The Case for Bill Clinton’s Economic Record
How do you argue with success? One answer is, become a Democrat.
Joe Biden learned this lesson recently when many in his party dismissed the 5.7 percent economic growth and 6.2 million new jobs created in his first year and instead complained about his inability to corral Joe Machin to support Build Back Better. A more far-reaching instance is the chorus of criticism from some Democratic pundits on the left that Bill Clinton and other recent Democratic presidents failed middle-class and lower-income Americans.
Criticism is a staple of every president’s diet. But this meme is insidious, because it’s hard to make progress when you deny or ignore what’s been proven.
The anti-Clinton meme is personal because I helped the then Arkansas governor fashion his economic program in the leadup to his 1992 election. It was a four-part “New Democrat” plan to “Put People First” by investing in infrastructure, upgrading people’s skills, reducing the deficit to promote the business investments that raise people’s productivity and wages, lowering barriers to trade in American goods, services, and investments, and supporting innovation by letting new industries like the internet develop before considering new regulation.
By virtually every metric, Clinton’s strategy produced the strongest economy of the last half-century. Yet his critics on the Democratic left continue to insist that his administration was a short step from Republican laissez faire in service to the superrich.
Several such critics have recently made that case through their reviews of a new book by an Oxford University historian, Gary Gerstle, titled The Rise and Fall of the Neoliberal Order. For example, one reviewer in the New Republic dismissed Clinton’s center-left approach as “a message of free markets and disdain for government regulation and spending” and warned that “the longer the Democrats retain their commitment to Clinton- and Obama-era politics, the worse the outcome is likely to be.”
Perhaps the most sweeping indictment came from a reviewer in the New York Review of Books, Robert Kuttner, who claimed that Clinton’s policies led to “widening inequality, diminished economic security, and reduced confidence in the ability of government to aid its citizens.” We can test those claims against the record. For example, Pew Research reports that the American public’s trust in their government increased sharply during Clinton’s two terms, rising from 25 percent to 44 percent.
The real world results on economic growth, employment, household incomes and wealth, and social spending while Clinton was president also refute these new critiques. Kuttner claimed, for example, that Democratic “neoliberals” produced “far less” growth than “between the 1940s and the early 1970s, when the economy was governed by principles of managed capitalism.” This notion is demonstrably wrong: The GDP data issued by the Bureau of Economic Analysis show that the U.S. economy grew at average annual rates, after inflation, of 4.0 percent during Clinton’s two terms from 1993 to 2000, compared to 3.9 percent in the 1950s, 5.2 percent in the 1960s, 3.7 percent in the 1970s (including the proto-neoliberal Jimmy Carter), and 3.6 percent in the 1980s.
Clinton’s record is most striking compared to his successors, when growth did slow sharply: It averaged just 1.9 percent per-year under George W. Bush, 2.2 percent per-year under Barack Obama (recognizing that he inherited an economy in financial collapse and with cratering housing values); and 2.5 percent per-year under Donald Trump before the pandemic and his mismanagement drove down his record for average annual real growth to zero.
The same reviewer also claimed that “earnings and job security for most people stagnated or declined.” Demonstrably untrue again: Median household income adjusted for inflation increased 14.5 percent from 1993 to 2000, compared to gains of 10 percent under Reagan, 2 percent under Bush-41, 10 percent under B-43, 6 percent under Obama, and 5 percent under Trump. It’s the same story for job security: Unemployment fell from 6.9 percent to 4.0 percent under Clinton, and then increased from 4.0 percent to 7.8 percent under Bush-43, declined under Obama to 4.7 percent, and then increased again to 6.4 percent under Trump.
As compensation for people with college or graduate degrees has risen rapidly over the past half-century, income inequality has steadily increased. During Clinton’s terms, however, the incomes of less educated Americans also rose at healthy rates. For example, the incomes of households in the two lowest income quintiles, after inflation, increased 16.8 percent under Clinton, compared to gains of 2.4 percent under Reagan, 1.0 percent under Bush-41, 14.0 percent under Bush-43 and 7.6 percent under Obama.
