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World Finance and Economic Stability

Selected Essays of James Tobin

James Tobin

Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact.
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Chapter 21: Clinton's second term and the American economy

James Tobin


21. Clinton’s second term and the American economy* Bill Clinton could not have asked for a better election year economy: unemployment averaging 5.2 per cent, the lowest since 1973; 10.7 million new jobs since 1992, a gain of 9 per cent; inflation steady around 3 per cent per year; stock market booming and interest rates low; consumer and business confidence high; the budget deficit cut four years in a row, falling 63 per cent to $107 billion, 1.4 per cent of GDP. ‘Are you better off than four years ago?’, Clinton asked the voters, and they answered ‘Yes!’ Presidents get credit and blame for whatever happens, whether they deserve them or not. Alan Greenspan’s Federal Reserve deserves credit for managing the 1992–6 recovery from ‘Bush’s recession’. Many inflation hawks, some inside the Fed, thought unemployment rates below 6 per cent were dangerous, but Greenspan and company have let unemployment fall towards pre-1970 rates as long as wages and prices remain well-behaved. For deficit reduction, Clinton can claim credit. Early on, Treasury Secretary Rubin persuaded the president to concentrate on deficit reduction. Clinton gave up fiscal stimulus to pep up the sluggish economy, scrapped his promised ‘middle class tax cut’, and abandoned his public investment initiatives. His fiscal package passed Congress without a single Republican vote. The gamble worked, both economically and politically. The economy recovered, the bond market cheered, and middle class voters did not revolt. In macroeconomic performance the United...

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