Thursday, March 11, 2010

A Myth Wrapped In Truth

EJ Dionne writes:
Just a decade ago, we were running surpluses so big that Alan Greenspan, then chairman of the Federal Reserve, worried about what would happen once our national debt was liquidated. We had this problem well in hand until we started waging wars and cutting taxes at the same time.

I hear this a lot. Often from Democrats, you hear that the economy under Clinton was great. We had economic growth, higher taxes, and a surplus. Then, Bush comes in cuts taxes and starts wars and the surplus goes wooosh.

This is true. However, the causality is wrong. Clinton benefited from a recovering economy and ultimately the Internet boom and corresponding stock bubble. It seems to me that the high growth/low inflation enviroment of the Clinton administration is a historical outlier that we can't return to through government policy.  He had nothing to do with its existence, but I have to admit that he managed the economic hand he was dealt well. Running surpluses during good times is what a government ought to do.

Bush, on the other hand, inherited a stock bubble popping and a major terrorist attack. The economic hand he was dealt upon coming into office wasn't great. And I don't have an issue with running deficits to stimulate the economy. However, he did just cut taxes and fight wars without properly budgeting for them. The Republicans' economic management was pretty fucking shitty. Eventually, the economy was growing and they should've either cut spending or raised taxes to accommodate.

I guess my point here is that I cringe when people argue that we had a better economy under Clinton as if Clinton caused the better economy. Frankly, it's relatively easier to run a surplus when you have a boom on your hand. Perhaps it's even easier when the opposite party controls Congress and gives you a hard time about your own agenda. Bush was cowardly or hypocritical in his inability to control Republican spending. Bridges to nowhere and all that being the worse excesses.

In the end, I think the lesson to take away from the difference between the Clinton and Bush years is not that Clinton caused the better economy (because he didn't), but that perhaps divided government is better at ensuring that government will be more fiscally prudent.* 

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* I realize that a case could be made that this isn't true in the case of the current health care debate, but for that to hold you have to believe that the health care bill will actually cut costs, which it seems to by CBO scoring, but in reality nobody serious really believes.  Serious who support it do so largely on the expanding coverage aspect, not the cost curve bending portion.

1 comment:

Withywindle said...

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?

 
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