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.