The rich certainly became richer in the Clinton years—and so did average people. The Federal Reserve reports that the net worth or wealth of the median American family, adjusted for inflation, jumped 41 percent under Clinton (1992 to 2001). Again, Clinton’s record was a lot better than his successors, when the net worth of a typical family fell 38 percent under Bush-43 (2001-2010), recovered 14 percent under Obama (2010-2016), and increased 18 percent under Trump before the pandemic (2016-2019).
The income and wealth gains by average Americans under Clinton rested in part on booming business investment. Real fixed business investments increased on average 9.4 percent per-year under Clinton, the fastest growth of any postwar presidency. By contrast, business investments grew at average annual rates of 3.7 percent under Reagan, 8.7 percent under Carter, 1.5 percent under Bush-41, 2.8 percent under Bush-43 and Obama, and 2.4 percent under Trump. The investment boom also lifted productivity growth to an average of almost 3.1 percent per-year during Clinton’s second term, which in turn helps explain the large progress in median household incomes.
The Democratic left’s meme also charges that Clinton sacrificed social spending in order to balance the budget. Again, demonstrably untrue: After inflation, spending on all domestic discretionary programs grew 10 percent under Clinton, including real increases of 14 percent for transportation, 15 percent for education, training and social services, and 6 percent for natural resources and the environment.
They also lambast the Clinton program for shortchanging poor people, citing welfare reform. This charge is also demonstrably wrong: Under Clinton, inflation-adjusted spending for income security programs including welfare grew 15 percent and Medicaid spending rose 37 percent, the greatest growth of any postwar presidency. The poverty rate also fell from 15.1 percent to 11.3 percent, the sharpest decline of any postwar presidency. Clinton’s first budget also expanded and reformed the Earned Income Tax Credit (EITC), the primary government support program for working poor Americans, and total EITC support jumped from $8.8 billion to $26.1 billion over Clinton’s two terms.
Clinton also produced the first balanced budgets in 30 years. His critics won’t mention it, but he used a highly progressive strategy: While expanding social spending and federal support for low-income people, Clinton cut Pentagon spending by 12 percent after inflation and raised the top federal tax rates on wealthy people and highly profitable companies. The tax changes on top of the strong economic growth resulted in 54 percent growth in federal revenues after inflation over Clinton’s two terms, which produced budget surpluses until Bush-43’s tax cuts slashed revenues.
Clinton’s economic record inevitably includes its share of mistakes. His administration agreed to leave financial derivatives unregulated, when a different decision could have lessened the financial crisis. But most of the responsibility lies with his successor, who had governed for seven years before the crisis broke. Even as the housing bubble began to crack and the markets for mortgage-based securities and credit default swaps continued to expand rapidly—and even after Bear Stearns failed in 2008—the Bush-43 Treasury and Federal Reserve never used their oversight powers to probe the stability of our largest financial institutions.
There is a legitimate debate about trade liberalization under Clinton and the distribution of its costs and benefits. Yes, Clinton oversaw the creation of the World Trade Organization. But the WTO doesn’t determine where U.S. companies can produce many goods at the lowest cost (for U.S. and foreign consumers). Clinton also agreed to China’s accession to the WTO, and China has used its exports to Europe and the U.S. to become an economic powerhouse that rivals us. But Clinton cannot fairly be blamed for not being clairvoyant: China’s prodigious growth rates moderated steadily from 1993 to 2000, and when Clinton left office in January 2001, China’s GDP was 8 percent of its 2020 level, and its exports totaled about 10 percent of their 2020 levels.
The Clinton administration did share a broadly held expectation that as China became a real factor in the global economy, business would force China to treat its Western customers and investors fairly. Some optimists even hoped that China’s integration into global trade and finance would lead its leaders to follow the examples of Japan and South Korea by introducing more democracy. But as those leaders in Beijing consistently disappointed those expectations and hopes, responsibility for effective U.S. responses fell not to Clinton but to his successors.
The worst thing about the current “neoliberal” meme is not the wholesale distortions of Bill Clinton’s economic record. No, the danger lies in Democrats believing that mainstream economic policies to promote the interests of average people are corrupt and cannot succeed. That misapprehension could reduce the alternatives to rightwing or leftwing economic nostrums that will almost certainly and painfully fail.