What Actually Happened During the Clinton Administration?

In his Wall Street Journal column William A. Galston leaps to the defense of neoliberalism and the Clinton Administration of which he was a part:

In this narrative of the past half-century, critics often mark the Clinton administration as the moment when establishment Democrats capitulated to the ideology of the unfettered market. Poor and working-class Americans paid the price, they charge, with lower pay, diminished job security, and the collapse of entire sectors exposed to trade competition.

The historical record tells a different story.

Begin with the economic aggregates. During eight years of the Clinton administration, annual real growth in gross domestic product averaged a robust 3.8% while inflation was restrained, averaging 2.6%. Payrolls increased by 22.9 million—nearly 239,000 a month, the fastest on record for a two-term presidency. (Monthly job growth during the Reagan administration averaged 168,000.) Unemployment fell from 7.3% in January 1993 to 3.8% in April 2000 before rising slightly to 4.2% at the end of President Clinton’s second term. Adjusted for inflation, real median household income rose by 13.9%.

Mr. Clinton inherited a substantial budget deficit. Despite this, one group of administration officials, headed by Labor Secretary Robert Reich, urged him to propose a major stimulus package to accelerate economic growth and reduce unemployment more quickly. He refused, focusing instead on reducing inflation and interest rates to create the conditions for long-term growth. (I worked in the White House at the time but had no role in economic policy.) During the administration, federal spending as a share of GDP fell from 21.2% to 17.5%, and federal debt as a share of GDP fell from 61.4% to 54.9%.

He goes on to defend NAFTA, applaud gains made by the poor, minorities in particular, and reduced income inequality. He concludes:

In sum, during the heyday of neoliberalism, Americans weren’t forced to choose between high growth and low inflation or between aggregate growth and fairness for the poor, working class and minorities. This helps explain why Mr. Clinton’s job approval stood at 65% when he left office.

We can’t go back to the 1990s, but there are lessons from the past. Deregulation can go too far, but so can regulation. The market doesn’t automatically produce acceptable results for society, but neither does government. In these and other respects, policy makers need to find a reasonable balance, the location of which depends on ever-changing circumstances. No algorithm can substitute for good judgment guided by study and common sense.

In our effort to respond to the pandemic generously and humanely, we lost our balance. We have learned the hard way that demand doesn’t automatically create its own supply and that bad things happen when too much money chases too few goods. As we struggle to regain equilibrium, the critics of neoliberalism have much to learn from an administration whose economic performance will be hard to beat.

There are multiple different sorts of leaders. There are autocrats who just tell people what to do. There are visionaries who set out a vision and convince people to follow them. And then there are leaders who figure out which way the band is marching and get out in front it. I think that Bill Clinton was that sort of leader.

By the time Bill Clinton became president American companies had been investing in computing and network technology at a furious pace for almost ten years. Why? They were convinced it would pay off eventually. During that period I remember reading many articles that documented how poor the return on those investments had been. There’s a comment (Heinlein?) that when it’s time to railroad everybody railroads. That was what was happening.

While those investments may not have produced much in the way of returns in the 1980s or early 1990s it left the companies that made those investments well positioned to take advantage of the Internet as that went mainstream. A major step in that direction happened when Microsoft, in a panic, did a major course correction and started bundling Internet Explorer with Windows 95. That was in the third quarter of 1995. After that the returns began to pour in and the “dot com boom” was born. Bill Clinton didn’t create that development. He didn’t even help it along. He did benefit from it.

There are a couple of other developments Mr. Galston does not mention. For example, it was the tax reforms of early in Bill Clinton’s first term which made the enormous income increases of the very highest earners possible. And the Clinton Administration were the champions of granting China Most Favored Nation trading status and WTO membership which the Bush Administration pulled pulled across the finish line. That was what produced the enormous manufacturing job losses of early in the Bush Administration. I also note that Mr. Galston does not mention the work requirements of what is called “welfare reform”. That is a primary criticism of today’s progressives.

So, while I will give Bill Clinton credit for not getting in the way of the Internet Revolution and the “dot com boom”, I think the credit should largely be limited to that. That’s pretty faint praise.