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The Clinton Years

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.