Economic policy of Bill Clinton
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The Economic policies of Bill Clinton, referred to by some as Clintonomics (a portmanteau of Clinton and economics), encapsulates the economic policies of United States President Bill Clinton that were implemented during his presidency.
President Clinton oversaw a period of considerable economic growth and expansion during his tenure. In particular, real GDP per capita increased from about $38,000 in 1994 to about $45,000 in 2001 (in real 2011 dollars). The U.S. national debt as a percent of GDP also declined from about 66% to about 56% during Clinton's government.
As summarized by American political scientist Jack Godwin, Clintonomics encompassed both a set of economic policy goals as well as an overarching governing philosophy. Thematically speaking, Clinton’s economic approach entailed a perceived modernizing of the federal government, making it more enterprise-friendly while dispensing greater authority to state and local governments. The ultimate goal involved rendering the American government smaller, less wasteful, and more agile in light of a newly globalized era.
Clinton assumed office following the tail end of a recession, and the economic practices he implemented are held up by his supporters as having fostered a recovery and surplus, though some of the president's critics remained more skeptical of the cause-effect outcome of his initiatives.
The Clintonomics policy focus could be encapsulated by the following four points:
- Establish fiscal discipline and eliminating the budget deficit
- Maintain low interest rates and encourage private-sector investment
- Eliminate protectionist tariffs
- Invest in human capital through education and research
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Prior to the 1992 presidential campaign, America had undergone twelve years of conservative policies implemented by Ronald Reagan and George Herbert Walker Bush. Clinton ran on the economic platform of balancing the budget, lowering inflation, lowering unemployment, and continuing the traditionally conservative policies of free trade. In 1992, Bill Clinton was elected President of the United States of America. During Clinton’s presidency (1993 to 2001), the economic policies he put into place for the U.S. were termed Clintonomics. Clinton inherited Alan Greenspan as Chairman of the Federal Reserve.
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Clinton had economist Alan Greenspan (appointed by Ronald Regan in 1987) as the Chair of the Federal Reserve’s board of governors throughout his presidency; he also appointed two widely considered “moderate advocates of tight money", Alice Rivlin and Laurence Meyer. (A New Democrat, 399) Other appointments to the central bank perpetuated this trend of moderates in other nominations.
Greenspan, a proponent of absolute free markets and supportively easy monetary policy dominated Federal Reserve discourse and decionmaking, despite modest dissent from certain members.
The effects of this policy of appointing tight money proponents to the Fed are depicted in the Bureau of Labor statistics figure 1 depicting the consumer price index change or inflationary rate which determines the amount of money on the market (See Figure 1).
According to the graph, the CPI stabilized during the 1990s at a fairly low rate - never going above 5 percent during the Clinton presidency - which some would say is the result of the president's appointment of tight money proponents onto the Fed’s board. This strategy may have greatly contributed to the stabilisation and lowering of the rate of change in CPI or the rate of inflation, and it led to a huge growth in the “Dow Jones Industrial Average from 3255.99 in January 1993 to 11500 in early 2000” ( A New Democrat, 399).
Others might say that CPI growth was contained by unprecedented growth in labor productivity, which was the result of a crescendo of comparatively low-cost technology adoption, which enabled displacement and leveraging of expensive labor. According to this argument, the potential negative impacts of Greenspan's insistence upon loose monetary policy was (for a time) overwhelmed by a combination of technology-enabled productivity gains and further labor savings enabled by the export of jobs to lower cost offshore venues. Inarguably, the greatest visible inflation during this period of time was expressed in the financial markets - the S&P 500 grew at nearly an 11% real annualized rate over Clinton's term in office. The bond market continued to soar, as inflation rates and yields continued a decline that began in the 1980s.
However, in more recent years (as these cyclical forces abated) productivity growth slowed, as did employment growth, wage growth and overall economic growth. The uneveness in wealth distribution continued.
However, it may also have contributed to the expanding of the US trade deficit (Exports – Imports), as is shown by the graph of percentage change in Economic growth (red line) to balance of trade (blue line) (See Figure 2). From 1996 to 2000 there was a steady growth of the trade deficit, from -$100 billion to an all-time low at the time of nearly -$400 billion in 2000.
President Clinton was relatively hands-off in this department, only asking to tighten or loosen money three times each in eight years in the White House (A New Democrat). A possible explanation for this is that the Fed had the same sort of ideas that the president’s council of economic advisers believed in, and so there was not very much discord. Evidence for this is in the fact that most of his requests were made during the beginning of his presidency (A New Democrat) - presumably before he got his appointments onto the Board.
