The Clinton Years

by Russ Roberts on June 24, 2011

in Stimulus

Steve Henke on the implications of the Clinton years for Keynesianism (HT: Tim Townsend):

Nothing contradicts the fiscalists’ dogma more conclusively than former President Clinton’s massive fiscal squeeze. When President Clinton took office in 1993, government expenditures were 22.1% of GDP, and when he departed in 2000, the federal government’s share of the economy had been squeezed to a low of 18.2%. . . . And that’s not all. During the final three years of the former President’s second term, the federal government was generating fiscal surpluses. President Clinton was even confident enough to boldly claim in his January 1996 State of the Union address that “the era of big government is over.”

President Clinton’s squeeze didn’t throw the economy into a slump, as Keynesianism would imply. No. President Clinton’s Victorian fiscal virtues generated a significant confidence shock, and the economy boomed.

My only disagreement is with the first line. I think the success of the post-WWII economy when government spending collapsed and the Keynesians predicted disaster is more conclusive. But that’s a nit-pick.

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Rob June 24, 2011 at 9:18 am


Wouldn’t the response though be that the Clinton years were marked by sufficient aggregate demand in the private sector such that government stimulus of the economy was not necessary? I am thinking of the recent EconTalk interview with Eichengreen where he essentially says that. Could you respond?

Jack of Spades June 24, 2011 at 9:30 am

Carrying on from what Rob said, don’t Keynesians argue that government *should* run surpluses in boom times? And, with that in mind, do a couple years of surplus during the 90s count as a point in refutation of Keynesianism?

roystgnr June 24, 2011 at 12:08 pm

That is what the response would be, much like the response to “things were worse with the stimulus than you said they would have been without it” is “the stimulus needed to be bigger; things would actually have been super-duper-worse without it!”

But if your ideology gives lousy predictions, we don’t care if you can construct a great retrodiction for any event. That’s a just-so story, not a theory. Theories have to be falsifiable.

Rob June 24, 2011 at 4:00 pm

“1 reader found this response unhelpful”

roystgnr June 24, 2011 at 6:13 pm

Could you elaborate on why? To the contrary: understanding that unfalsifiable claims are useless is perhaps the most helpful idea to come out of the enlightenment. If the victims you’re bloodletting keep doing worse than the patients who want you to leave them alone, then postulating that the survivors were just “marked by sufficient aggregate humour balance” doesn’t help your case.

Rob June 24, 2011 at 9:02 pm

Well…in the first place, the statements aren’t similar. In fact, the likely response concedes that aggregate demand is a quantity you can measure. Hence, either it is at the adequate level or it is not. Of course, you may quibble that “adequate” is a vague term. Granted. But I am not a Keynesian, therefore, I make no claim to know what they suggest such a level would be. Instead, I was asking Russ to comment on an objection which was, in fact, offed by a recent guest on his show and for which, he might have more to offer.

Your point about falsification is also problematic. It assumes the ability to accurately measure all quantities of interest. As Don, Russ, and others correctly point out, this is dubious with the case of something as complex as the modern macroeconomy. Thus, the ability to falsify one’s claims isn’t, in fact, the end-all-be-all for economic theories.

John Papola June 26, 2011 at 10:26 am

This is one of the great problems with Keynesianism in general. The private sector and public sector are treated as totally separate spheres capable of creating “demand” independently.

The source of demand is effective production. You must produce something that other people demand before you can demand anything else yourself. The public sector’s source of demand IS the private sector, since it captures it’s purchasing power from the productive output of the private sector via borrowing, taxation and inflation.

So there is no separate source of demand. Government is not exogenous to the private economy. It must take from it.

What that means is that the Clinton years decrease in spending necessarily represented a smaller claim on productive resources by the state which allowed the private economy to make use of those resources instead.

Digging below this stuff, you get into all the technocratic assumptions required for the Keynesian framework to make any sense at all: sticky wages and prices whose stickiness exceeds the lags in government action, the “liquidity trap”, homogenous production of instantly interchangeable capital goods (GM auto robots can instantly be used for windmill production without loss or waste), labor is one lump of interchangeable people with homogenous skills (contractors can instantly become nurses).

