(‘76 Contributor) Beyond the realm of inconvenient truths, there’s a dimension to which Bill Clinton occasionally retreats. It’s a dimension of fertile imaginations, sound bites and mind games whose boundaries the gullible determine. In this wondrous land, tokes aren’t inhaled, sex with interns isn’t sex, and the meaning of “is” isn’t always is. When Clinton wags his finger to punctuate a claim, like “no president — not me or any of my predecessors — could have repaired all the damage in just four years,” it’s his poker “tell.” Next stop: the Twilight Zone.
Ironically, the president who rode to victory in 1992 on the theme “It’s the economy, stupid” now suggests it’s stupid to examine the 39-month-old economic recovery, which, we were promised, would yield 4 percent gross-domestic-product growth and 5.6 percent unemployment — not the current 1.6 percent and 7.8 percent, respectively. Before crossing over to the land of suspended disbelief, Think Again.
In fact, until now, all presidents over the past 75 years have performed better. As Milton Friedman observed, and a November 2011 Federal Reserve study verified, the worse the recession — even when caused by a financial crisis — the stronger the recovery, absent bad government policies like those that prolonged and deepened the Great Depression.
Despite record levels of stimulation that exploded government spending to 25 percent of GDP (up from a 60-year 18 percent average) and four consecutive years of trillion-dollar deficits, an Associated Press study concluded that this is “the feeblest economic recovery since the Great Depression. … People who have jobs are hurting: Their paychecks have fallen behind inflation.” Consequently, income inequality has materially worsened, and as Vice President Joe Biden noted recently, “The middle class has been buried the last four years.”
The annals of post-World War II economic recoveries show Biden is right. Never before have Americans suffered such poor prospects nor sought such refuge in safety-net programs. When counting the millions of discouraged Americans no longer in the labor force, true unemployment is 14.7 percent. Meanwhile, median household income has dropped nearly 5 percent amid exploding gas and food prices. Not surprisingly, a record number of Americans now claim federal disability checks and food stamps, up nearly 20 and 44 percent, respectively.
President Reagan inherited the other “worst” post-World War II recession and, unlike the most recent, had to contend with double-digit inflation and interest rates in addition to double-digit unemployment. By this point in his presidency, Reagan’s pro-growth policies had unleashed the economy, resulting in 7.1 percent unemployment, rising median incomes and 11 percent GDP growth.
Most importantly, Reagan’s work with Democratic House leader Tip O’Neill to implement historic tax, Social Security and immigration reforms — and Clinton’s collaboration with Republican House leader Newt Gingrich to reduce government spending, lower taxes on investment, implement “consensus deregulation” and reform welfare — fueled the greatest economic boom in world history, from 1982 to 2007. As business investment grew, so did the job market and the number of Americans paying taxes, confirming what President Kennedy said “is a paradoxical truth that … the soundest way to raise (tax) revenues in the long run is to cut (tax) rates now.”
If the current “recovery” had performed merely as well as the average of all post-World War II recoveries, current U.S. GDP would be $1.2 trillion larger, and 7.9 million more Americans would have jobs. Americans have been denied this prosperity because of unprecedented levels of government spending, job-killing regulation and crony capitalism — partisan policies that large majorities of business leaders in two recent surveys (Business Roundtable and National Federation of Independent Business) say hurt them.
That 55 percent of small business owners surveyed wouldn’t start their businesses today reflects a lack of confidence in the economy’s future, imperiled as it is by $16 trillion in debt (up 50 percent since January 2009), a sum larger than the U.S. economy. When interest rates increase from historic lows, larger interest payments will necessitate draconian budget cuts and increased taxes. Absent rapid GDP growth to bring debt-to-GDP levels down to manageable norms, Americans can’t be confident in a future that holds only two unacceptable alternatives — substantial tax increases or sustained inflation.
As the president who declared the era of big government over, Clinton understands our perilous fiscal state. Were he to emerge from the Twilight Zone, he’d agree that government spending should be capped at 20 percent of GDP — the average during his presidency and a Romney campaign promise. He’d be opposed to increasing taxes in a fragile economy, as President Obama proposes. Most important, he’d be appalled at the lack of leadership evident in Obama’s budget — no plan to address the looming fiscal crisis and trillion-dollar deficits into oblivion.
Think Again — outside the Twilight Zone, it’s the pro-growth policies, stupid!
Melanie Sturm lives in Aspen. Her column runs every other Thursday. She reminds readers to Think Again. You might change your mind. Melanie welcomes comments at email@example.com.