The only laws that could be considered deregulation according to John Burns and Andrew Taylor’s article A New Democrat are The Telecom Reform Act of February 8, 1996, which dispatched the ownership restrictions on radio and television, “agriculture and the pesticides legislation of 1996 and the Food and Drug Administration overhaul of 1997." (400) which were all signed into law by President Clinton. According to the same article the considerable regulation passed by the congress consisted of the Family and Medical Leave Act of February 5, 1993, which made paternity, maternity and medical leave available, The Minimum wage Increase Act of August 20, 1996 which raised the minimum wage and let states set it even higher if they wished. Also passed during his tenure was the “California desert protection, direct lending of educational financial aid, health insurance portability, and safe drinking water legislation.”(400) Clinton wasn't a clear departure from the previous two administrations of Reagan and Bush as there were several deregulation laws introduced into law. Most notably in 1999, Clinton signed the Financial Services Modernization Act, which allowed banks, insurance companies and investment houses to merge and thus repealing the Glass-Steagall Act which had been in place since 1932. Some point to this as a partial cause of the financial meltdown of 2008.
Clinton signed the Omnibus Budget Reconciliation Act of 1993 into law. This act created a 36 percent to 39.6 income tax for high-income individuals in the top 1.2% of wage earners. Businesses were given an income tax rate of 35%. The cap was repealed on Medicare. The taxes were raised 4.3 cents per gallon on transportation fuels and the taxable portion of Social Security benefits were increased. The Taxpayer Relief Act (1997) reduced some federal taxes. Due to certain phase-in rules, the rate 28% was lowered to 20% in the top capital gains. The bracket that was 15% fell to 10%. In 1980, a tax credit was put into place based on the number of individuals under the age of 17 in a household. In 1998, it was $400 per child. In 1999, it was raised to $500. High-income families had this Act phased out. This Act took out from taxation profits on the sale of a house of up to $500,000 for individuals who are married, and $250,000 for single individuals. Educational savings and retirement funds were given tax relief. Some of the expiring tax provisions were extended for selected businesses. Since 1998, an exemption could be taken out for those family farms and small businesses that qualified for it. In 1999, the correction of inflation on the $10,000 annual gift tax exclusion was accomplished. By the year 2006, the $600,000 estate tax exemption had risen to $1 million.
The Personal Responsibility and Work Opportunity Act of 1996 had a “fundamental shift in both methods and goal of the federal cash assistance to the poor.” Temporary Assistance for Needy Families (TANF), Aid to Families with Dependent Children (AFDC), the Job Opportunities and Basic Skills Training Program (JOBS) were among the organizations of this act. The spending was $22.6 billion, in 1995. This bill was followed with reduction of unemployment. The federal budget is the combination of both the U.S. taxes and spending. During Clinton’s presidency, these acts had brought the economy out of its deficit and into a surplus. However, the surplus was only recorded against public debt which was calculated with the exclusion of intragovernmental holdings. This meant that the administration was able to record loans made by the social security trust fund to the government as revenue on budget reports, which accounted for the bulk of the surplus money. Including the money owed to the social security trust fund, the lowest deficit was $17.9 billion, in the year 1999-2000, the lowest level since 1973-1974. The total national debt (gross federal debt) rose every year of the Clinton Administration from $4.3 trillion to $5.6 trillion and from $5.4 trillion to $5.6 trillion over these years.
This has affected the economy in that the balanced budget and even more the surplus increased investor confidence in the economy, leading to an increased amount of investment, especially in the stock market. This change is exemplified by the dramatic increase in the Dow Jones industrial index.
Bill Clinton’s macroeconomic policies of his presidency can best be looked at through three main categories: gross domestic product (GDP), inflation rates, and unemployment rates. The first factor we will examine will be the GDP.
As Bruce Bartlett points out in his article Those Were the Days, Bill Clinton inherited from his predecessor, George H. W. Bush, a deficit of 4.7% of GDP. Although the deficit was not a large priority in Clinton’s initial macroeconomic policy, he made its reduction a higher priority later in his term (Burns and Taylor 393). Among many parts of Clinton’s policy to lower the deficit, he allowed for the passing of laws that raised the money in the US Treasury (Burns and Taylor 395). Clinton also, as Bruce Bartlett pointed out in the same article, cut federal spending and also raised taxes on the wealthy to lower the deficit.
The pursuit of low inflation rates was another large aspect to Bill Clinton’s macroeconomic policies. He, unlike most other post-war Democrats, worked to keep the inflation rates low, and succeeded (Burns and Taylor 389). The mean inflation rates of Bill Clinton were at 2.3%, which are low when considering the fact that that is about half of the rates of Republican Presidents (Burns and Taylor 389).
