We evaluate teachers by how well their students do. If we applied a similar standard to economic reporters, then the whole lot of them would be sent packing tomorrow.The Post told readers that Bill Clinton is an effective spokesperson for President Obama in part because:
“Clinton himself presided over an economic boom and a balanced budget gives him credibility to make the case against Romney and the Republicans.”
Actually, the seeds of the current disaster were put in place by the policies of the Clinton administration. President Clinton did nothing to try to check the rise of the stock bubble. Its collapse in 2000-2002 led to the longest period without job creation since the Great Depression, until the current downturn.
The economy only recovered from this downturn and began creating jobs again with the rise of the housing bubble. The burst of that bubble of course gave us our current downturn.
The stock bubble, not Clinton’s tax increases or spending cuts, was the reason that we had budget surpluses. In 1996, after all the Clinton era tax increases and spending cuts were already in place, the Congressional Budget Office still projected a deficit equal to 2.5 per cent of GDP for 2000. The reason that we instead had a surplus of roughly the same size was that capital gains created by the bubble led to much higher tax collections than projected and the more rapid growth from the bubble caused spending to fall relative to the size of the economy.
The Clinton administration also laid the basis for the huge trade deficit the country now faces with its engineering of the bailout of the East Asian financial crisis. The harsh conditions of this bailout led developing countries to place a huge premium of acquiring reserves, the most important of which is the dollar. As a result, the dollar was pushed up to levels that made our goods uncompetitive internationally.
The resulting trade deficit is the fundamental imbalance in the U.S. economy today. Because of this trade deficit, by definition the country must either have negative private savings, as when the housing boom driven consumption boom pushed the savings rate to zero, or negative public savings (i.e. budget deficits).
While President Bush had ample opportunity in his two terms in office to reverse the economy’s course before it led to disaster in 2008, it was President Clinton who set the economy on the road to collapse. If the public does not understand this fact, it speaks to the awful state of economic reporting.
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