bill will cost jobs." Sen. Charles Grassley (R-IA)
• "It is going to hurt the economy dramatically. They are going to do irreparable harm to this economy." Rep. Dan Burton (R-IN)
• "April Fool, America. This Clinton budget plan will not create jobs, will not grow the economy, and will not reduce the deficit." Sen. Pete Domenici (R-NM)
• The Clinton plan "will grow the government and shrink the economy. It will mean fewer jobs for ordinary Americans." Rep. Dick Armey (R-TX)
2. "Reagan's policies created Clinton's boom." This one's funny, until you think about it. Then you realize it's pathetic. Reagan's economic policies jacked up the deficit, quadrupled the debt, and left us tens of billions of dollars of interest payments for years to come. Besides, if Reagan's economic policies were so impervious to Clinton's reforms, why did the Republicans so bitterly attack Clinton's proposals?
3. "The expansion really started under George Bush Senior." The official date of the birth of the expansion is March 1991, but 1991 and 1992 were years of anemic economic growth, which is one of the reasons the American people booted Bush out of office. In March 1991 unemployment was 6.8 percent. By June 1992, it was 7.8 percent. Hardly a sign of a healthy economy. Here's what the experts were saying at the time:
• "The economy is comatose and shows only the faintest signs of life right now." Bruce Steinberg, economist, Merrill Lynch, Washington Post (9/26/92)
• "There are real signs here that the economy is sliding badly, surprisingly badly." Alan Sinai, chief economist, Boston Co., Washington Post (9/26/92)
• "Americans have been unable to mount a convincing economic recovery...the economy is crawling forward so slowly that it appears to be standing still." Steve Mufson and John Berry, Washington Post (9/10/92)
• "First came the recession, which began in July '90 and seemed to end in early '91. Then there was the disappointing stall the second half of last year -- not another recession, but enough of a slowdown in sales and rise in unemployment to get people talking about a double-dip economy. Now there are rumblings of a triple-dip." Mark Memmot, USA Today (7/23/92)
• "The most recent economic news points to the possibility that the country may be heading for a triple-dip recession. Historians may look back on the Bush presidency as the beginning of a Great Recession, a period of prolonged economic stagnation." Charles Krauthammer, Chicago Sun-Times (7/12/92)
4. "It WAS Bill and Al -- Bill Gates and Alan Greenspan." While no one can doubt Bill Gates's business acumen or Alan Greenspan's unparalleled genius as a central banker, the hard truth is that they were still on the job as Dubya plunged us into another Bush recession. Presidents matter and their economic policies matter. Just ask Chairman Greenspan:
• "President Clinton said to Chairman Greenspan, 'I have to congratulate you. You've done a great job...' 'Mr. President,' Greenspan replied, 'I couldn't have done it without what you did on deficit reduction. If you had not turned the fiscal situation around, we couldn't have had the kind of monetary policy we've had.'" Maestro: Greenspan's Fed and the American Boom (Bob Woodward, 2000)
• In his public statement when he was renominated to chair the Fed, Greenspan said to President Clinton, "My colleagues and I have been very appreciative of your support of the Fed over the years, and your commitment to fiscal discipline, which...has been instrumental in achieving what in a few weeks...will be the longest economic expansion in the nation's history."
The Bottom Line
I hope this chapter didn't feel like trying to take a drink of water from a fire hose. But when you get a die-hard Clintonista -- or anyone else with a command of the facts -- on the subject of Clinton and the economy, well, the facts and stats just come gushing out.
It is beyond dispute that Bill Clinton was the most successful president on economic policy since Franklin Delano Roosevelt. The Clinton years brought the longest, strongest, broadest, fairest economic expansion in American history. Clinton didn't get a short-term jolt by running up the deficit, like Reagan. He didn't throw up his hands like Bush Senior. And he didn't allow our nation's economic fate to be determined by lobbyists and looters like Dubya.
Clinton followed the title of his campaign book, Putting People First.
It is staggering to observe the damage George W. Bush has done to our economy in just two short years.
But the purpose of this book is to prod policymakers -- and voters -- into demanding change, simply by chronicling the wreckage.
Copyright © 2002 by Paul Begala