Thursday, March 11, 2010


Withywindle writes:
The argument is usually that Clinton's 1993 deficit reduction created a virtuous cycle of less debt and more business confidence, thereby goosing the economy to top performance. You don't give that any credit?

Not really.

GDP by year according to the BEA
1990 5,316.2
1991 5,324.2
1992 5,505.7
1993 5,701.2

If you notice, the economy grew by 181 between 1991 and 1992. Then, 196 from 1992 - 1993. Both of these, I think, are before the tax increases. The growth trajectory began before Clinton even took office. Again, he did manage what he was dealt well. I'm all for deficit reduction, but it was not the cause of the growth.

And if the deficit reduction had any effect, it paled in comparison to the technological revolution that took place. Let's not forget that Netscape Navigator was released in 1994.

What makes more sense? That Clinton balancing the budget led to exceptional growth in productivity or that computers and especially computer networking did? If it's technological, then it's not Clinton. If one wants to give Clinton's budgeting credit for the level of investment in technology, then one needs to argue that people wouldn't have invested as much. Given that there was an investment bubble in the technology, I find that argument wanting.

UPDATE: I found an excel spreadsheet, also from BEA, that contains the growth rate over the years. I made a chart:


Alan Howe said...

Bush 41, despite his "read my lips" pledge, agreed with a Democratic Congress to raise taxes as part of the 1990 budget agreement. My Heritage Foundation chart shows a dramatic increase in revenue following that while the rate of increased spending remained constant. These lines bisect not long after Clinton's actions leveling off spending while revenue continued to climb. He could have spent it or given it away. Candidate Bush, in 2000, claimed budget surpluses justified his tax cuts while not contending Clinton's December 2000 claim that we were on track to eliminate the public debt by fiscal year 2009.

We have suffered a dire reversal in fortune (the debt doubled, instead) that has really a single cause--fiscal foolishness, or as you call it Republican's "pretty fucking shitty" economic (budget) management. Each of the last three Republican Presidents have established new records in fiscal irresponsibility. That is precisely why I am no longer a Republican.

FLG said...


"Clinton's December 2000 claim that we were on track to eliminate the public debt by fiscal year 2009. "

That was based on some questionable assumptions about economic growth continuing as it had, which of course it didn't.

"We have suffered a dire reversal in fortune (the debt doubled, instead) that has really a single cause--fiscal foolishness, or as you call it Republican's "pretty fucking shitty" economic (budget) management."

I understand your point and to some extent, as your quote of mine emphasizes, but the economy itself took a turn and we weren't ever going to have the rosy scenario that Clinton suggested.

So, yes, Republicans were irresponsible. But, no, to the idea that if Clinton were magically still in charge for 4 terms everything would've been as rosy.

Withywindle said...

I want the chart on interest rates, which were supposed to have been low and helpful post 1993, leading to the 1998 annus mirabilus. The argument is also that lowered debt and lowered interest rates allowed for more computery investment, etc.; not that Clinton was solely responsible for the good times, but that his policies were statistically significant in their positive effects.

FLG said...

Historical Fed Funds Rate data is here.

Started dropping in 1990. Stopped falling in 1992. Then went up 1994 - 2000.

The Fed Funds is determined by the Fed, so perhaps the Libor makes more sense to look at, but nevertheless, I'm not sure how it supports your story.

Alan Howe said...

Bush and his supporters are fond of pointing out that the economy grew while he was in office. Not once did that result in a balanced budget. Not once did he raise tax rates as an alternative to Fed actions to cool the economy. But, you've already pointed this out. I'm just angrily piling on. Nothing in my adult life (1980-2010) has done more to weaken the US than Bush's budget deficits. I despise him for that.

Andrew Stevens said...

Each of the last three Republican Presidents have established new records in fiscal irresponsibility. That is precisely why I am no longer a Republican.

As you pointed out yourself, though, Bush 41's fiscal policy was essentially similar to Clinton's. There's little to choose from between the two - they were both basically Eisenhower Republicans. Clinton had a much better economy, leading to much higher capital gains tax revenues and also had a bigger peace dividend since he really got to reap the benefits of the end of the Cold War, but it's really just circumstances that gave them different results. (Also note - Clinton's fiscal results aren't even any better than Bush 41's until his second term, after the Democrats lost Congress.)

