Saturday, July 16, 2011

The Myth of Clintonomics

Bill Clinton did nothing to create economic success, there was no surplus under Clinton, and there was a big crash at the end of his administration. Economic success under Clinton was the result of the dot com bubble, gridlock in Congress, and his inheritance of both cheap oil and the end of the Cold War – from Reagan.

We can instantly falsify the myth of the surplus in one chart – from the government.

FRED Graph

Clearly, the federal debt has gone up every year. It is almost as if that were the real agenda of both parties, and that the media and politicians were too surprised by the economic success created by gridlock to spend it as fast as they usually do …

Therefore, I couldn't believe it this week when three different self-proclaimed liberals told me that Bill Clinton created a budget surplus and thus we should support the economic plans of the Democrats.

Where did that come from? More specifically, where did that myth come from, and why does it smell like groupthink? It is almost as if the entire mainstream media were working together to synchronize their promotion of Progressive myths.

The Myth of Clintonomics is the product of media bias, of course, and they obviously do synchronize their messages, so what I really mean is, “In spite of coordinated media bias, how is that myth – still alive today?” Perhaps just as irrational, is how anyone could believe the new myth that the demands by Democrats today for massive increases in spending and regulation are the same course that was applied by Clinton and his Republican Congress, which was gridlock.

Just common sense is enough to dispel these two myths. When one has no explanation for how Clinton created a great economy, and when one remembers the daily complaints about gridlock under Clinton, then if one were honest, one would not propagate the Myth of Clintonomics. Nor would one conflate gridlock with the Democrats’ demands for massive increases in spending and regulation.

Ever since the Clinton administration, every believer in Clintonomics (including some Republicans!) could not actually explain how Bill Clinton created a surplus – and yet I have read only one refutation of Clintonomics and met only a handful of skeptics. Now that’s faith.

One reason the believers in Clintonomics have difficulty explaining the surplus is because the surplus never occurred, but a second and more interesting reason is that it supposedly occurred in 1999 and 2000 – several years after the Republicans took over the House and the Senate – and I have never heard any believer credit the Republican Congress under Clinton for the budget surplus. In fact, in the last couple of years, several believers I've spoken with have tried to deny that the Republicans took over the House in 1994 and the Senate in 1996!

Believers in Clintonomics would have to really jump through some hoops to try to credit Clinton but not the Republican Congress. However, defending Clintonomics is actually far more difficult than merely trying credit Clinton while denying the Congress because pretty much all of the facts are arrayed against the myth of Clintonomics – except for the convenient but trivial fact that he was in the right chair at the right time.

The correct phrase, passed down from believer to believer, is:

“Bill Clinton presided over a surplus.”

That’s how he did it …

He presided.

When I inform believers of the actual history, instead of learning from their mistake and becoming more careful, the more liberal believers I’ve recently spoken with then blurt that many of our problems today stem from the fact that Republicans controlled the Senate and the House much more often than Democrats for the last 50 years, such as under Nixon, Carter, Reagan, and both Bushes – but not under Clinton. Therefore, I then have to also explain that it has actually been the Democrats who controlled the Senate and/or the House much more often than the Republicans – except under Clinton. The Progressive believers’ reality is thus pretty much the opposite of easily verifiable reality.

At least the believers get it right that the Republicans controlled both the Senate and the House under the most recent Bush administration, but then they conveniently forget that the Democrats – led by Pelosi and Reid – took over both the Senate and the House during the last two years of Bush – and even more embarrassingly – the Democrats took over about 20 months before the crash of 2008.

Then believers make the greatly exaggerated claim that the crash of 2008 was caused by the “repeal of Glass-Steagall” – by the Republicans. I must then point out that it was Bill Clinton who signed that change into law, and that, the repeal of Glass Steagall is a red herring.

Then in my typical conversations with believers, I come to their final denial of electoral results. The believers deny that the Democrats had a filibuster-proof majority in the Senate under Obama, and then when I explain otherwise, they falsely claim that the Republicans have had filibuster-proof majorities more often. Then I have to explain that Republicans have never had a filibuster-proof majority in the last 50 years, and I go on to explain that the Democrats under Obama were thus well aware that they had an unprecedented opportunity to pass anything they wanted, and yet things are not getting better like they always have after other recessions, and no one had a filibuster-proof majority after those recessions, so how did they fix the economy, and how is it that Obama and his filibuster-proof majority could not?

Master Yoda would say. “Mmmm …. Master Obama lost a whole recovery …. How embarrassing.”

At this point, which is still before we have gotten to the really important facts, most liberals abandon their usual evasive maneuvers and try to shut down debate and kill the messenger. All of them make yet another error and claim that I am a Republican and/or conservative. Many liberals also add that I have drunk the Kool-Aid, and a few will even imply that I am racist …

The fact is, I rarely vote for mainstream Republicans because I usually vote only for champions of individual liberty. At this point, most liberals make yet another error and claim that libertarians are even more conservative than Republicans, when in fact, libertarians are more liberal than liberals.

