What Clinton Did to the Economy

...The prosperity that marked Bill Clinton's terms in office was put in place by the tax and other reforms engineered by Ronald Reagan and (conservatives peel off at this point) by George Bush's courageous willingness to eat his "read my lips" Irwin M. Stelzer is a contributing editor to The Weekly Standard and director of regulatory studies at the Hudson Institute...

...Now that stock prices have headed south—a direction many investors and traders have never heard of—and consumers have accumulated rather high credit card and other debt, these imbalances may no longer be sustainable...

...Free trade, as any economist will tell you, increases the prosperity of both importing and exporting countries...

...And a Fed chairman, with the support of his board, can reduce interest rates, but he can't force businessmen to invest— and they won't if they see the returns from such investments as inadequate to compensate them for the risks they are taking...

...Clinton had an opportunity to defuse both of these ticking time bombs...

...The result has been a huge de facto tax on American consumers just as the economy is slowing...

...pledge so as to tame the budget deficit...

...And the cars...

...and a hyperactive Jimmy Carter introduced America to the concept of stagflation, with a combination of regulations, hair-shirt pessimism, and mistaken policy reactions to an oil embargo...

...A laconic and inactive Calvin Coolidge presided over a period of enormous and prolonged prosperity...

...obviously, other forces are at work (the argument that Greenspan is responsible for this roller coaster by keeping interest rates too low for too long, and then raising them by too much for too long is one that I leave to economists who think that they can separate the effect of interest rates from other factors affecting economic performance...

...As economies grow, an important constraint is the size of the work force...

...Abandoning the do-very-little attitude that characterized his administration for its first seven years and nine months, the president has emulated Jimmy Carter and added 29,000 pages of new regulations to the Federal Register by a stroke—several strokes, actually—of the executive pen in the last 90 days in which it has been his to wield...

...By the very modest standard known to physicians as "first, do no harm," the Clinton presidency must be regarded as an economic success: At the very least, fairness compels even his critics to acknowledge that Bill Clinton did nothing to interfere with the growth of the economy during his eight years in the White House...

...There are new regulations on smoke and soot pollution that will weigh heavily on manufacturers...

...Put that courageous fight in the president's plus column...

...The president is justly famous for ignoring the long-term consequences of consuming Big Macs in pursuit of the short-term pleasure of their consumption...

...companies—or entire companies...

...new "ergonomic" rules aimed at repetitive stress disorders that will bedevil the office-based service industries...

...if he cannot claim credit for the benign inflation picture, neither did he interfere with the Fed or with international money markets that helped keep interest rates up and the dollar strong...

...But it is to say that his power may be more to interfere with economic growth than to stimulate it...

...The president's enemies take a different line...

...Clinton once and for all put paid to any arguments from the left that commodity speculators are evildoers, rather than agents who are justly rewarded for helping to keep demand and supply in balance by buying low and selling high...

...That's the good news...

...But in the end he went along, to the pain of many of his core supporters (including a key member of his household), thereby contributing to the sustainability of the economic expansion by augmenting the labor force...

...if he does not deserve credit for the spasm of innovation associated with the Internet, he certainly deserves credit for not interfering with it by taxation or mistaken policies on intellectual property...

...That is not to say that the president is powerless to influence the economy...

...All this surely contributed to the nation's prosperity...

...There are, first, the twin imbalances that trouble Bush's top economic adviser Larry Lindsey: the savings deficit and the trade deficit...

...Bill Clinton can reasonably claim credit for following the old conservative adage, "Don't just do something, stand there...

...So George W. Bush may not have much to thank him for in the years ahead, but as Bill Clinton rides off into Sunset Boulevard, he will no doubt be exceedingly pleased with himself...

...By doing little, he seems to have done much...

...Less immediately obvious is the cost of the regulations Clinton has imposed by executive order in the waning days of his administration...

...But it does have distributional consequences...

...After all, the president did resist the wilder of the tax-and-spend members of his party...

...A president can push through a tax cut, but he can't force consumers to spend the increased disposable income, and they won't if they fear for their economic futures...

...I leave it to historians to decide who will have the best of this debate, which has at its core a major miscon-ception—that it is the actions of the president that determine the course of the American economy...

...The conversion of record deficits into record surpluses is owed to economic growth that came from Silicon Valley, not Pennsylvania Avenue...

...BY IRWIN M. STELZER BILL CLINTON came to Washington riding the early stages of a recovery from a mild recession, and he leaves at what appears to be the end of the phenomenal era of economic growth that characterized his eight years in office, during which the real net worth of American households increased by upwards of $10 trillion...

...And it is they and their congressional allies whom Bill Clinton took on in a battle that he well knew would win him few friends and gain him many enemies...