Yes, government borrowing during a time when people are scared and demand for loans by entrepreneurs is low won’t necessarily “crowd out” private activities… but one must remember that decisions are made at the margin. More importantly, one must think about WHY people are scared beyond “they don’t have enough demand for their goods”. People aren’t dumb. They know that the government getting loaded up on debt is a drag on the future and will require higher taxes at some point. We aren’t blinded in the so-called “short run”. This silly short run/ long run distinction is yet another artificial distinction in “macro” which seems to produce more confusion than understanding.


Keynesians draw causal relationships ex post that open them up to exactly this criticism being made by the article. When they claim that the economy was “saved” and “would have been worse” without the stimulus, they are assuming that their model is correct. Fine. So when their model predicts ex-ante that something will happen and it doesn’t happen… we MUST, using their own confidence in the model’s connection to reality, conclude that their model is broken. They’ve been wrong ex ante many many times. Post WWII is the most extreme. Canada’s 1990s fiscal contraction is another. The Clinton years are another. The stagflation is another.

John Papola June 26, 2011 at 10:28 am

Ah.. almost forgot. Their models predicted we’d be in much better shape than we are. So how can we conclude anything other than the fact that these models are wrong?

rural norcal June 27, 2011 at 10:29 am

“The source of demand is effective production. You must produce something that other people demand ”

Really? Is this the way the world works, people demand something so it gets made? I am not an economist but this is surely an oversimplification of where demand comes from and of how something gets sold.

What about the huge role of sales and advertising activities? Just in the US, in the year 2010, over 300 billion dollars was spent on advertising for the purposes of stoking demand. Don’t know how much additional money was spent on sales representatives who have the job of convincing people to commit to spending their money on the products that they “demand” but surely it was in the hundreds of billions of dollars.

Our desires and wants are constantly being shaped by those who want to sell us something, for example, through “branding” advertisers associate their products with qualities unrelated to the product itself.

Take away advertising and sales activities how much “demand” would remain?

Don June 27, 2011 at 9:57 am

Let’s get real about the last three years of the Clinton Administration. Government did not get smaller (It was flat.), but it also did not grow because of the effects of the Republican Congress and the growth of the economy.

The real explanation for all the economic growth in the last three years of the Clinton Administration was due to the “fear of Y2K” (computers were using only two characters for the year and would “00″ be interpreted as 1900 rather than 2000).

Business went through a spending spree to update its equipment base to avoid the potential or predicted Y2K collapse, including airplanes falling out of the air. When the “Y2K disaster” did not happen, business had excess productive capacity because it was not effectively using its new technological base.

Federal Reserve Chairman Greenspan noted several years later that he was amazed by the continued increased productivity of the economy. Reason for the increase: Business was learning how to more effectively use its new technological base, i.e., changing processes that used less human labor and thus cut costs.

In August 2000 (last Clinton year), the economy started to regress as business spending declined substantially since business all had new equipment due to its spending bubble in preparation for Y2K. Thus, the recession beginning in March 2001 which was made shorter by the Bush tax cuts in 2001.

Clinton benefited from the Y2K phenomena–not any so-called astute government policies. His budget surpluses also were unsustainable because they were based on taxation on stock options and other stock instruments that turned to “mud” once the “Y2K fear boom” ended in early 2000.

Let’s face it. Clinton was fortunate to be president during a special set of economic circumstances. It was not his or Robert Rubin’s (Secretary of Treasury) economic policies except that they were unable to do anything to screw it up because of the opposition Congress. A Congress that later went on its own spending spree under Bush–the president who could not find the “veto pen” until 2009 (Democrat Congress).

Mike June 24, 2011 at 9:25 am

The notion that the Clinton admnistration ran a surplus is simply wrong. They spent the money that was suppose to be in that alleged Social Security lock box. You can go to the Treasury’s own web site and look up total US debt during the Clinton years. Don’t take my word for it. See Debt to the Penny.

Some may object that these figures contain “Intergovernmental Debt.” It is still public debt, no matter which way you account for it.

Observer_Guy1 June 24, 2011 at 11:30 am

The guvmint operates on a “cash” accounting basis, as opposed to using accrual accounting. Someone please tell me why this is?