Now you see what I have to go through in nearly every discussion with so-called liberals before I can even get to the main argument – on almost every topic – not just Clintonomics. First, liberals employ evasive maneuvers on the specifics, and then they give up and drop the mother of all evasiveness bombs – basically name calling – to shut down discussion!

BTW, I lived in the Washington, DC metro area during the entire Clinton administration and during the entire first term of the Bush administration, so I was immersed in it.

What Caused the Surplus

Bill Clinton and his short lived Democrat controlled Congress passed an improved version of the pay-as-you-go (PAYGO) budget balancing mechanism, which was created under Reagan. This was certainly an admirable intention, but as we know, Congress always does whatever it wants and just changes or ignores the law whenever the law becomes inconvenient. After all, PAYGO didn't help much with the Democratic Congresses under Reagan and Bush Senior. The Republican Congress and Clinton were all just really lucky that mostly external factors almost created a balanced budget for them, so they didn’t have to confront the restrictions of PAYGO. Then, the dotcom bubble burst under Clinton, and the the Democrats and Republicans in year one under Bush had to bear the full brunt of PAYGO – and they caved – just like they always do, and just like they would have under Clinton.

Therefore, PAYGO was not purely a Clinton policy and did not cause a budget surplus anyway. In fact, PAYGO couldn’t cause a surplus even if it had actually begun to constrain politicians under Clinton. It could only have balanced the budget – but it never became an issue because of a confluence of other fortunate events.

Bill Clinton and the Republicans did raise taxes a little bit, which of course causes the economy to grow slower than it would have and thus it is debatable whether it raised revenue much – if at all.

Clinton did accept the Republican plans to reform welfare, and thus that was not really a Clinton policy, and its effect would have been small anyway.

So we could give both Clinton and the Republican Congress a little bit of credit, but clearly, they were pretty hands-off on the economy. You may recall that  The Washington Post, the New York Times, NPR, etc. complained daily about gridlock.

It is almost as if being hands-off was what actually improved the economy.

Of course, believers think of hands-off (laissez-faire) as an evil right-wing strategy. They openly admit they want more regulation, more taxes, and use of tax law to manipulate the behavior of individuals and organizations. That can’t be fascism … because the media don’t call it that. It must be progressivism.

Believers are naturally hostile to the fact that a hands-off approach worked so well under Clinton, but they needn’t worry about Clinton’s intentions. He was not intentionally hands-off. His party simply didn’t control both houses of Congress very long. Lest anyone claim Bill Clinton was intentionally hands-off, let's look at what he tried to do.

Bill Clinton tried to create what even his fans admitted was a monstrously complex and expensive health care scheme. You may recall that it was actually Hillary who created it. Fortunately, the Clintons failed. In fact, it was this health care scheme early in the Clinton administration that propelled the Republicans to victory in 1994, which is very much like the way Obamacare, stimulus spending, and bailouts, propelled Republicans to victory in 2010.

Then, in spite of PAYGO, Bill Clinton tried to pass his “economic stimulus” bill that would have spent 40 billion dollars. It was such a wasteful idea at the time that it failed. I don’t guess I need to point out how, 18 years later, Obama has just spent trillions on economic stimulus and bailouts, and now we know that such economic stimulus is indeed wasteful. There has been no recovery.

We know that Clinton and his Republican Congress did little that could have affected the economy. An almost balanced budget is unusual, but it should be pretty obvious to the independent thinking observer how the budget was almost balanced under Clinton:

  • Clinton was forced to be hands-off on the economy (until the very end when he signed the Bank Modernization Act that sort of repealed Glass-Steagall.)
  • Clinton inherited the Peace Dividend as a result of Reagan winning the Cold War.
  • Clinton inherited cheap oil, which started under Reagan, who inherited expensive oil from Carter.
  • Clinton just happened to be in office during the dot com bubble, which greatly increased tax revenues, and which happened so suddenly and unexpectedly that politicians and their cronies in the media had not been able to fabricate and sell a narrative to justify a massive spending increase.

The idea that Bill Clinton knew what he was doing, or that he actually did anything at all – is simply a myth.

The inconvenient truth is that Clintonomics = laissez-faire + luck.


  1. Why didn't you you ever mention the root cause of budget surplus during Clinton era?

    It's government gridlock.

  2. Gridlock helped caused laissez-faire, but it is laissez-faire that help cause the surplus. Laissez-faire is always good, but gridlock can be bad or good, and in either case, nobody wants to hear about gridlock - ever. It is like scraping nails on a chalkboard.

    I implied the roll of gridlock several times. For example, "He was not intentionally hands-off. His party simply didn’t control both houses of Congress very long."

