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.