John Papola June 26, 2011 at 10:29 am


vidyohs June 24, 2011 at 9:27 am

Not being a WSJ subscriber I couldn’t get the entire article. But, just from the quote above that seems to praise Clinton’s policies, and having lived through the pre and the post Clinton years, I have to wonder how much Clinton deserves credit and how much his Republican Congress deserves the credit.

Until 1994 it appeared Clinton was well on his way to being another LBJ. For instance Clinton did not lead on the welfare reform bill, he had to be dragged kicking and screaming, and his constituency hated him for it.

HaywoodU June 24, 2011 at 10:03 am

Google cache is a glorious thing. Copy the article header and then paste into a google search. You will be able to access the whole article that way.

John Dewey June 24, 2011 at 10:23 am


I agree.

American voters bought into the Republican Party’s Contract with America in 1994. As a result, Republicans took control of Congress and started implementing its provisions, including The Fiscal Responsibility Act.

Clinton, an astute politician, got in front of the parade and made his ““the era of big government is over” declaration at the beginning of the 1996 election year.

vidyohs June 24, 2011 at 10:36 am

“Clinton, an astute politician, got in front of the parade and made his ““the era of big government is over” declaration at the beginning of the 1996 election year.”

Good wording John D., I was trying to come up with words to describe what Clinton was basically “forced” to do, and my morning fog didn’t let me come close.

SheetWise June 25, 2011 at 1:38 am

The funniest thing about the Clinton presidency is found in his own archives — he (in hindsight) found welfare reform to be the greatest achievement of his presidency. There is no mention that he was brought into it kicking and screaming. A Democrat president with the good fortune of having a conservative legislature — why not take credit?

I want every legislator to commit to a two-year plan and spell out how it will or will not work. I suggest two-years because of the election cycle, Anything they vote on should carry the same “warranty” for the duration of the funding.

carlsoane June 24, 2011 at 11:37 am

It’s also on the Cato site:

vikingvista June 24, 2011 at 4:20 pm

Before crediting either the Democrat President or the Republican House, keep in mind that government revenues rode a dot com bubble, and evaporated just before Clinton left office. It may instead be the Federal Reserve you should credit for the Clinton boom, and instead of credit, perhaps it should be blame.

Slappy McFee June 24, 2011 at 9:34 am

I have been meaning to ask this question for a long time. Why is government spending as a percentage of GDP a good measure of anything? I hear both the political left and right using these terms to justify both of their arguments. The left says revenues (as a % of GDP) are too low, therefore we need to raise taxes. The right says spending (as a % of GDP) is to high, therefore we must cut spending. Why isn’t per capita spending a better measure?

Fred Bauer June 24, 2011 at 9:40 am

I’ve always wondered the same thing. Do roads and teachers cost more if people become more productive? I wonder if it’s just a desire to find some way to justify the claim that taxes are low?

Scott June 24, 2011 at 9:49 am

The Bush administration even argued that there was an optimum debt level for the federal government.

A business can only justify debt if it can show some certainty of a ROI that will make that debt worthwhile. There is no ROI when all you do is consume.

Ryan Vann June 24, 2011 at 10:14 am

It isn’t a good measure of anything, but people are obssessed with graphs and numbers, and feel obliged to include it to bolster their argument. GDP to spending ratios could mean anything from economic boom, to economic decline, to increased taxes, to lowered taxes, to more or less spending. It’s a red herring, used along with the deficit to confuse the slaves.

vidyohs June 24, 2011 at 11:16 am

There is a street level explanation that I believe will make sense to you.

But first, to understand it you must recognize that both Democrats and Republicans believe that government is the silent partner of any business in America. Partners share in the profits, yes?

Second, let’s understand that we are talking percentages here. Imagine we are talking about 10%. If the GDP goes up, the 10% also gets larger.

The left simply can not comprehend the vast evidence that when they steal a larger undeserved cut, they also steal some of the incentive of the active partner.

“The left says revenues (as a % of GDP) are too low, therefore we need to raise taxes.”

That is simply expressing the belief that as their active partner is making more money, (not being content with the increase the % brings them) the silent partner wants a bigger cut by upping the percentage.

“The right says spending (as a % of GDP) is to high, therefore we must cut spending.”

