Wednesday, January 30, 2013

Smackdown: The Truth About the Bill Clinton Economy

Dean Baker tweets:

Which leads to this pretty decent Baker analysis:
There is widely held view in Washington policy circles that the economy was golden in the Clinton years. We had strong growth, low unemployment, rising real wages, a soaring stock market and huge budget surpluses. According to this myth, George W. Bush ruined this Eden with his tax cuts for the rich and wars that he didn't pay for. While there are plenty of bad things that can be said about George W. Bush, his tax cuts for the rich and his wars (whether paid for or not), this story of paradise lost badly flunks the reality test.

At the most basic level, the chain of causation is fundamentally wrong. The driving force in this story was the soaring stock market, which was in fact a bubble. Stock prices had grown hugely out of line with the fundamentals of the economy. The ratio of stock prices to trend earnings at the market peak in 2000 was over 30 to 1, more than twice the historic average. It was inevitable that this bubble would burst and in fact the unwinding actually begin when Clinton was still in the White House. The overall market was down more than 10 percent from its peak by January of 2001 and the Nasdaq was down close to 30 percent.

This collapse was the basis for 2001 recession which began less than 2 months after President Bush stepped into the White House.
Baker is correct here as far as he goes. There was a stock market bubble. But, he fails to point out the bubble was caused by a massive acceleration in money supply (M2) growth, which was slowed for a bit by Greenspan in 1999-2000, which resulted in the 2000 market peak.


  1. What I have always wondered is how exactly did surpluses exist as leftists always claim when Clinton had to ask Congress to repeatedly raise the debt ceiling? If there are surpluses, then how does the debt grow every year?

    1. The Surplus Hoax

      "The surplus deception is clearly discernible in the statistics of national debt. While the spenders are boasting about surpluses, the national debt is rising year after year." ...

      ... "The federal government spends Social Security money and other trust funds which constitute obligations to present and future recipients. It consumes them and thereby incurs obligations as binding as those to the owners of savings bonds. Yet, the Treasury treats them as revenue and hails them for generating surpluses. If a private banker were to treat trust fund deposits as income and profit, he would face criminal charges."

  2. Indeed if one simply goes to the Treasury Website, and puts in the start of any year, fiscal or otherwise, of the Clinton term and the end of that year as the end date, one will see that the myth of the Clinton surplus was exactly that. The debt was higher after every year of his term, because he simply robbed the SS "Trust Fund" to pay obligations of the general account.