IT SOUNDED INNOCENT ENOUGH when President Clinton made the claim at his press conference August 6 and no reporter rose to question him about it. Here’s what Clinton said: The “first step” toward wiping out the budget deficit and creating a strong economy came “back in 1993 when we abandoned supply-side, trickle-down economics [and] opened a new chapter in fiscal responsibility with a new strategy of growth.” Clinton had made a similar assertion a few days earlier when announcing a dip in unemployment (then, too, reporters failed to quibble). “The economic strategy we put in place in 1993 created the conditions for the extraordinary private-sector growth we have all witnessed,” he said. And, naturally, other administration officials and Democrats have dutifully echoed the Clinton line. Senate minority leader Tom Daschle, for one, said Clinton’s 1993 budget “set the stage” for the balanced- budget deal last month between the White House and congressional Republicans and for the booming economy.
At least Daschle couldn’t keep a straight face when asked to defend his claim. And for good reason: It’s a complete crock. To reach a budget agreement with Republicans, Clinton had to repudiate practically everything in his 1993 budget. Nor is Clinton singularly responsible for the stock- market boom, as he also suggested at his press conference. “When I took office, the market was at 3200,” he said. Now, of course, it has climbed past 8200. “So it’s growing at an unprecedented rate, to unprecedented heights,” the president said. True, but only since Clinton reversed his economic policies.
Why are Clinton and his allies intent on crediting his 1993 budget with, as the president says, making the 1997 deal “possible”? One reason is they’re eager to mask Clinton’s total flip-flop on taxes and spending. The 1993 budget included higher taxes, more discretionary spending, no entitlement reform, and no balanced budget. Those are exactly the opposite of the Republican-oriented hallmarks of the 1997 deal. It cuts taxes, holds discretionary spending to slower growth, begins reform of Medicare, and produces a balanced budget (even a surplus) in 2002. In American political history, there haven’t been many flip-flops as all-encompassing as Clinton’s in agreeing to the new budget accord. His contention that his 1993 budget would keep interest rates down didn’t exactly work out either. Interest rates, as measured by the 30-year Treasury bond, dropped to less than 6 percent for a while, then rose to more than 8 percent, which was higher than they’d been the day Clinton was elected. Since the Republicans grabbed Congress, though, they’ve dropped between one and two percentage points.
The other reason Clinton focuses on 1993 is to deny Republicans credit. Every GOP senator and House member voted against the president’s 1993 budget. So if it truly did create the mold in which the 1997 budget deal had to fit, then Republicans really don’t deserve any credit at all. But it merely created the mold for Clinton’s budgets in 1994 and 1995, neither of which projected a balanced budget or cut taxes or restrained entitlements. In fact, in April 1995, just before Clinton changed course, the Congressional Budget Office concluded his budget would leave the deficit at roughly $ 200 billion annually for years to come. This is the “Clintonomics baseline,” says Stephen Moore of the Cato Institute. Only after Clinton acceded to Republican spending restraint did the deficit plummet to an expected $ 37 billion this year. This path, culminating in the 1997 deal, represents the real breakthrough. But if Clinton admits this, “he has to give Republicans equal or even primary credit,” says GOP consultant Jeffrey Bell. Perish the thought.
What changed everything — and especially Clinton’s policies — was the Republican capture of Congress in November 1994. It reassured financial markets that Clinton and the Democrats would be reined in. No longer was there a possibility of big, new spending programs or large tax hikes. From then on, the stock market roared.
In the two years after Clinton’s election, while Democrats still controlled the Senate and House, the Dow Jones average rose from 3223.04 to 3807.52. That’s an annualized increase of 9 percent, slightly less than the historical average. Since Election Day 1994, however, the market has more than doubled, opening on August 8 at 8188.00. That, by the way, was the 15th anniversary of the beginning of the long-term bull market that accelerated in 1994. On August 8, 1982, the Dow was at 777.92.
In citing his 1993 budget, Clinton goes out of his way to point out that it moved sharply away from President Reagan and supply-side economics and the soaring federal deficits of the Reagan era. Clinton treats the deficit as the only measure of Reagan’s pollcymaking. This is nonsense. Reducing the deficit wasn’t even Reagan’s top priority. At best, it ranked fourth. Ahead of it were generating economic growth, curbing inflation, and winning the Cold War. Toppling the Soviet empire required a costly military buildup, which Democratic Congresses approved so long as Reagan maintained a high level of domestic spending. The deficit grew.
Clinton has a vested interest in ignoring Reagan’s success in reviving the economy. The trends that Clinton now takes credit for — stronger growth, lower interest rates, disinflation, reduced regulation, lower taxes — actually began under Reagan. For all the ballyhoo about 10 million new jobs under Clinton, jobs were created at the same rate under Reagan. The economy grew faster in the Reagan era (3.2 percent) than during the Clinton presidency (2.6 percent). Clinton was very lucky to have followed Reagan (and George Bush). When he became president, an economic expansion had already begun (March 1991). American businesses, freshly streamlined, were globally competitive. With union power weakened, labor markets were flexible. And the economy boomed. What Clinton did in 1993 didn’t have a thing to do with it.
Fred Barnes is executive editor of THE WEEKLY STANDARD.