That is saying that the silent partner is already taking to big of a cut (percentage) and if the silent partner would cut his spending and remain within the percentage already allowed, then the active partner would be better off as his incentives go up, his income goes up, and the silent partners percentage means that the silent partner’s revenues also go up.

Slappy McFee June 24, 2011 at 11:22 am

“But first, to understand it you must recognize that both Democrats and Republicans believe that government is the silent partner of any business in America. Partners share in the profits, yes?”

Thanks for ruining my Friday with this. I usually try to ignore this part of reality.

vidyohs June 24, 2011 at 12:34 pm

:-) Never let it be said that vidyohs doesn’t deliver……….something.

Whiskey Jim June 26, 2011 at 12:58 pm

And there are those of us who do not view the government as partners at all.

They are overhead. And if you want productivity, profits, and therefore hiring to increase, a good place to begin is to cut overhead.

Justin P June 24, 2011 at 12:36 pm

GDP is in of itself a horrible measure of anything. Garbage in, garbage out!

Scott June 24, 2011 at 10:01 am

I always love proclamations like Henke’s. Its a view of the economy through a drinking straw that results in forced causation. I could come up with a dozen reasons that the government expeditures as a percent of GDP went down.

Scott June 24, 2011 at 10:14 am

I guess I should also say, I could come up with a dozen reasons the economy boomed. The economy started slowing in 99, so I’m not even sure how solid a point any of it is. I’m sorry to throw stones, but surely we are not logically void like the trolls on this site.

muirgeo June 24, 2011 at 10:07 am

Wow what an amazing work of revisionism…. so does this mean we can go back to the Clinton Era tax rates??? Because THAT was the first big thing he did when he took office but here ion Cafe Hayek such a thing would supposedly cause regime uncertainty. Further, Clinton like most presidents increased spending every year he was in office.

And again Keynesianism doesn’t promote increased government spending when the economy is humming along.

Oh and what spending Clinton did cut was mostly from the military which we are looking to defer in favor of cuts to the poor and the elderly.

This guy has no shame or knowledge of Keynesianism or of history…. its really an article you’d expect to see in The Onion.

Ryan Vann June 24, 2011 at 10:18 am

I have to agree with you on this one Muir. That was all rather painful to read. Granted, I think business taxes are foolish and only encourage evasive waste, if we are talking pure budget, it is obvious the Clinton years were primarily about increased revenues.

mcwop June 24, 2011 at 4:09 pm

Capital gains rates were LOWERED under Clinton while income and the medicare tax was raised. Also his rate of sending increase was tiny, and Military spending went down a good bit.

EG June 24, 2011 at 10:11 am

Indeed. But there’s only one aspect of the Clinton years the left remembers: “taxes were increased and the economy grew!”. (even though they are wrong on that too)

Look above

Mike June 24, 2011 at 10:20 am

Here’s my biased take on the Clinton years:

This is where the crack of easy credit really starts to explode. As vidyohs points out, Clinton had an opposition Congress that would not go along with typical big government spending plans. So what does the Clinton administration do? They expand all sorts of government credit programs through the executive branch and other “off budget” activities.

I left school a long time ago, so I haven’t looked for the numbers, so I admit to making only an assertion. I imagine you would find tremendous growth in SBA loan guarantees; Farm Credit Bank guarantees; Export/Import credit guarantees; policy changes designed to make municipal bonds easier to issue; and, of course, the big start to loosening of standards and increased guarantees at Fannie and Freddie.

That sort of activity will get you a good economy for a few years.

Josh S June 24, 2011 at 10:36 am

epic credit expansion ftw!

Steve_0 June 24, 2011 at 10:39 am

23 across. What’s a six letter word for “good economy for a few years”? Starts with “B”

muirgeo June 24, 2011 at 10:45 am

The key to success of the Clinton years is that wages did go up…. again that’s the key….

Methinks1776 June 24, 2011 at 10:55 am

Why don’t you put your money where your slobbering mouth is.

Start a company and pay super high wages. Lead by example, TFI.

