The New York Times reported last week that former President Bill Clinton is working on a new book on economic policy to be released in time for next year's election. This is unfortunate, since Clinton stands alongside Alan Greenspan as one of the last people who should be giving the country and the world advice on economic policy.
Many people look back with fondness on Clinton years and there is good cause. The economy grew at an annual rate of almost 4.5 percent during his second term. The unemployment rate fell to a 4.0 percent as a year-round average in 2000. And the country saw strong real wage growth up and down the income ladder for the first time since the early '70s.
This was all good news. However, it was unsustainable and Clinton's economic team should have known it at the time. The immediate cause of the prosperity was the demand created by a $10 trillion stock bubble. While this gave some boost to investment, its main impact was on consumption. People spent based on their newly created stock wealth, causing the saving rate to fall below 2.0 percent, which at the time was the lowest level of the post-war era.
Of course bubbles burst, and when this one did, it gave the country a severe downturn in 2001. While the official recession was short and relatively mild, ending in just seven months, the economy didn't start to generate jobs again until September of 2003.
It is not easy to recover from a recession caused by a collapsed asset bubble, as is becoming more evident every day. The country did not regain the jobs lost in the 2001 downturn until 2005, and even then it was only due to growth driven by the housing bubble.
One of the factors that made it harder to recover from the 2001 downturn was the sharp increase in the country's trade deficit. Demand was diverted abroad from domestically produced goods and services. This was, in turn, a direct result of the high-dollar policy that was put in place by Robert Rubin when he became Treasury secretary.
Rubin put muscle behind his high-dollar policy when he oversaw the International Monetary Fund bailout of East Asia from its financial crisis in 1997. The harsh conditions led the countries of the region to sharply devalue their currency against the dollar in order to accumulate enormous reserves of foreign exchange. Other developing countries also followed this path in order to avoid ever being put in the same spot as the East Asian countries.
As a result of this policy, the U.S. trade deficit soared, eventually reaching 6 percent of gross domestic product in 2006. This was the fundamental imbalance in the U.S. economy. By definition, a trade deficit of this size requires either large budget deficits or negative private savings. We saw the latter in a big way as housing bubble wealth led to another consumption boom that pushed the household saving rate to near zero from 2004-2006.
Clinton also removed restrictions on the financial industry. This left the door open for AIG and others to run wild with credit default swaps. It also created an environment in which every new financial innovation was seen as a step forward for society.
Clinton also deserves some grief from shoving the TRIPs provisions into the Uruguay round of the World Trade Organization. The TRIPs provisions, which are largely the invention of the U.S. pharmaceutical industry, are rules that require countries to have stronger patent and copyright protections. They are likely to lead to sharply higher drug prices in the developing world. One of the main goals of President Clinton's foundation is to try to make essential medicines affordable for people in the developing world. The TRIPs provisions are one of the reasons that these medicines became unaffordable.
Thankfully, Clinton probably will have the sense not to lecture us on the virtues of TRIPs or his removal of restrictions on the financial industry. More likely, he will be preaching the virtues of balanced budgets. This is the part of the legacy that the country must have the courage to reject.
Balanced budgets are 180 degrees the wrong answer in today's economy. We desperately need government deficits in order to make up the lost demand from the private sector. For the near-term future, the private sector is not going to spend enough to bring the economy back to full employment.
But balanced budgets were also the wrong answer in the Clinton years. Clinton's spending cuts and tax increases helped get the deficit down in his first term, but the main reason that the deficit continued to shrink and turn to a surplus was the growth driven by the stock bubble. The Congressional Budget Office's projections showed that even with the Clinton administration's tax increase and spending cuts, we still would have been looking at a substantial deficit in 2000 had it not been for the stock bubble.
In short, President Clinton did not balance the budget; the stock bubble balanced the budget. There is no doubt that excessive deficits can harm the economy, but we are not looking at such a situation now or any time in the near future. Over the longer term, we are projected to run large deficits, but this is entirely because our health care system is broken. If our health care system was as efficient as that of any other wealthy country, we would be looking at surpluses, not deficits.
Please, President Clinton, save some trees. Don't give a half-baked lecture on the virtues of deficit reduction. It is not what the country needs.
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Clinton was not able to get much passed without giving the Republicans what they demanded also.
The GOP were the ones demanding NAFTA, welfare reform and deregulation. Since the economy
was recovering from the Reagan/Bush terms, it seemed like the right thing to do. Had we
been losing a lot of jobs when NAFTA was passed, odds are high that Clinton would have implemented some protection for jobs here. Same for deregulation. The banks and big business assured Bush they were being responsible adults and didn't need the oversight.
Clinton probably thought they'd learned their lessons from history and the same mistakes wouldn't be made again.
I am grateful Obama is not backing down on Dodd-Frank. However, I consider the new free-trade agreements with Panama, et al another loss for American workers. Helping the poorest amongst us is never going to pass the Republican led house which is why Obama has to focus on jobs..jobs and more jobs. As unhappy as I am with Obama's focus on jobs this late in the game, I consider the
republicans focus on destroying our economy for the sake of winning the White House reprehensible.
