Friday, August 15, 2008

The Big Bill Clinton Economics Lie

Bill Clinton took office in late January 1993. If you listen to Democrats, Bill Clinton's years were the most golden economic years of any American President. They always point to the growth in the economy, job gains, and balancing the budget. Take for example, this opinion piece that was just written by two of Barack Obama's economic advisers (See Full Story).

But, Bill Clinton didn't create the economic boom of the 1990's -- he just fell into one. Bill Clinton was lucky enough to take office during the beginning of the Internet Revolution. In 1990, 3 years before he took office, the IBM online service provider, Prodigy, began selling service nationwide and had already achieved 1/2 million subscribers in short order in that year. America Online began operations in the beginning of 1991. Hundreds upon hundreds of companies were started. Companies that were involved with Internet content, like Cnet and Etrade, and others selling equipment and services to access the Internet, such as Dell and Cisco. Cash from Venture Capitalists was going into anything and everything that had a dot-com name associated with it. Jobs were being created at small startup companies like Netscape, Yahoo, Ebay, and thousands of others. Tax paying millionaires and their companies were being created by the day; not by the year. If 23 million jobs were being created during the Clinton Administration, it wasn't because of his policies. It was because of the Internet explosion.

For those Democrats who always point to Bill Clinton's success, I always ask two questions. If Bill Clinton was such an economic guru, why then did our economy start to falter a year and a half before he left office. Why was George W. Bush handed a recession?

Every person who understands the economy knows it takes about 9 months or more to turn it around with any changes in economic policy. When Clinton ran against the first George Bush, it was all about "the economy, stupid!" This is because the first two quarters of 1992 had negative growth and our economy appeared to be in recession. But, what most people don't know or even understand is that the last two quarters of 1992 had come back and had actually booked modest growth of around 2%. Not great. But, growth anyway. Two quarters of negative growth occur quite often but aren't necessarily the start of a recession. In explaining this, many economists like to use the highly technical term of a "blip" in the economy.

The quarter that was underway when Bill Clinton took office, Quarter One of 1993, actually produced growth of greater than 4 percent and our economy was off to the races from that point on. There is nothing that Bill Clinton could have done before taking office to account for this. Even if he could have, it would have taken another 3 quarters past any implementation to have an effect. For example, any tax changes that Clinton would have implemented when he took office would have not seen any impact until, at least, the fourth quarter of 1993. In fact, Bill Clinton's priority wasn't the economy (stupid) when he took office. It was gays in the military.

To me, the economy of the Clinton-Years is more mystique and mythology than truth and reality. At the beginning, Clinton benefited from the dot-com bubble. At the very end, he suffered from the dot-com bust in 2000 and a subsequent recession (See Full Story). For Obama's economic advisers to use the Clinton-Years as their rationale and model for success under Barack Obama (as noted and linked above), is just wrong. The conditions that existed during the early Clinton years will not be present if and when Obama takes office. If anything, Mr. Obama may inherit a recession. This time, it will be a recession that can't be fixed by an economic boom called the "Internet Revolution". His big tax raising plans will just be counterproductive and, I think, a total economic disaster.

George W. Bush's tax cuts turned an economy around that was suffering from the 2000-2003 recession and a recession that had been exacerbated by the events of 9/11. That was reality. The Clinton boom years were are also a reality. However, not from anything Clinton did. Clinton just happened to be there when the dot-com comet came flying by.

Image by John.Karakatsanis' photostream on Flickr with Creative Commons Licensing. All rights retained. (Click to View Other Works).

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