Slappy McFee June 24, 2011 at 11:43 am
muirgeo June 25, 2011 at 1:04 am

Yeah that was pretty stupid… thanks for wasting 3 minutes of my life I will never get back,

muirgeo June 24, 2011 at 5:22 pm

I work for a company that pays the best wages in the industry and we have a very low relative CEO to worker pay ratio. We are rated one of the best companies towork for and one of the best with regards to service. We are not-for-profit.

Wages ultimatly can not be set by employers but are determinded by the milieu of policies in which ALL employers work. Wages willl never go up for the average worker if they are forced to compete with the billions of workers in 3rd world nations.

Increasing minimum wage/ increasing exports/ making taxes more progressive and definancializing our economy and restructuring corpoarate boards will be the paths forward. Also promoting more needed government jobs building our renewable energy infrastrustracture and other infrastructure will move things along.

People like you have no solutions. You’ve got yours and to hell with everyone else… again read some history because that attitude is setting yourself up for a big burn some where in the future. Plus what decent person cares to be a wealthy man/woman in a country flooded with the poor?

Sandre June 24, 2011 at 6:15 pm

Here he used fifth pillar of his unique muirdouchean ethics – prophecies. Methinks, you will burn in hell! watch out!

Rudy June 24, 2011 at 11:03 pm

Muriedigo, was above a cut and paste from an old FDR speech??

muirgeo June 25, 2011 at 1:17 am

No…although this beautiful passage so relevant to today is:

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.
We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.
Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.
I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

muirgeo June 25, 2011 at 1:18 am

In his own words…beautiful beautiful FDR bringing IT to the jack asses!

sandre June 25, 2011 at 6:55 pm

Lying Muirdouche,

Since Hoover was “deliberately” trying to cause “economic harm” to the U.S economy by ‘trying’ to “balance” the budget, FDR spoke against it one month after getting the Democratic nomination -

“Let us have the courage to stop borrowing to meet continuing deficits,” Roosevelt said. “Revenues must cover expenditures by one means or another. Any government, like any family, can, for a year, spend a little more than it earns. But you know and I know that a continuation of that habit means the poorhouse.”

brotio June 25, 2011 at 3:45 am

I work for a company that pays the best wages – Yasafi Muirduck

In other words, you’re getting disgustingly rich by (mis)treating poor children. All of those obscene profits you’re making in health care, yet you constantly bitch about obscene profits in health care.

You’ve got yours and to hell with everyone else…

You’re sure as Hell not going to give up your pilgrimage to Exit Glacier. Are you?

Craig S June 24, 2011 at 12:11 pm

“The key to success of the Clinton years is that wages did go up”

Yesterday you told me the current economy is the result of policies enacted during the Reagan years that are showing ill effects in the last few years because “things don’t happen over night”. now you are saying policies in the Clinton years, namely a slight increase in the top marginal tax rate, lead to wage increases in the 90′s. In other words, policies from the 80′s effected the economy in 2007, but some how did not in the 90′s.

Craig S June 24, 2011 at 12:12 pm

You also never bothered to explain why the economy in the 70′s was so bad, since it was 30 years after FDR.

muirgeo June 25, 2011 at 1:22 am

How do you think the current economy would look if interest rates were 12%… if we just completed a massive war expenditure ( oh we did) and massive rises in real oil prices from an embargo. …and a little switching away from the gold standard thrown in on the side.

Josh S June 25, 2011 at 10:15 am

If interest rates were set by the market instead of the central bank, government debt would not be nearly as large, savings would have been rapidly rebuilt after the crash, and the recession would have been completely over six months ago and employment would have returned to normal. See the depression of 1920-21 for details.

Josh S June 24, 2011 at 1:42 pm

The difference is that Republicans are so evil and crafty that they bury the destructive effects of their policies in ticking time bombs scheduled to go off decades after they have left office, while Democrats want us all to share in the benefits of their wise leadership right away.

muirgeo June 25, 2011 at 1:20 am

shared prosperity of IT age…..

Dave June 24, 2011 at 11:05 am

That article is pretty unconvincing, even if I agree with the idea that Keynesian programs are wasteful.

First off, Government spending went down as a % of GDP largely because the denominator (GDP) increased rapidly. Government spending in real terms was roughly flat and increased every year in nominal terms. And I think most people recognize that the strong GDP growth seen in the mid to late 1990s was caused by the tech bubble. So, we are asked to conclude that because Clinton kept real government expenditures roughly flat that the tech bubble occurred? Seems like kind of a stretch, plus that bubble ended in recession and a “jobless recovery” shortly after Clinton left office.

