Do you find yourself longing for the lazy, hazy days when Bill Clinton was president, when the stock market was booming and deficit spending was headed in the right direction?
It’s true! Bill Clinton was the first president in 50 years to preside over a balanced budget (if you don’t count a trifling $17.9 billion in red ink or the 2001 budget he left for George W. Bush). But, before you give our 42nd president too much credit, you need a little perspective.
When Clinton left office, the national debt was only $5.67 trillion. (I still find it hard to use the words “only” and “trillion” in the same sentence, but bear with me.) It should have been less, a lot less. The truth is both Clinton and the Republican-controlled Congress squandered a unique opportunity to eliminate the national debt and put our country on sound financial footing.
First, a little history lesson: Clinton’s fiscal policies were a carbon copy of his predecessor, George H.W. Bush. Both men wanted to get out from under the spending restraints imposed by the previous administration. Both gave us new budget packages – Bush in 1990 and Clinton in 1993 – which they sold to the public as “$500 billion deficit reduction” plans. Both plans covered five years and featured huge tax increases and a plethora of new spending (to get everyone on board).
It was the oldest Washington flimflam. When citizens hear the words “deficit reduction,” most think it means Washington will spend less. In reality, the “cuts” are never real cuts, but cuts in the amount of money our elected representatives really wanted to spend if money were no object. In reality, those cuts in the “rate of spending” never materialize as long as one spending plan is allowed to replace another because the “cuts” are always scheduled to occur in the out years (final years) of the plan. That is the game Bush 41 and Bill Clinton were playing.
Bottom line: We were duped, not once but twice, with the same shell game.
In 1994, the Republicans took control of both the House and the Senate after 40 years in the congressional wilderness. The newbies wanted to reduce the size of government and slash federal spending. They started out on the right foot and even passed some rescissions. In other words, they refused to spend some money that had already been appropriated but had not yet gone out the door. That year, everyone – Democrats and Republicans – became deficit hawks, but it was short-lived.
Bear in mind that Mr. Clinton’s 1993 budget deal contained red ink as far as the eye could see ($1.5 trillion to be exact). Furthermore, after blaming the deficit on entitlements, Clinton added three new ones, including one to pay for the health care of illegal aliens.
When these new Republican leaders tried to get him to accept a budget that would (eventually) reach balance, Clinton shut down the government – not once but three different times – and Republicans took the blame. At that point, they simply lost their nerve and begin to compromise on the amount of his overspending.
In the short term, however, the rate of spending went down, and this had a positive effect on the economy. In addition, Mr. Clinton was backed into a corner and forced to sign a welfare-reform bill that also paid dividends. In other words, the Republican takeover of Congress saved his bacon and got him re-elected.
Mr. Clinton also benefited from four other events that had absolutely nothing to do with his economic policy. The Fed began to lower interest rates, due to the sagging economy, which meant we were spending less to service the debt. The sell-off from the savings-and-loan debacle brought in a lot of capital, which was a one-time phenomenon. And, let us not forget the Reagan peace dividend. The end of the Cold War allowed us to draw down the size and scope of our defense force and close and sell military bases.
Finally, during Clinton’s final term, there was the dotcom bubble. The tech industry matured, which allowed companies to streamline. Dividends increased, and everyone wanted a piece of the action. The stock market began to soar, and investors began to reap windfall profits. As a result, tax revenues went through the roof.
All this allowed Mr. Clinton and the Republican leaders of Congress to hide the true extent of their overspending.
Yes, Clinton was able to brag that he eliminated deficit spending, but it was like a rooster taking credit for the sunrise. He had absolutely nothing to do with it.