...Add a brilliant performance by Federal Reserve Board chairman Alan Greenspan to the mix, and you have a record period of economic growth that occurred in spite of Clinton's overt and covert tax increases...

...To blame them for the fall would be to give them credit for the rise...

...Finally, there are those twin testimonials to Clintonian short-termism...

...even new restrictions on fishing and a set-aside of huge tracts of land and sea to prevent their development...

...It would seem to any Clinton partisan only fair to conclude that the man who promised to focus on the economy brought prosperity with him, and that the prospect of his departure has so unsettled financial markets that this period of sustained growth is now ending...

...The nation as a whole has been spending more abroad than it is earning there, paying for this import spree by sending dollars abroad to foreigners who use them to buy shares in U.S...

...So, too, with Social Security and Medicare: The long-term consequences of a pay-as-you-go Social Security system and a method of health care financing that cannot possibly cope with changing demography and medical technology have both been ignored...

...Nixon's restlessness led him to impose price controls that contributed to two consecutive years of negative growth...

...In America, free trade shifts income from producers to consumers, from those who once made sneakers in this country to those who now buy the sneakers produced more efficiently overseas...

...It is these casualties who form the core of an important constituency of the Democratic party...

...if he cannot claim credit for the surge in stock prices that has recently ended, he at least allowed wealth accumulation to become respectable by avoiding demagogic attacks on "malefactors of great wealth...

...he did end the welfare system as we knew it and fight important constituents of the Democratic party to push through NAFTA and other trade-opening agreements...

...In short, the party may be over, and the check is being presented to someone who wasn't even there...

...he gave Treasury secretary Robert Rubin a free hand in containing a series of financial crises that might have put enormous pressures on the banking system...

...bad news for some workers, who know darned well that they are the casualties of a free trade regime...

...to spending restraints imposed on the president by Republicans in Congress...

...an interventionist FDR needed a war to help him end large-scale unemployment...

...If he was not responsible for the turnabout in the nation's budgetary fortunes, he did nothing to prevent it...

...Bush might persuade Congress to reverse these and other measures, but the even balance of the Congress and the press of other matters makes that unlikely...

...Throw in his refusal to cut taxes that now account for a record share of national income, and his recent squandering of the projected-but-not-yet-earned surplus on new programs that will become increasingly costly, and you have a prescription for slowdown if not recession...

...instead, he chose partisan attacks on anyone willing to question the sustainability of these benefit programs...

...Good news for consumers, many of whom don't realize that they are the beneficiaries of NAFTA and similar agreements...

...Another problem that Clinton will be leaving behind is the risk to both economic growth and foreign policy independence created by the resurgence of the OPEC oil cartel...

...Falling stock prices may cause consumers to rein in spending, and overseas investors to dump dollar assets as they hunt for greener pastures...

...It was a mixed record—a combination of creative inaction and inadvisable action—but not bad for the first Democratic president since Jimmy Carter brought the economy to its knees...

...True, welfare reform was in some sense thrust upon the president by congressional Republicans...

...and to the peace dividend resulting from President Reagan's success in toppling "the evil empire...

...In appraising the economic consequences of the Clinton presidency, or indeed of any presidency, we must start with the fact that the power of the White House to influence the economy is limited— and not only by the need to secure the acquiescence of Congress...

...Then there is welfare reform...

...And did nothing to persuade Kuwait that pulling Uncle Sam's beard might turn out to be as bad an idea as pulling on Superman's cape...

...Both Clinton and Greenspan held office during the phenomenal rise of the Nasdaq—and during its recent plunge...

...That era is coming to an end, say Clinton's critics, partly because the president allowed the antitrust division of his Justice Department to threaten that engine of technological change and innovation, Microsoft...

...His administration watched Mexico breathe life into OPEC by arranging an alliance between Venezuela's new president, a Castro-sound-alike, and the Saudi royal family...

...Plus, Mrs...

...And the T-shirts...

...Indeed, one can go further and say that Clinton did many things that contributed to the longest and greatest period of wealth creation the nation has ever seen...

...Welfare reform, with its greater emphasis on work requirements, forced many who previously were not in the market for jobs to find them, easing the labor supply shortage and the upward pressure on wages...

...Indeed, the power of the Federal Reserve is also less than many people believe...

...The not-so-good news is that the Clinton era saw the hatching of several chickens that are going to come home to roost in the Bush White House...

...And of course Arab oil-producing nations once again have a tool to influence this country's Middle Eastern policy...

...Americans have been spending as much as, and sometimes more than they earn, counting on rising house and stock prices to add to the asset side of their balance sheets...