The more convincing case to me is the post-WWII boom when government spending was drastically reduced, for which Samuelson predicted “the greatest period of unemployment and industrial dislocation which any economy has ever faced.”

kyle8 June 24, 2011 at 11:38 am

The more that I learn, the more I realize that Keynesianism is not just kinda wrong, but it is nearly diametrically opposite to the way the real world operates.

Government involvement in financial markets distorts financial signals and causes booms to become bubbles. There is no trade off of employment and inflation, inflation is a monetary phenomenon. Government pump priming cannot stimulate aggregate demand enough to overcome a depressed market, but rather will prolong the effects of recession by causing uncertainty and the expectation of future taxes or inflation. Government shrinkage will not cause market collapse but will empower markets when taxes and regulations are lowered.

And finally, there is no substitute for sound money and sound lending practices.

Justin P June 24, 2011 at 12:45 pm

The appeal of Keynesianism is that if gives people with big egos a reason to meddle in the affairs of others. So if you believe that people should be free to do what they want, more likely than not you will be anti-Keynesian. If you think your smarter than everyone else, have a big ego, and generally want people to do what you want them to do, your more likely than not will be a Keynesian.

Methinks1776 June 24, 2011 at 12:49 pm

The appeal of Keynesianism is that if gives people with big egos a reason to meddle in the affairs of others.

If you’re willing to change “reason” to “pretext” I’m willing to agree with your post 100%.

Justin P June 24, 2011 at 1:00 pm

Symantics….I’m willing to compromise on that.

Methinks1776 June 24, 2011 at 1:31 pm

I know, I know. But, “reason” gives it an air of legitimacy :)

muirgeo June 25, 2011 at 1:33 am

“The appeal of Keynesianism is that….”

No the appeal of Keynesianism is that it fixes broken neoliberal markets… it saves free market capitalism from itself….that’s the appeal.

The appeal of libertarianism is that it allows one to justify the release of simpler innate animalistic instincts, responses and reflexes with little need for deep or civilized thought. Plus it gets you a tax cut…. everybody likes a tax cut!!!

sandre June 25, 2011 at 12:43 pm

I want a technical explanation of the mechanism of how keynesianism works, with Samuelson equations, shifting AD curves and such. Let’s see if you understand something or if you are just pulling shit out of your ass.

Not that I don’t know the answer already. Muirdouche, do you just enjoy throwing shit at people you disagree with?

MT June 25, 2011 at 12:35 pm


muirgeo June 25, 2011 at 1:27 am

“Government involvement in financial markets distorts financial signals and causes booms to become bubbles. ”

eeeeeannt…..( buzzer going off) . Sorry fella the biggest booms and bust occurred AFTER implementation of laissez faire policies. Thanks for playing .. try again soon.

kyle8 June 25, 2011 at 8:24 am

there is no truth to that at all. The great depression and the recent one were all exacerbated by direct government meddling.

Yet another reason that you are so wrong headed, you refuse to learn history.

Sam Grove June 25, 2011 at 5:05 pm

Utterly dishonest.

Peter June 24, 2011 at 11:47 am

Keynesianism is to Economics what Calvinism is to Christian Theology. It can die a thousand deaths and be thoroughly discredited many times, but it will always resurface because there are people in power who find it consistent with their goals to believe it and easy to convince others of it.

Also, whoever wrote this gives Clinton personally way to much credit. In real dollars, government spending increased massively under and largely because of Clinton. The reason why government spending as a fraction of GDP went down so much is because (1) After the 94 elections, the Republicans completely controlled both houses of Congress and Clinton couldn’t get anything too stupid passed and (2) The gridlock led to a great deal of “regime certainty.” Stability in laws allowed the market to thrive on its own.

Josh S June 24, 2011 at 1:43 pm

Lots of powerful Calvinists out there in the world…oh wait.

