While the good times roll forward with a general sense of rising prosperity, it is impossible for any Democrat to speak bluntly, honestly, about the true nature of the Clinton legacy. Clinton's robust approval ratings reflect the supposed triumph of his economics, and his party's main voting constituencies still support him. An old friend, a liberal labor lawyer who now works on the other side of the street, summarized the Democrats' predicament: "Clinton made a deal with the devil, and the devil kept his part of the bargain--low unemployment and good times."
The deal with the devil required Clinton to keep his mouth shut while a conservative Federal Reserve ran the economy, with a cautious foot on the brake during most of the decade. The Administration, meanwhile, devoted itself to a doctrine of fiscal rectitude, balancing the federal budget. The President embraced major objectives of big business and finance as his own--promoting globalization, further deregulation, the managerial values of efficiency and continued shredding of the old social contract. Leave aside the arguments over whether politics and historic developments made this course unavoidable. The logical results of these policy choices were never a mystery: They would encourage deepening inequality in both wealth and wages and steady concentration of power for corporations and finance. And that is what occurred, probably more dramatically than Clinton envisioned.
That outcome describes the Clinton legacy. Rather than bring Americans together, his presidency deepened the economic fault line that separates the many from the few. Bottom line: The folks who twice supported him for President are worse off in fundamental terms, despite the currently improving conditions. The median family income did not get back to its 1989 level until 1998 (a slower postrecession recovery of lost ground than occurred in the Reagan years). Real wages for nonsupervisory production workers remain at early seventies levels. The maldistribution of wealth--ownership of property and financial assets--has accelerated; its impact is reflected in the negative savings rate for households. In these best of all possible times, how come typical Americans are still spending more than they earn to keep up?
Recent headlines, based on the Federal Reserve's new survey of family finances, heralded the robust 17 percent increase in the median net worth of US households, driven mainly by booming stock prices from 1995 to 1998. The real news in the study is not so cheerful: Among families in debt, median outstanding debt also grew in the same period by an astonishing 42 percent and is now 73 percent above a decade earlier. Alas, the statistical medians are deeply misleading because the people with surging financial assets are generally not the same people who have surging debts.
Under closer scrutiny, the Fed statistics confirm the widespread anxieties felt by the broad middle class, not to mention the poor. Since Clinton was first elected in 1992, every income class except families earning $100,000 or more has experienced a worsening ratio of debt payments to income. One-fifth to one-third of the families earning less than $25,000 are in real trouble--40 percent of their income is now owed in debt. "If events are sufficiently contrary to their assumptions," the survey dryly observes, "the resulting defaults might induce restraint in spending and a broader pattern of financial distress in the economy." That sounds like Fedspeak for "look out below!"
The supposed democratization of wealth in the stock market is utter myth--and another trap for anxious families living beyond their means. Edward Wolff of New York University explains the illusion in a forthcoming article for The Century Foundation, "Why Stocks Won't Save the Middle Class." What occurred, he says, is that families typically shifted modest nest eggs from bank savings accounts to mutual funds, so the number of families owning some stock did indeed rise steadily, to 49 percent. Nevertheless, most families own very few shares or none. Wolff found that among the bottom three quintiles of the population, as of 1997, only about 25 percent own any stock at all. And only 6-7 percent of them own more than $10,000. The new Fed study may improve these numbers slightly, he said, but not enough to change the big picture. Despite the boom, rising wages and lower unemployment, the middle class is still digging a deeper hole for itself.
If this had occurred under a Republican President, Democrats would be howling righteously about the inequities, as they did when a very similar shift in income shares and wealth occurred during the Reagan/Bush years and for approximately the same reasons. Professor Wolff offers straightforward suggestions about how government could begin correcting the imbalances--a modest tax on wealth, restoration of much steeper progressivity to income-tax rates and reduction of the Social Security payroll tax, which is very regressive, since it exempts all income above $76,200 and imposes the greatest tax burden for most working Americans. Does anyone imagine the Democratic nominee will espouse any of those ideas?