In trying to burnish her credentials as a can-do populist and to portray Bernie Sanders as a purveyor of naive socialist fantasies, Hillary Clinton has increasingly invoked Bill Clinton’s presidency as her economic policy lodestar. When Hillary was asked at the January 17 Democratic debate whether Bill Clinton would be advising her on the economy, she responded, “I’m going to have the very best advisers that I can possibly have, and when it comes to the economy and what was accomplished under my husband’s leadership in the ’90s—especially when it came to raising incomes for everybody and lifting more people out of poverty than at any time in recent history— you bet.”
There is no doubt that dramatic departures from past US economic trends occurred during Bill Clinton’s presidency, including the simultaneous fall of inflation and unemployment; the reversal of persistent federal budget deficits to three years of surplus at the end of his second term; and an unprecedented run up in stock prices—i.e., the “Dot.com” bubble. But these developments need to be evaluated in a broader context. Most importantly, we need to ask whether Clintonomics really did deliver the goods for working people and the poor.
The starting point for understanding Bill Clinton’s economic program is to recognize that it was thoroughly beholden to Wall Street, as Clinton himself acknowledged almost immediately after he was elected. Clinton won the 1992 election by pledging to end the economic stagnation that had enveloped the last two years of the George H.W. Bush administration and advance a program of “Putting People First.” This meant large investments in job training, education, and public infrastructure.
But Clinton’s priorities shifted drastically during the two-month interregnum between his November election and his inauguration in January 1993, as documented in compelling detail by Washington Post reporter Bob Woodward in his 1994 book The Agenda. As Woodward recounts, Clinton stated only weeks after winning the election that “we’re Eisenhower Republicans here…. We stand for lower deficits, free trade, and the bond market. Isn’t that great?” Clinton further conceded that with his new policy focus, “we help the bond market, and we hurt the people who voted us in.”
How could Clinton have undergone such a lightening-fast reversal? The answer is straightforward, and explained with candor by Robert Rubin, who had been co-chair of Goldman Sachs before becoming Clinton’s Treasury secretary. Even before the inauguration, Rubin explained to more populist members of the incoming administration that the rich “are running the economy and make the decisions about the economy.”
Wall Street certainly flourished under Clinton. By 1999, the average price of stocks had risen to 44 times these companies’ earnings. Historically, stock prices had averaged about 14 times more than earnings. Even during the 1920s bubble, stock prices rose only to 33 times earnings right before the 1929 crash.
A major driver here was Wall Street’s craze for Internet start-ups. In 1999, for example, AOL’s market value eclipsed that of Disney and Time Warner combined, and Priceline.com’s value was double that of United Airlines. The Clinton team created the environment that encouraged such absurd valuations. Throughout the bubble years, Clinton’s policy advisers, led by Rubin and his then protégé Larry Summers, maintained that regulating Wall Street was an outmoded relic from the 1930s. They used this argument to push through the 1999 repeal of the Glass-Steagall financial regulatory system that had been operating since the New Deal. The Clinton team thus set the stage for the collapse of the Dot.com bubble and ensuing recession in March 2001, only two months after Clinton left office. They also created the conditions that enabled the even more severe bubble that produced the 2008 global financial crisis and Great Recession.
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Clinton followed the same playbook in other areas. The federal budget shifted from deficits to surpluses under Clinton primarily because his administration allowed federal spending to decline as a share of overall GDP while the Wall Street bubble fueled economic growth. Reducing military spending sharply relative to GDP in the immediate aftermath of the Cold War certainly made sense. But cuts relative to GDP were substantial in other areas as well. Between 1992 and 2000, support for education decreased by 24 percent; science by 19 percent; income security by 18 percent; and transportation by 10 percent. These cuts directly contradicted the “Putting People First” principles that Clinton espoused in his 1992 campaign.
Clinton’s position on global trade was virtually identical to that of his Republican predecessors, proclaiming the universal virtues of free trade. Clinton moved quickly after taking office to push through the final passage of the North American Free Trade Agreement (NAFTA) that had been promoted by Presidents Reagan and Bush. It was clear then, and has been borne out with time, that the benefits from NAFTA would flow overwhelmingly to American businesses, while wages and bargaining power for American workers would suffer. The gestures Clinton made to labor and environmentalists during the NAFTA negotiations were almost completely empty of content.
