Last week, during the Democratic debate, Dick Gephardt retailed the Democrats’ favorite fairy tale–Bill Clinton’s 1993 economic plan reinvented the American economy, eliminated the deficit, and basically created the Internet (Sorry, Al Gore). Right–and Goldilocks ate the bears’ porridge and Rapunzel made a prison break with her hair.
Gephardt intoned, “Let me just say this: We’ve got a great story for the American people, and the middle class and all the people of the country. We did this. I led the fight for the Clinton economic program in 1993. It created 22 million new jobs. We didn’t get a Republican vote in the House or the Senate. We passed it by one vote in both houses. And it’s clear we get this. We know how to do this. They do not. If you want to live like a Republican, you’ve got to vote for the Democrats, and we’ve proven it over and over again.”
Gephardt’s tendentious comments show how the Clinton record will be some of the hardest-fought ground in the 2004 election, and how the Democrats crucially depend on a stilted account of that record, as I show in my new book Legacy: Paying the Price for the Clinton Years. If they didn’t distort this record, they’d have nothing to say.
First, here’s an irony. We heard a lot about “Reagan Democrats” in the 1990s. The other night, Gephardt was by implication extolling the virtue of “Bush Democrats.” And I’m not talking “George W. Bush Democrats,” but “George H. W. Bush Democrats.”
At the end of the day, the legislative centerpiece of Clinton’s early administration was almost exactly the same as that of George Bush from 1990. After all the anti-Bush rhetoric, despite all the later self-serving claims of attempting an establishment-threatening “progressive presidency” (Clinton courtier Sidney Blumenthal writes, ridiculously, of “the challenge to the old order”), Clinton in 1993 served up a huge helping of the status quo. Both the Bush plan from 1990 and the Clinton plan in 1993 featured modest increases in the top income-tax rate, more Medicare payroll taxes on top earners, an expansion of the Earned Income Tax Credit for low-income workers, a gas-tax increase, and an increase in the alternative minimum tax.
Clinton, it turns out, shouldn’t have been campaigning against George H. W. Bush, but with him.
Now, that said, Gephardt’s “great story”–which is just a version of Clinton’s “great story”–depends on two big lies. The first is the dishonest picture Clinton painted of the American economy in 1992. He called it “the worst economy in 50 years,” a transparently false claim. The 1990-91 recession was relatively mild, especially compared with the downturn of the early 1980s. The recession Clinton ran against officially ended in March 1991, several months before he even announced his candidacy premised on battling the Second Great Depression.
The other lie is that Clinton’s 1993 economic package transformed the federal budget, and hence the American economy. In fact, his plan was insignificant, a flea on the raging bull economy of the 1990s; and his plan failed in its three specific aims: It didn’t cause interest rates to fall, it didn’t significantly reduce the deficit, and it didn’t cause the economy to grow. It was a trifecta of failure.
Since most economists would think the last thing that you should do when economy is just starting to recover is to raise taxes, the Clinton team had to come up with an elaborate explanation for why its proposed tax increase in 1993 made sense. So, it latched onto the argument–bear with me here, it gets a little complicated–that by lowering the deficit, it would lower interest rates, and thus stimulate the economy by reducing the cost of borrowing for consumers and businesses.
Hmmm. It sounds like it might make sense–except for one minor detail. As former Clinton labor secretary Robert Reich has noted, “This theory is easy to state with conviction, but it is impossible to prove. Look back several decades and you see no direct relationship between deficits and interest rates.” Uh, that’s because none exists. Check out Alan Reynolds on the topic.
The theory aside, interest rates did not cooperate with the Clintonites in practice. The Clinton budget passed and was signed into law August 1993. In February 1994, just six months later, Alan Greenspan raised rates to address new inflation worries. This was the first in a series of seven increases during the next year. By April 1994, long-term rates were 7.4 percent, higher than when Clinton took office, and the 10-year rate peaked around the time Republicans captured Congress in November 1994.
Then, there are the other uncomfortable facts. The deficit reached its 1990s high of $290 billion in fiscal year 1992 and fell to $255 billion in fiscal year 1993, a roughly $40 billion reduction even before Clinton got started. Why was the deficit already declining? The deficit tends to rise during recessions, and fall during expansions. It climbed with the recession of 1990-91, before declining again as the recovery took hold. So, just as Clinton was taking office, natural forces were already working to reduce the deficit.
In light of this, the actual deficit reduction that can be attributed to policy changes in Clinton’s plan is quite small. After all, even after all the hoopla of Clinton’s deficit-reduction plan, the Congressional Budget Office in January 1995 projected annual deficits of more than $200 billion between 1997 and 2005.
As for economic growth, the fact is that the economy was already growing before any Clinton policies took effect. In 1992, growth was 3 percent. From 1993 to 1995 it was 3.1 percent annually. In other words, steady as she goes.
Now, later in the decade, the economy did indeed take off in a marvelous boom. This was a result of the corporate restructuring and downsizing of the 1980s and early 1990s, and the fantastic rise of new technology. You cannot attribute all this to the Clinton administration, unless you really do think that Al Gore invented the Internet.
Where Clinton should get credit is basically for getting out of the way of the free market: He was generally free trade; he let Alan Greenspan keep inflation in check; he signed a “tax cut for the rich” in 1997; he signed various deregulatory bills; and his administration adopted a hands-off policy for the Internet (crafted by, of all people, former health-care guru Ira Magaziner).
So, to the extent that Clinton made it possible for people to live like Republicans, it was by accommodating Republican policies. If Gephardt wants to tout this Clinton legacy, great: Let’s get the memo out to all Democratic leaders as soon as possible, and get them all to endorse Alan Greenspan, deregulation, and capital gains tax cuts. Hurrah!
Of course, Gephardt has no interest in doing this, thus his potted account of the 1993 plan and of the 1990s economy in general. But if you’re going to make the crude argument–as Gephardt basically does–that the president is automatically responsible for everything that happens economically during his time in office, well, then Clinton is responsible for the NASDAQ crash in the spring of 2000, the decline of manufacturing and industrial productivity in 2000, and the loss of some 200,000 manufacturing jobs before Bush took office.
But let’s not disturb Gephardt’s sweet story. Yes, Dick, you’re right–and everyone lived happily ever after. . .
– Rich Lowry is author of Legacy: Paying the Price for the Clinton Years.