Bill Clinton’s Recipe for Economic Growth

[Matt Beasley]

Bill Clinton’s Recipe for Economic Growth
By William A. Galston, May 17, 2022, WSJ

During the past decade, a critique of neoliberalism has
become widespread in the progressive wing of the Democratic
Party. During the 1970s, the argument goes, many Democrats
espoused the pro-market, antigovernment views long associated
with opposition to the New Deal and the modern welfare state.
In the name of efficiency, growth and lower prices, the Carter
administration deregulated airlines, trucking and other sectors.
The Clinton administration espoused free trade and the unfettered
flow of capital across national boundaries. In response to the
Great Recession, Obama’s economic advisers focused on the health
of giant banks and tolerated a grindingly slow recovery.

The problem, critics allege, is that these policies ignore
disadvantaged Americans who do not benefit from broad market-
driven policies. Markets, they say, are indifferent to equitable
outcomes. The focus on aggregate growth comes at the expense of
fairness, which requires benefits and opportunities targeted to
marginalized groups. Through regulations and wealth transfers,
government must lean against markets to achieve acceptable results.

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 8 years of the Clinton
administration, annual real growth in GDP 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 admin
averaged 168,000.) Unemployment fell from 7.3% in Jan 1993 to 3.8%
in April 2000 before rising slightly to 4.2% at the end of Clinton’s
second term. Adjusted for inflation, real median household income
rose by 13.9%.

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%.

What about NAFTA, which Clinton pushed through Congress over the
objections of a majority of his own party in the House? Didn’t it
eviscerate the manufacturing sector? No doubt the agreement reduced
jobs in some areas, but manufacturing jobs increased during Clinton’s
8 years. The collapse occurred during George W. Bush’s administration,
when 4.5 million manufacturing jobs disappeared and have never been
regained. (Manufacturing employment in April 2022 is about where it
was when Bush left office 13 years ago.)

What about the poor? The poverty rate declined during the Clinton
administration by nearly one quarter, from 15.1% to 11.3%, near
its historic low. And it declined even faster among minorities—by
8.1 percentage points for Hispanics and 10.9 points for blacks.
What about the distribution of gains from economic growth? Income
gains for working-class households equaled the national average,
and gains for the working poor rose even faster. White households
gained an average of 13.9%, but minorities gained even more: 22.0%
for Hispanics and 31.5% for blacks.

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 Clinton’s job approval stood at 65% when he left office.

We can’t go back to the 90s, 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.

https://www.wsj.com/articles/bill-clintons-recipe-for-economic-stability-inflation-poverty-incomes-biden-growth-nafta-11652802036