Beyond NAFTA, the Clinton administration did almost nothing to support unions or working people generally. As longtime labor journalist David Moberg commented in 1999, “Clinton has probably identified less with organized labor than any Democratic president this century.” Of course, since unions provide major electoral backing for any Democratic president, their concerns could not be completely disregarded. Clinton thus supported a two‑step rise in the minimum wage in 1996‑97, from $4.25 to $5.15 an hour, the rate at which it remained for the rest of Clinton’s presidency. But this modest increment did little to reverse the precipitous fall in the real value of the minimum wage. At $5.15 when Clinton left office, the minimum wage was still 35 percent below its real value in 1968 even though the economy had become 81 percent more productive between 1968 and 2000.
Clinton supporters argue that, despite the low minimum wage, low-wage workers and their families received major benefits from the rise in the Earned Income Tax Credit (EITC). This program, which began under Gerald Ford in 1975 and expanded under Carter, Reagan, and Bush, provides income subsidies for low-wage workers. Clinton followed his predecessors by further increasing EITC funding. But at the same time, he dismantled the traditional welfare program, Aid to Families with Dependent Children. The overall amount of funds provided by the federal government for “family support” consequently rose by only a negligible amount.
Moreover, spending on food stamps and other nutritional assistance programs dropped sharply under Clinton, due to a large increase in the percentage of households who did not claim their benefits even though their income levels were low enough to qualify. Clinton’s campaign to “end welfare as we know it” was one major factor responsible for this pattern. His attack on the welfare system created both a stigma for public assistance recipients and greater practical difficulties for them to receive support. Under the pre-Clinton welfare system, a high proportion of recipients took their food stamps and cash assistance at the same time. Under Clinton, the pressures on private soup kitchens and food pantries increased dramatically.
The unemployment rate did begin falling after Clinton took office in 1993, reaching a 31-year low of 4 percent in 2000. But this growth in job opportunities resulted primarily from a major expansion in household and business spending tied to the stock-market bubble. A run-up in both household and business indebtedness financed this spending boom. Unemployment started rising again soon after the bubble burst, and the debt-financed expansion collapsed in March 2001.
In combination, Clinton’s policies on trade, labor, minimum wage, and family assistance help explain why inflation did not increase when unemployment fell. According to standard economic thinking, workers’ bargaining power rises when unemployment declines. This should enable workers to push their wages up. Businesses then try to raise prices to cover their increased labor costs, producing rising inflation. This scenario did not play out under Clinton. The reason was explained clearly at the time by then Federal Reserve chair Alan Greenspan, who observed that workers had become “traumatized” by the pressures of globalization, technical change, and an unfavorable bargaining climate. Current Fed chair Janet Yellen similarly observed in September 1996, as a then-member of the Fed’s Board of Governors, that “while the labor market is tight, job insecurity also seems alive and well. Real wage aspirations appear modest, and the bargaining power of workers is surprisingly low.”
What was Clinton’s overall record with respect to improving living standards for working people and the poor? During the eight full years of Clinton’s presidency, the average real wage for non-supervisory workers, at $13.60 an hour (in 2001 dollars), was 2 percent lower than the average under Reagan and Bush and nearly 10 percent less than under Jimmy Carter’s “years of malaise.” The average individual poverty rate under Clinton, at 13.2 percent of the population, was modestly better than the 14 percent rate under Reagan and Bush. But it was worse than the 11.9 percent figure that was maintained, on average, under Nixon and Ford, as well as Carter.
In sum, Bill Clinton’s presidency accomplished almost nothing to improve conditions for working people and the poor on a sustained basis. Gestures to the poor and working class were slight and back-handed, while wages for the majority remained below their level of a generation prior. Wealth at the top exploded with the Wall Street bubble. But the stratospheric rise in stock prices and the debt-financed consumption and investment booms produced a mortgaged legacy. The financial unraveling began even as Clinton was basking in praise for his economic stewardship. Throughout the current presidential campaign, this reality needs to be recognized every time Hillary Clinton invokes her husband’s record as a compelling argument for supporting her own candidacy.