Liberty 1 June 24, 2011 at 11:57 am

It is interesting to hear people discuss the economy of the Clinton years.
From what I hear and see, many on the right now look back rather fondly on the Clinton years and hold his administration in a higher regard then they probably did when he was President (Except for party loyalists and the party pundits).
And if one visits left wing sites and blogs you see that many on the left despise the Clinton administration\Clinton years, and think he was an absolutely awful President.

I for one would love to be back to spending at 18.x % of GDP, low unemployment, and average growth around 4%!
Long live Bubba and the Repub class of 94!!

John Dewey June 24, 2011 at 12:46 pm

We can explain the late 1990′s growth a number of ways, and everyone can find an explanation to fit his worldview:

1. lower capital gains taxes
2. higher marginal taxes which enabled redistribution (Muirgeo’s view?)
3. end of Cold War/lower defense spending
4. the tech bubble
5. regime certainty, as Peter explains above

So let me add three which, to me, make at least as much sense as those already offerred:

lowest real oil prices of the past four decades


26% growth from 1990 to 2000 in workers aged 35 to 54 (some studies show age 45 to be the peak productivity age)

We’re all guessing, aren’t we? It may just be that the U.S. enjoyed the “perfect storm” for GDP growth.

Methinks1776 June 24, 2011 at 12:54 pm

Don’t forget the explosion of the internet!

We may not be able to explain much of the growth at all. Economies are complex. We’re just guessing.

It’s not very comforting that government clowns who have the poer to successfully manipulating markets at other people’s expense are guessing also. And lining their pockets. At least it’s not comforting for me.

Sandre June 24, 2011 at 2:16 pm

good points…

muirgeo June 25, 2011 at 1:36 am

No were are not guessing… it was the increased wages and increased employment.

sandre June 25, 2011 at 12:19 pm

I need that mathematical proof, you dirty scumbag.

MT June 25, 2011 at 12:39 pm

Any reading of history shows that increased wages and employment FOLLOW growth initiated by the productive delployment of capital.

Sam Grove June 25, 2011 at 5:06 pm

You exhibit inverted logic.

Lee Kelly June 24, 2011 at 12:50 pm

You’re kidding, right? This is some kind of joke? I am even laughing in a quiet bewildered sort of way, like when seeing a dog behind the wheel of a car. Have you taken to absurdism, Russ? This post is so incongruous with life, the universe, and everything, that I hardly know where to begin commenting. No, wait, yes I do: even the crudest of crude Keynesians do not claim that governments should do fiscal stimuli all of the time. In fact, the standard Keynesians prescription is to run deficits during bad times and surpluses during good times. Whatever the merits of Keynesianism, policy during the Clinton years actually followed Keynesian recommendations. Arguing otherwise does nothing for your credibility, Russ.

If anything, policy during the Clinton years is a challenge to anti-Keynesians. A frequent criticism is that politicians will use Keynesian economics to justify deficit spending but will ignore it during good times and not run surpluses. In practice, Keynesian economics is supposed to run us into unsustainable growth in government expenditures. This still may be true, but this would be despite the Clinton years, not because of them.

Sandre June 24, 2011 at 1:29 pm

I agree with Lee. However, Clinton years were unique in the sense that for the first time since the great depression strings of the federal purse was in the hands of Republicans. There was true divided government. It doesn’t work quite the same when Democrats control the congress and a republicans is enthroned in the whitehouse, as we have seen through out post WWII history.

Smash Equilibrium June 24, 2011 at 2:53 pm

I’m not well-versed on Keynesian Economics, but I’m pretty sure the goal of running surpluses during boom times is to cool the economy off. But that wasn’t the result under Clinton. So, the point being made is that Keynesian Economics isn’t reliable. Witness also the application of Keynesian policies during the current recession for further proof.

Sandre June 24, 2011 at 4:04 pm

Even if you are correct, I think Russ shouldn’t have expressed his agreement with this sentence: “President Clinton’s squeeze didn’t throw the economy into a slump, as Keynesianism would imply.”

I don’t think that necessarily is an implication of Keynesian economics. At least not when Clinton administration was running a surplus.

Lee Kelly June 26, 2011 at 12:28 pm

You’re right, you are not well-versed on Keynesian economics.

Justin P June 24, 2011 at 12:59 pm

I for one, all things concidered would rather have Clinton in office with a Republican Congress again instead of Obama and the inept Congress we have now.