Reagan and Bush 43 are a different story and, also, a different story from each other. The debt genuinely did increase quite a lot under Reagan, mostly due to increased military spending and because Paul Volcker strangled hyper-inflation, so we were no longer inflating our debt away. Reagan's deficits are defensible, in my view, since the Cold War was won. The USSR, faced with a disastrous choice between keeping up with Reagan's arms race or feeding their people, withdrew the Red Army from eastern Europe and watched those countries fall like dominoes. I am perfectly willing to trade the debt Reagan accumulated in exchange for the end of the Cold War and the end of stagflation. Put another way, FDR's fiscal management was objectively far, far worse than anybody we're discussing here, rasing the debt from 33.2% of GDP to 116% of GDP upon his death. (For comparison, Reagan, who has the worst record of the four Presidents we're talking about, went from 32.56% to 51.02%.) Anybody think that in itself makes FDR a bad President?

The increase in the debt under Bush 43 (as a percentage of GDP, the only important measure of the national debt) was much more modest than Reagan's and only lasted a couple of years, after which it flattened to somewhat below 1997 levels until the crisis of late '08 when it exploded. However, here I am in agreement. Bush 43's fiscal management was not very good. With a booming economy for most of his term and only a couple of small wars, there's no reason why he couldn't have made a dent in the debt instead of just flatlining it. Clinton did better. (Of course, Truman and Eisenhower kick both of their butts all over the place, but they didn't have to deal with much in the way of entitlement programs.)

Here are the gross public debt as a percentage of GDP numbers from 1988 to 2008:

1988 51.02
1989 52.12
1990 55.74
1991 61.17
1992 64.09
1993 66.17
1994 66.23
1995 67.08
1996 66.66
1997 64.97
1998 62.84
1999 60.47
2000 57.02
2001 56.46
2002 58.52
2003 60.88
2004 62.18
2005 62.77
2006 63.49
2007 63.99
2008 69.15

Andrew Stevens said...

Nothing in my adult life (1980-2010) has done more to weaken the US than Bush's budget deficits. I despise him for that.

This is just silly. Budget deficits don't matter anywhere even remotely close to what you think they do. The gross public debt was 120% of GDP after World War II, far higher than it is today. Bush's fiscal management was poor and part of the reason I didn't support him in 2004, but the amount it "weakened" the United States is entirely negligible and certainly nothing worth hating anybody over. Here's a partial list of countries with worse debt problems than the United States:

Zimbabwe, Japan, Singapore, Italy, Greece, Sudan, Egypt, Belgium, Israel, Hungary, France, Portugal, Germany, Canada, Austria, Jordan, India, Norway, Argentina, Pakistan, United Kingdom, Switzerland, Netherlands, Thailand, Poland, Brazil, and many, many more.

Alan Howe said...

Andrew, I applauded Bush 41, then and now, for raising taxes, but that did come after he set new records in budget deficits. I stand by my characterization of the last three Republican Presidents and their record deficits.

Second, I don't care much about the debt levels of other countries; my concern is with the debt level of MY country. You are correct that our debt as a percentage of GDP has been higher in the past. However, it was held here and by close allies, not by countries like China. To suggest we are no more at risk now than we were then is a bit too complacent. A refusal by China to purchase new US debt would pose severe risks to our economy. We depend on new loans. That is a weakness I cannot abide. What would you suggest occurred between 1980 and 2010 that weakened us more?

FLG said...


"What would you suggest occurred between 1980 and 2010 that weakened us more?"

Do you seriously believe that we as a country are weaker in 2010 than 1980? Good God man! We won the Cold War.

But then the question you are raising is really about what made us more weak relative to other causes. Let's say that I grant you that the Republican fiscal management was the thing that weakened us most of all the things that weakened our nation. We're still the most powerful nation on Earth and the fiscal mismanagement under the Republicans isn't turning us into some sort of banana republic. If anything is going to do that it's the structural, read not just Republicans' fault, fiscal picture over the long-term.

Also, I think you worry too much about the China thing. There's an old adage that goes something like this: I owe you $500, then you have power over me. I owe you $500 million dollars, then I have power over you.

Both of us are worried about the debt issue. And if China stops buying, then interest rates go up. It's not like the world comes collapsing down.