    In another article I might explain the curiosity of why a Democrat as President and a Republican Congress is the lesser of all evils, but that is beyond the scope of this article, and it is a speculative argument, and why promote the lesser of all evils? Why not promote solutions that are not at all evil?

  3. Dems raised taxes and lost the House in 94 due to that. Great blog.. BTW. Oh..and Obama is not near as good as Clinton when it comes to negotiations. Clinton at least had sense enough to move to the center..Obama will stay hard left or die trying. Very stupid strategy if you ask me. I don't look for him to be back in 2012.

  4. Funny, you claim that Obama "squandered the recovery" and make allusions that Clinton inherited cheap oil from Reagan (who inherited expensive oil from Carter), yet fail to address that GW Bush inherited--and squandered--a surplus by failing to find funding for two expensive wars and nation rebuilding.

    Those were machinations that have lead to the current deficit. Yet every "conservative" blogger, representative and media outlet is quick to put all the blame on Obabma.

    By your logic, GW Bush inherited the surplus, and Obama inherited a deficit.

    Also, T. Peek, Obama has capitulated or compromised on every "left" ideal--He's offered Medicare and Social Security up for negotiation and has truly failed to stand the "liberal" ground on those points. He's hardly staying "hard left or die trying."

  5. @anonymous
    LOL! The reason I don't attack The Myth of Bushonomics is because there is no such thing as The Myth of Bushonomics. If fact, there are no pro-Bush myths at all. There are only anti-Bush myths. In fact, you propagated the really common anti-Bush myth that he inherited a surplus, but the reality is that he inherited a crash, which I already covered in my article, so you really have no excuse.

    The wars have never been the only source of the deficit, and the deficit is not at all a source of the current recession. We will pay for that later. If Bush had raised taxes for the wars as you recommend, then we would have paid now, and that would have hurt the economy now instead of the future.

    Bush expanded the warfare and welfare state. I didn't imply otherwise. Obama did inherit a deficit. I didn't imply otherwise. You say that every "conservative" places all of the blame on Obama, and yet I have never observed anyone placing all of the blame on Obama. You have set up a straw man and knocked it down.

    Regarding comments by yourself and T. Peek on how liberal Obama may actually be. Consider that the media hid Obama's hard left positions before the election, which worked, and now we know the truth. However, Obama is now very confused. He didn't know that his image was the product of media bias. He was told by everyone around him that he was The One. He thought that his experience winning over those who superficially disagreed with him meant that he was in the middle. He thought that he and his party had all the answers, but then his job approval plummeted almost immediately and his Party is inexplicably failing. Poor Obama. That is why I wrote the article - Pity Obama.

  6. The National Debt went up every year during the Clinton administration. In 2000, he came close to balancing the budget, but history proves he was still $18B in the red.

    The CBO reports that you probably read failed to factor in intragovernmental holdings.

  7. @Charles Martin, Thanks!

    I was just writing based on what I had already known and observed several years ago, which was sufficient to bust The Myth of Clintonomics, but looking into more recent work, I see that you are correct.

    There was never a surplus under Clinton!

    The following article explains why, so that one does not have to just trust a table of numbers without explanation.

    I look forward to updating my own article.

  8. It was simply a higher tax rate on "job creators"

    His detractors warned it would ruin the economy- which of course it didn't.

    The same tax rate Republicans now warn will be the end of civilization as they know it- were Clinton Rates.

    Clinton and Bush managed to get their economic packages passed. Both had Republican Congress for most of their term- yet Clinton delivered prosperity and Bush disaster.

    If Republicans were responsible for Clinton era prosperity when they controlled congress- why couldn't they deliver the same thing when they had not only congress but the white house as well?

    Smarter Republicans - like Bruce Bartlett - have come to terms with this. It's time to come to terms with this yourselves. Supply Side Economics was a specialized tool used to successfully counter just one economic malady- stagflation. Republicans insist on using it now as religion and it's having worse effect than Reagan or even Bush 41 had. At least Reagan/Bush were sensible enough to raise taxes when needed.

    I know this doesn't correspond with your religion of low taxes creating jobs and general prosperity. It's nothing personal and I hate to discriminate against anyone's religion- and you are welcome to believe what you want to - it is a free country. Forcing another 'lost decade' due to your misguided dogma doesn't sound as appetizing as it did in 1980 for a reason.

  9. "Smarter Republicans - like Bruce Bartlett" agree with you?

    LOL! Even if I were a Republican - like you mistakenly keep implying, I would not care what some Republican politician said.

    Unless you consider all the variables with an independent mind, how can you expect to understand reality? Why do you think just repeating one variable you heard from one side is sufficient?

    There is more than one variable. There are more than two sides. Millions of Americans have come to terms with this. It is time to come to terms with this yourself.

    Don't let those who would divide us use you like this. I explain this in my article - The Prince.