March 29, 2020

George Bush vs. Bill Clinton: a tale of two economies

Republican leaders, and Republican-leaning columnists like George Will, claim that the Bush administration has produced a strong, growing economy. Don’t believe it. A comparison of Bush’s economic performance to Clinton’s shows how weak the Bush economy has been.

Economic conditions under Bill Clinton were, without doubt, the best in three decades, and among the best since World War II. Unemployment fell from 7.5 percent in 1992, the last year before Clinton’s inauguration, to 4 percent in 2000, the last Clinton year. The 4 percent figure was the lowest since 1969. Under Bush, unemployment has risen to 4.6 percent.

Job increases under Clinton averaged a remarkable 2.8 million a year, while under Bush, the average increase has been a half million.

There is more. Under Clinton the poverty rate fell from 15 percent to 11 percent, the lowest since 1974; under Bush it has increased to 13 percent. Gross domestic product, after adjustment for inflation, grew almost 4 percent a year under Clinton and slightly more than 2 percent under Bush.

These are all simple facts. And they have affected Americans like you and me and our children.

Did Clinton have some good luck? You bet he did. Clinton was inaugurated just as the economy was coming out of a recession and after every recession the economy benefits from a period of expansion. And he was lucky because starting in 1996 productivity leaped forward, helping to extend the expansion – and strong productivity growth is usually more dependent on long-term scientific and technological advances than on wise economic policies.

While Clinton was lucky, he also developed smart, effective policies. His biggest policy success was his enforcement of strict discipline on the federal budget.

In 1992, just before Clinton entered office, the budget deficit was $290 billion, almost 5 percent of GDP. As Bob Woodward recounts in “The Agenda,” Clinton became convinced that to reverse the trend toward ever-increasing deficits, he must forget about the middle-class tax cuts he had promised in his campaign and push Congress to raise taxes. He spent much political capital doing precisely that, and he went further by reducing federal spending on popular economic programs.

By the last year of his presidency, he had turned the $290 billion deficit into a surplus of $236 billion, the largest in U.S. history.

By doing this, Clinton fostered rapid growth in net national savings and investment. When the government eliminates budget deficits and starts running surpluses, then government, like the private sector, contributes to total national savings. So you would expect Clinton’s budget surpluses to lead to higher national savings. And that is exactly what happened: in 1992, net savings in the U.S. economy were only 3 percent of our gross national income, while by 2000 they amounted to 6 percent.

Savings are used to finance investment and as savings rose during the 1990s, so did investment. Net domestic investment, adjusted for inflation, rose from $354 billion in 1992 to $852 billion in 2000 – an increase of 140 percent. That investment helped increase productivity, GDP, and employment. The economic expansion of 1991-2001 was the longest ever recorded, starting with the 1850s.

Admittedly, the lackluster performance of the economy under George Bush is a result partly of bad luck. When Bush was inaugurated, the boom years of the Clinton presidency finally were coming to an end, and a recession began just a few months later. But Bush has enjoyed some good luck too: productivity has grown even more rapidly during Bush’s presidency than during Clinton’s.

In sharp contrast to Clinton’s budget discipline, Bush has treated the federal budget like a boy treats a cookie jar: forget about filling it, just reach for more cookies. His huge tax cuts reduced federal revenues, while he has permitted federal government spending of all types to surge.

Military spending rose mainly because Bush began an unnecessary and very expensive (as well as bloody) war in Iraq. Nonmilitary spending also rose. My father, a loyal Republican, would have been amazed to learn that a Republican Congress, in only five years, passed spending bills allowing a 48 percent increase in federal nonmilitary spending and that a Republican president failed to veto even one of these bills!

The Bush policies converted Clinton’s final budget surplus of $236 billion into the current budget deficit of $260 billion. As deficits rose, net national savings fell from 6 percent to the current 2 percent of gross national income, while net domestic investment, after the Clinton-era increase of 140 percent, has actually declined.

Bush’s deficits have effectively crowded out investment in our economy. No wonder GDP growth has been sluggish.

The outstanding performance of the U.S. economy during the Clinton presidency was a result partly of good luck and partly to farsighted, disciplined budget policies. The far inferior performance under Bush has been the result partly of a mixture of good and bad luck and partly of irresponsible tax cuts, out-of-control federal spending and soaring budget deficits. We now are paying for the Bush policies with declining net investment, sluggish growth in GDP and employment and higher poverty rates.

Edwin Dean, a seasonal resident of Vinalhaven, writes monthly about economic issues.

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