Alan Howe said...

In 1980, precisely because we were still fighting the Cold War, we were stronger and more willing to act as a country faced with a potential existential threat whereas today, we act more like 306 million individuals worried far more about our own luxury than the state of our nation. We are weaker for that.

But we are weaker still because we were a net creditor nation in 1980 and, during Reagan's era, we shifted over to a net debtor nation. We have moved into deeper and deeper risk since with only a momentary movement in the other direction. What will our 306 million individuals do if we are forced to implement an austerity budget? Will we pull together as a nation? Or will we march and protest like Greeks? What social cohesion will prevail when half our shrunken austerity budget is sent to overseas creditors? How long will our defense budget protect us after that? This is a path to serious, even fatal decline.

We can scoff at the odds this will become our future, but we are doing too little to see that it is not. More importantly, we should have avoided reaching a point where it can even be contemplated. That we did the opposite is the thing that has weakened us most.

Andrew Stevens said...

It is true that the amount of debt held by foreigners is much larger now than it was in the past, mostly because it was so small in the past. (13% of the debt in 1988 was owned by foreigners and that figure is now about 23-25%.) The Chinese do not, though, own a very large portion of our national debt. (In fact, they're not even the largest foreign holder as they were passed by Japan in late 2009, unless that's changed back again.) Nearly half the U.S. debt is held by the Federal Reserve and other U.S. government institutions. Another 30% or so is held by other domestic sources - state and local governments, banks, insurance companies, pension funds, mutual funds, private owners, etc. The other 23%-25% is held by foreign countries. Japan and China each have about 30% of that debt. The other 40% is held by the United Kingdom, oil exporters, Brazil, Hong Kong, Russia, Caribbean banks, etc. Overall, the Chinese own about 7% of the U.S. debt. I don't know how much of this is held by Chinese national and how much by the Chinese central bank though I'd bet the vast majority is held by the Chinese central bank. I am not actually at all concerned if the Chinese stopped buying U.S. debt. Indeed, if you're serious about your budgetary preferences, raising the interest rate that the federal government could borrow at would make budget tightening a rational measure, whereas as it currently stands, I'm not even convinced that paying off the debt makes any sense. The austerity regime necessary to pay down the U.S. debt is actually not terribly serious. We paid off far more than that in the 1950s and most people don't view the 1950s as a terribly austere decade.

Alan Howe said...

Andrew, we are increasing the portion of borrowing coming from countries that compared to say, England or even Japan, are not stalwart allies. You are perhaps right to suggest that our current debt is not quite fatal, but the trend is inexorably and quickly toward debt levels that are unsustainable. Borrowing to pay our bills is habitual, and we must break that habit. Arguing that things are not all that bad (yet) does not help us make the necessary changes. It is like arguing that we can continue across the pond because the ice near the shore, while thinning with each step forward, is still supporting us. Yes, if we hear the ice cracking, we can turn around and save ourselves. The trouble is, we are failing to listen. (FLG, I want QOTD consideration for those last two lines.)

Europe is contemplating a bailout for Greece. Who would bail out us? And how powerful a nation would we be when we are bailed out? What will we owe other nations--in more than just monetary terms--for providing loans in place of those denied by China? What will political leaders trade to avoid unrest or even mild displeasure among American voters trained to demand tax cuts without regard to budgets? The pandering to Tea Party protesters is instructive.

Andrew Stevens said...

I don't have a crystal ball. I have no idea if you're right or not. What I do know is that there are lots of smart people who are still happy to loan to the U.S. government at astonishingly low interest rates. They obviously aren't worried about a U.S. default. (Full disclosure: I am long on U.S. Treasuries myself, though they are not an enormous portion of my portfolio.)

If you're truly worried about the U.S. debt, though, I'd suggest that you're looking at very much the wrong place. The annual budgets signed by Presidents Reagan, Bush, Clinton, and Bush are not a serious cause of a possible debt crisis. Entitlements are. If we struggle with debt going forward, it will be because of Social Security and Medicare combined with an aging population, not because George W. Bush cut the top marginal tax rate from 39% to 35% (the left's theory) or because a Democratic Congress ladled on some pork via stimulus (the right's theory). The demographics problem is far worse in Europe than it is here, but it's going to be a problem for us as well.

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