Whiskey Jim June 24, 2011 at 3:27 pm

Another example Keynesians must deal with:

In the early 90s Bob Rae (the premier of Ontario) instituted many of the same policies Obama would use decades later, resulting in a $9 billion deficit combating a recession which was less severe than the one in the 80s.

It moved unemployment not at all. And Ontario was the last province to crawl out of the recession. Rae left office in disgrace and quit the social democrat party (NDP), saying Keynesian policies do not work. It took 10 years for a conservative government to restore surpluses in Ontario.

Mike Harris, the conservative architect who restored Ontario’s surplus has often said his greatest mistake was lack of speed. He first considered that a slower transition would be less disruptive, but as the years progressed, he noticed the faster he instituted pro-growth policies, the faster the economy grew and unemployment dropped.

Keynesians predicted failure every step of the way.

River June 24, 2011 at 3:30 pm

2 more points about the Clinton years. Regulatory agencies were less anti-business than they are under Obama and the NRLB was less onerous for unionized companies to navigate. These reduced the risk factors when planning business expansion. One may argue that regulators should have been more vigilant than they were in the financial sector but overall the business community was not vilified and threatened as they are today. He had a much better understanding of business than our current leader. He understood Walmart, Tyson foods and others as a result of being governor of AR.

Kevin H June 24, 2011 at 3:49 pm

Post WWII demonstrated that the predictive powers of the Keynesians were wrong, not that their overarching theory was incorrect. They may have simply underestimated pent up demand and the ‘animal spirits’ at play once the war years were over.

I’m not saying the theory is true or false, just that I’ve not heard anything that would cause me to dismiss it out of hand. of course,

SaulOhio June 24, 2011 at 4:26 pm

I wouldn’t give Clinton so much credit for it. He wanted a MASSIVE new big government program with universal health care, but didn’t get it, and was pushed by a Republican Congress into big money saving welfare reform.

If he had his way, America would have had deficits, not surpluses.

Dr. T June 24, 2011 at 7:00 pm

“… When President Clinton took office in 1993, government expenditures were 22.1% of GDP, and when he departed in 2000, the federal government’s share of the economy had been squeezed to a low of 18.2%….”

This example displays the tragedy of reporting federal government spending as a percentage of gross domestic product. This sends the undesirable message that it is appropriate for federal spending to increase when businesses and workers increase their productivity.

The USA experienced a massive economic boom during the late 1990s that had nothing to do with who was President. The booming economy resulted in a decrease in federal spending AS A PERCENTAGE OF GDP despite the fact that inflation-adjusted federal spending increased from 1.68 trillion in 1993 (in year 2000 dollars) to 1.79 trillion in 2000. The relatively low increase in total federal spending during the Clinton presidency was the result of the collapse of the Soviet Union and subsequent cuts in our defense spending. Inflation-adjusted spending on entitlements increased from 1993-2000 despite a booming economy and tougher requirements for Medicaid and food stamps.

Whiskey Jim June 24, 2011 at 10:10 pm

Just thought of another Keynesian challenge.

If stimulus works so great, why isn’t Afghanistan just a humming with virtuous activity? The World Bank now estimates our military as 97% of the economy’s GDP. Would Krugman say that’s enough?

brotio June 25, 2011 at 3:49 am

Ask Daniel Kuehn.

MT June 25, 2011 at 12:41 pm


Daniel Kuehn June 30, 2011 at 7:17 am

Ummm… property rights… rule of law… war zone…

Seems like there are a few other points besides the state of demand to talk about.

What challenges Keynesianism here?

piefarmer June 25, 2011 at 6:55 am

Clinton and the Congress cut taxes, most notably the capital gains tax, before cutting spending. The tax cut created the boom, which lowered unemployment and made it “easy” to reform entitlement programs and otherwise cut spending.
The order matters. Spending cuts were enabled by the tax cuts.

anthonyl June 25, 2011 at 10:49 am

Clinton was a fine president. Checked, as he should be, by a watchful and also equally fine congress!

Westie June 28, 2011 at 9:38 am

Did Clinton cut taxes as AR Governor? IOWs did he have any rep as a tax cutter?

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