Clinton's deficit reduction

Meant to mention a few days ago but got a little busy. In a recent column Robert Samuelson attacked a myth that has become part of the conventional wisdom:

Now switch to the Democrats. They, too, have their delusion. It's the Bill Clinton Delusion: that the Democrats are now the party of "fiscal responsibility," because Clinton engineered the first budget surpluses (1998-2001) since 1969. The reality is that those surpluses stemmed more from good luck than from Clinton's policies. Of course that's not the way it looks. The surpluses were sizable, totaling $559 billion over those four years. In addition, federal spending as a share of GDP dropped from 22.1 percent in 1992 to 18.5 percent in 2001. How can anyone doubt Clinton's achievement?

Easy. He didn't plan or predict those surpluses. They resulted mostly from an unanticipated surge in taxes flowing from the economic boom -- something that Clinton didn't create. As for lower spending, that mainly stemmed from the ending of the Cold War -- something else Clinton didn't cause. From 1992 to 2001 defense outlays dropped from 4.8 percent of GDP to 3 percent. Once budget surpluses occurred, interest payments fell from 3 percent of GDP in 1996 to 2 percent in 2001. Elsewhere in the budget, there was little spending restraint.

Indeed, Clinton didn't originally promise to balance the budget. In his early years, he merely pledged "deficit reduction" -- Bush's present policy. Clinton endorsed a balanced budget only in June 1995, after Republicans, then committed to ending deficits, captured Congress. By 1997 Clinton and congressional Republicans agreed on a balanced budget, with a target of 2002.

This is exactly right -- Clinton never meant to balance the budget. I can remember at the time when his deficit reduction plan was released that it projected the deficit would decline over a number of years, never actually putting the budget in balance, and then would actually begin to expand once again. Essentially revenue came in to Treasury coffers faster than either Clinton or the Congress expected (something that shows some signs of happening again).

This also reinforces in my opinion that forecasting is more art than science.

Samuelson mentions another myth that he declines to expand on: Clinton was not responsible for the great economy of the 1990s. Like deficit reduction, this has become widely accepted as fact. That's not to say that he deserves no credit -- Clinton compiled a good record on free trade in his first term, pushing through both NAFTA (with heavy Republican help) and signing the Uruguay Round of GATT negotiations.

But other than that, what impact did Clinton really have on the economy? Well, he passed a massive tax increase in 1993, something that generally doesn't serve to stimulate economic growth. He also signed a welfare reform bill (after first vetoing it twice) that helped to place more workers in the economy. And he signed a capital gains tax cut in 1997.

4 out of those 5 were Republican ideas, and the tax increase passed the House and Senate without a single Republican voting for it.

This is not an attempt to demonize Clinton -- I think that in general the impact Presidents have on the economy is overstated -- but this notion that he showed up and magically balanced the budget and created this roaring economy is a myth that needs to be put to rest.