It might have been sustainable had his economic policies not allowed it to be blown up beyond common sense.
It might have been sustainable had his economic policies not allowed it to be blown up beyond common sense.
And on the downside He gave us NAFTA, the repeal of Glass Steagall, and the Commodities Modernization Act of 2000 which removed all oversight from the derivatives that caused this depression we are suffering now.
And if anyone doubts that he favored those things, research Rahm's role in pushing all of it through with the help of Gramm, the republican economic hit man.
State of the Union 2004:
The pace of economic growth in the third quarter of 2003 was the fastest in nearly 20 years; new home construction, the highest in almost 20 years; homeownership rates, the highest ever. Manufacturing activity is increasing. Inflation is low. Interest rates are low. Exports are growing. Productivity is high, and jobs are on the rise."
(A month later, President Bush passed the Zero Down Payment Initiative. "To build an ownership society, we'll help even more Americans to buy homes," Bush told a group of homebuilders in 2004. "Some families are more than able to pay a mortgage but just don't have the savings to put money down." By the end of 2005, the National Association of Realtors said that more than four out of every 10 first-time homebuyers put no money down.)
Read more: http://www.portfolio.com/news-markets/top-5/2008/07/23/Bush-Wall-Street-Got-Drunk/#ixzz1RBpS20ng
The Democratic party has done more to hurt American workers than Republicans ever dreamed of.
Started NAFTA? - no, GHWBush "started" NAFTA. He failed to push it through Congress.
H-1B Visas - Created under the "Immigration Reform and Control Act" of 1990, GHW Bush
The remaining two items you cite are mere conjecture.
I mean come on, great the idea of these bills were started earlier, so was a lot ideas.
WHAT presidential signature is on the bill?
That is what counts
In December 1996, the Federal Reserve Board issues a precedent-shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities underwriting
On August 22, 1997 the Board of Governors of the Federal Reserve System announced final regulations (effective October 31, 1997) which, among other things, remove three "prudential limits" (often referred to as "firewalls") which have restricted the ability of commercial banks to extend credit and offer credit enhancement products to customers of their Section 20 affiliates and to share nonpublic customer information with their Section 20 affiliates. The removal of these prohibitions should enhance the ability of commercial and investments banks within a holding company structure to offer new commercial, capital markets and hybrid financing products.
Sections 20 and 32 refer to commercial bank affiliations and forbids member banks from affiliating with a company 'engaged principally' in the 'issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stocks, bonds, debentures, notes, or other securities'.
In June 1988 the U.S. Supreme Court upheld a lower court's ruling accepting the Federal Reserve Board's April 1987 approval for member banks to affiliate with companies underwriting commercial paper, municipal revenue bonds, and securities backed by mortgages and consumer debts http://tinyurl.com/3wg3ykq”
Sounds to me as if you never want to address anything on the debt side or reduce spending. What is excessive 100%, 200%, 300% of GDP? There will be a threshold.
Also, you touched on the very heart of the issue, the housing bubble led to hyper consumption. Right now we are trying to fill the demand with government, what if the average American never gets back to the consumption rate of 2006/7? What if people don't go into negative savings again? Will we endlessly fill the demand with government spending?
There are a lot of examples of continually growing debt to trigger growth, effectively leveraging yourself into growth. Some government and businesses do it well and some do it bad (ie Greece and Lehman). There is such a thing as bad debt and inefficient spending.
Clinton vs. Bush vs. Obama, on economy it is Clinton hands down, ten fold
According to the author we should never cut or curtail spending regardless of context and he plays the 'not an immediate threat' on debt. Its really a simple play on logic, because if something is always considered long term, then you never have to address it in medium or short. That is until someone (ie creditors, markets, etc) address it for you.
If the choice is between putting food on the table and making a mortgage payment, again, I choose food on the table.
If the choice is bailing out the big guys vs the powerless majority, I choose the powerless majority.
The majority of Americans get it, It's time Congress gets it.
HIGH TIME.
So: no matter how deep the hole is, keep digging!
But despite low taxes, low interest rates, and a favorable regulatory climate, the private sector refuses to build. So the public sector must.
Building the Rural Electrification Program created an essential infrastructure for business to thrive. Building Interstate Highways created essential infrastructure for commerce. Putting men on the moon generated new technologies that created countless new businesses.
A cynic can be defined as someone who knows the cost of everything, but the value of nothing. You focus only on the cost side of the equation, not the value side.
The U.S. should have the best high-speed rail system in the world, not just because it would re-employ millions, but because it will reduce transportation costs, which will make our products more competitive. We should have nation-wide broadband, not just because it will employ hundreds of thousands, but because it will reduce the cost of doing business. We should have the cleanest energy in the world, not just because it will re-employ millions, but because it will slow global warming and make energy cheaper, which will fuel the private sector.
No, we shouldn't keep digging this hole deeper. Nor should we be waiting for those at the top to throw in dirt, because while that may seem like a way out to you, it seems like a grave to me.
...neither deficit reduction nor a Balanced Budget Amendment is what the country needs to focus on at this moment US history...
...especially with a poor economy and critically high unemployment.