Lower unemployment rates were another large part of Clinton’s macroeconomic policies. Many argue that Clinton cost many Americans jobs because he supported free trade, which some argue caused the U.S. to lose jobs to countries like China (Burns and Taylor 390). Even if Clinton did cost Americans some jobs because of free trade support, he allowed for more jobs than were lost because the unemployment rate of his presidency, and especially his second term, were the lowest they had been in thirty years (Burns and Taylor 390). Others attribute this to sustained declines in interest rates, which fueled a booming stock market and job growth in a booming technology sector.
The easiest way to look at the macroeconomic effects of Clinton’s presidency is to look at three main points: gross domestic product (GDP), inflation rates, and unemployment rates.
Clinton took the deficit of 4.7% of GDP in 1992 and turned it into a surplus of 2.4% of GDP in 2000. Federal spending fell to 18.4 percent of GDP. in 2000 from 22.2 percent in 1992. Although Clinton raised taxes in 1993, he cut them in 1997.
Clinton also lowered inflation rates down to 2.3%. Democratic presidents had an average of about double that rate, and Republicans had even higher rates (Burns and Taylor 389). This lowering of interest rates contributed greatly to the good economic health exhibited during Clinton’s presidency.
The average unemployment rate of Democratic presidents, excluding Clinton, is currently about 4.3% while the average unemployment rate for Republican presidents is currently at about 6.1% (Burns and Taylor 390). Bill Clinton’s policy achieved a thirty-year low in April 2000 with an unemployment rate of 3.9% (Burns and Taylor 390). More jobs were created per month during the Clinton presidency than during any other presidency in U.S. history.
A comparison of all post World War II unemployment rates can be observed in Figure 2. Clinton lowered the US unemployment rate significantly throughout his entire presidency, and lowered it much more than other presidents did (Burns and Taylor 391). This low rate reflects the healthy economy of Clinton’s Presidency because, as most economists agree, unemployment rates tend to be low in times of economic growth periods. We can see through a simple correlation that Bill Clinton’s economic policies promoted a healthy economy and, as a result, had lower unemployment rates (See Figure 5).
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Clinton has been heavily criticized for overseeing the creation of the North American Free Trade Agreement (NAFTA), which made it more affordable for manufacturing companies to outsource jobs to foreign countries and then import their product back to the United States. This policy caused a significant decrease in the amount of unskilled jobs in the United States.
Some liberals and progressives believe that Clinton did not do enough to reverse the trends toward widening income and wealth inequality that began in the late 1970s and 1980s. The top marginal income tax rate for high-income individuals (the top 1.2% of earners) was 70 percent in 1980, then lowered to 28 percent in 1986 by Reagan; Clinton raised it back to 39.6 percent, but it remained far below pre-Reagan levels. Clinton's administration also afforded no benefit to unionized labor and did not favor strengthening collective bargaining rights.
Conservative author Bruce Bartlett, a former member of the Ronald Reagan and George H.W. Bush administrations, criticized Clinton for not using the budget surplus to restructure the United States' Social Security program. Bartlett claims that by restructuring Social Security, Clinton would have helped the nation as well as his party.
- Presidency of Bill Clinton
- New Democrats
- Back to Work: Why We Need Smart Government for a Strong Economy
- George W. Bush administration economic policy
- Jack Godwin, Clintonomics: How Bill Clinton Reengineered the Reagan Revolution (Amacom Books, 2009)
- Joseph Stiglitz, Freefall: America, Free Markets and the Sinking of the World Economy (2010)
- "Historical Tables Budget of the U.S. Government" (PDF). Office of Management and Budget. 2013.
- "Job Creation by President". Politics that Work. 2015.
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- Anonymous. Taxpayer Relief Act of 1997. File Tax.Com. 8 Mar. 2008
- Anonymous. "S&P 500." Standard & Poor's. 8 Mar. 2008
- Midgley, James. "The United States: Welfare, Work, and Development." International Journal of Social Welfare 10:7 (2000): 284-293.
- Investopedia. "Calculating the Dow Jones Industrial Average"
- Bartlett, Bruce. “Clinton Economics.” NRO NationalreviewONLINE 7 July 2004. 8 March 2008
- "Bill Clinton’s Economic Legacy." BBC. 15 January 2001. British Broadcast Corporation. 8 March 2008
- Bartlett, Bruce. "Those Were the Days." The New York Times. 1 July 2004. 4 March 2008
- Burns, John W. and Andrew J. Taylor. "A New Democrat? The Economic Performance of the Clinton Presidency." The Independent Review V.3 (2001): 387-408.