Democratic National Convention – Charlotte, North Carolina
Bill Clinton will make the case here tonight that Obamanomics is just an updated version of 1990s Clintonomics. President Obama frequently suggests much the same thing. What’s funny strange, of course, is that the only part of Clintonomics that Obama seems to really like is the tax hikes. Certainly not the welfare reform or the lower government spending. You never hear much about that stuff — or how Clinton deregulated the banks.
Moreover, Obama has criticized the pro-market turn in U.S. economic policy that begun under Reagan and continued under Clinton. Here a key bit from Obama’s speech late last year in Osawatomie, Kansas:
… there is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If we just cut more regulations and cut more taxes—especially for the wealthy—our economy will grow stronger. … But here’s the problem: It doesn’t work. It has never worked. … In the last few decades, the average income of the top 1 percent has gone up by more than 250 percent to $1.2 million per year. … And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a one-in-three chance of making it to the middle class—33 percent. … And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. … This is about the nation’s welfare. It’s about making choices that benefit not just the people who’ve done fantastically well over the last few decades, but that benefits the middle class, and those fighting to get into the middle class, and the economy as a whole.
That sure seems like a rebuke of Clintonomics as much as Reaganomics and Bushonomics.
And what about those Clinton tax hikes? Here is why the 1990s boom occurred despite them, not because of them:
1. When Clinton signed that tax hike bill in August 1993, the economy had been growing for 9 straight quarters, including by 3.4% annually over the previous six quarters. So the economy had built up a head of steam. Today’s economy, by contrast, rose less by less than 2% last year and may end up doing no better that this this year or next.
2. The decade saw a big drop in oil prices, from $23 a barrel in 1991 to $12 in 1998, boosting real disposable incomes.
3. Government spending declined — meaning fewer resources as a share of the economy were being used unproductively by Washington — from 22.3% in 1991 to 18.2% in 2000.
4. There were really two 1990s. After the 1990-91 recession, the economy grew by an average of 3.1% a year from 1992 through 1995. That’s exactly how fast the economy grew from 1965-1991.
But from from 1996-2000, the economy grew by a spectacular 4.4% a year. This is the period that defines the decade in the mind of many people. Those years saw …
– a big tax cut, lowering the top capital gains tax rate to 20% from 28%;
– a big surge in private investment, particularly in the software and business equipment category which contributed a full point to GDP during those years. Did the Clinton tax hikes cause that or was it a combo of the Internet Bubble, Year 2000 preparations, the cap gains cut, and the beginning of a computer networking and communications revolution?
I guess I look at this issue holistically. The U.S economy entered the 1990s after undergoing a huge revamp in the 1980s: marginal tax rates were lowered from 70% to 28%, the inflation menace slayed, regulations reduced, and businesses got restructured and way more efficient. Then in the 1990s, government spending and debt were reduced, investment taxes cut, and a technological revolution kicked into high gear. Plus the Soviet Empire collapsed and the cloud of possible nuclear holocaust was lifted. Market capitalism was on the march. People were optimistic as heck about the future. Recall that The Matrix came out in 1999 and call the era “the peak” of human civilization.
Given the head of steam Reagan gave the 1990s, plus the fall of the Soviet Union and the Internet boom and declining energy prices, it may have been impossible to mess up that decade — even with tax hikes.