Selected Essays of James Tobin
Chapter 21: Clinton's second term and the American economy
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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