What Bill Clinton Would Do
Bill Clinton’s new book, “Back to Work,” is less a bold plan to create jobs than it is a passionate rebuttal of “our 30-year antigovernment obsession.” That obsession, he insists, is public enemy No. 1. He also seems to be sending a barely disguised message to Barack Obama to join him in confronting the antigovernment chorus.
But coming from a former president who contributed to that very antigovernment narrative in the 1990s, it is unsurprising that the substance of the case he makes is weaker than it should be. In his State of the Union address in 1996, Clinton told us with a sense of triumph that the “era of big government is over.” By absorbing the new American distaste for government after the Republican Congressional victory of 1994, he assured his re-election two years later. And in his second term Clinton was more concerned about restraining government spending and paying down the debt than investing in America.
Clinton now seems to believe the orthodoxy has finally gone too far. He argues that antigovernment zeal led to President Bush’s deep tax cuts in the early 2000s. Those cuts, he tells us, are a major cause of today’s budget deficits, while the stubborn reluctance of Republicans to agree to any tax increases at all has brought the political process to a near halt.
For all the Republican arguments, Clinton says, America did not get a better economy with the Bush tax cuts. According to the Economic Cycle Research Institute, growth in personal income even before the Great Recession was slower under Bush than in any equivalent period since World War II. In the years he was president, Clinton proudly notes, America produced more than 22 million jobs. George Bush’s America created only 2.5 million jobs. The Great Recession, which ended six months after Obama took office, cost America roughly eight million jobs.
As Clinton says, President Obama inherited not only the Great Recession but a trillion-dollar deficit thanks in good part to those tax cuts. And now the nation is in the grips of a torpid economy laden with debt and a high rate of both unemployment and underemployment — those who want and cannot get full-time jobs — that appears intransigent. Despite the recent boom in corporate profits, the typical family’s income is below its level in the late 1990s.
Clinton traces the antigovernment attitudes to Ronald Reagan’s election in 1980. But in fact, the turn in America’s attitudes goes back to the economic wreckage of the mid-1970s, when inflation and unemployment simultaneously soared and budget deficits were first starting to raise alarms. America was still a moderately progressive country in the early ’70s: citizens supported social programs and voted down efforts to cut taxes. But by the end of the decade, a full-fledged tax revolt had gotten under way, led by the overwhelming passage in 1978 of Proposition 13 in California, which cut property taxes sharply, and the growing Congressional support for the Kemp-Roth tax bill, which proposed cutting federal income taxes by 30 percent. Even before Reagan’s victory, no institution, it seemed, was distrusted more than government.
Yet Clinton concentrates only on the damage done since 2001. He believes that he bequeathed a healthy economy to Bush and that the tax cuts undid it. After all, Clinton’s major legislative achievement was to raise income taxes on the well-off in 1993. The higher taxes relieved the long-exaggerated concerns about the inflationary consequences of a growing deficit. Interest rates started to recede and the economy took off, the unemployment rate ultimately falling to 4 percent by the year 2000. Many conservatives predicted a weakening economy and they were dead wrong.
But there were other contributing factors besides Clinton’s tax increases. Alan Greenspan’s Federal Reserve sharply raised interest rates in 1994, which was a main source of falling inflationary expectations. Meantime, government spending was dampened because health care costs grew slowly as a result of the rise of H.M.O.’s. Because the cold war had ended, military spending fell as a percent of G.D.P. Perhaps most important, the Internet boom began and sparked a stock market bubble that stimulated spending by consumers, who felt ever richer.
Along the way, Clinton did pass important social legislation, like the expansion of the earned income tax credit and a family leave act, but his administration’s investments in education and infrastructure were modest compared with the growth in the economy — and so were the results. In 1998, for example, the Society of Civil Engineers gave a grade to America’s infrastructure of D. In 2001, after the Clinton investments, the grade assigned was D+. Clinton writes in “Back to Work” that the nation could have eliminated debt completely by 2013 if the Bush administration stuck to his deficit reduction plan. But why was this ever his plan? Should a C.E.O. brag that he can eliminate all his company’s debt, or should he be investing in the future?
Clinton sidesteps his role in financial deregulation. He admits he should have taken steps to control derivatives, the highly leveraged securities that were at the heart of the 2008 crisis, though he says his decision to end the Glass-Steagall Act, the New Deal legislation that separated commercial and investment banks, did not create the crisis. But in fact repeal led directly to the rise of huge financial institutions whose managers believed they could take on both highly risky investments and enormous debt as well. And his administration, along with many Congressional Democrats, was consistently soft on Wall Street in other areas at a time when there were numerous accounting frauds, scams to sell high-technology new issues and hot money racing around the world to find easy profits, destabilizing foreign economies in the process.
It is no surprise, then, that there is no Roosevelt moment in “Back to Work” — nothing equivalent to a new New Deal. Clinton’s jobs plan is largely a repetition of Obama’s recent recommendations, which include a temporary cut in payroll taxes and a reversal of the Bush tax cuts for the well-off. He also calls for an aggressive program to relieve mortgage debt. All this is a decent start, but not very likely to be enough.
Without explanation, Clinton backs proposals to balance the budget that seem to depend significantly more on spending reductions than tax increases (he never makes the calculation). He would make some cuts in Social Security and Medicare to reduce the deficit. He would cut military spending, but only cautiously. Always a good policy wonk, he knows that America’s true fiscal problems are the rising costs of health care, not Medicare and Medicaid themselves, but he continues to propose cutting entitlements spending. The 1990s Clinton is still talking.
MOst disappointing, for a man who warns us that America is falling behind other rich nations for lack of public investment, he makes no major proposal to raise taxes significantly once the economy is back on track. He tantalizingly points out that reversing all of the Bush tax cuts, including for the middle class, would come close to restoring an adequately balanced budget over the next 10 years. But he doesn’t advocate this. He mentions the possible need for a value-added tax — a national sales tax — while he is at best ambivalent about a financial transactions tax. His recommendations on transportation investment are merely to doff his cap to an infrastructure bank and a few well-worn energy initiatives. These are the big-issue problems America must ultimately face but, like most of Washington, he pushes them down the road.
Many inside the Beltway welcome Clinton’s modest pragmatism. They think it politically realistic. But if those few people who have a national megaphone — like a former president — don’t use it to influence and change America’s thinking, who will? The nation badly needs a counternarrative to the antigovernment orthodoxy Clinton describes. His is welcome. But even if we adopted all of his suggestions, America would still have a long way to go.