The economic worries of 1992 helped elect Mr. Clinton, of course. And by the end of the decade, thanks to both his policies and a huge stock market bubble, the American economy was roaring along again. The deep anxiety of 1992 seemed to be a piece of economic history.
No more. Almost 16 years after Mr. Clinton’s speech at Wharton, the economy is again dominating a presidential race. While the details have changed, the main story line remains remarkably similar. A downturn has reawakened fears that the economy no longer works very well for the middle class.
Today, as was the case 16 years ago, the downturn itself isn’t the main problem. By 1992, as a matter of fact, the economy was already growing again. This year, it’s still possible ”” if less likely after Tuesday’s dismal retail sales report and another sharp decline in stock prices ”” that the country will avoid a full-blown recession.
The main problem now is that the good times are no longer good enough to carry the middle class through the bad times. For much of the last 35 years, the incomes of most workers have been growing far more slowly than they once did. In the current expansion, which started in 2001, the median weekly paycheck of workers has actually fallen 1 percent, once inflation is taken into account, according to the Labor Department.
Economists argue about the reasons for the great wage slowdown ”” technology, globalization, health care costs, the decline of unions, the rise of the new wealthy ”” but it clearly seems to have made people feel more vulnerable to small economic swings. In the latest New York Times/CBS News poll, only 19 percent of those responding said the country was headed in the right direction. That was the lowest percentage since the early 1990s.
Read it all. Note that the title above is that given by the NYT on its front page to this article, the article itself in Wednesday’s paper is entitled “A Revival of 1992’s Glum Mood.”
Thanks to his policies? Excuse me, but most businessmen and economists I know note that he was blocked by the Loyal Opposition. I guaranty that if Bill and Hillary had had their way (Hillary’s Healthcare Reform) the outcome would have been far different.
Yes, the mid 90’s were a time of remarkable economic growth. Not only that, we had phenomenal growth with little to no inflation! How is that possible?
It seems to me that the way to have growth without inflation is to increase productivity without increasing expenditures (more manpower, more factories, etc.). How did that happen?
Well, the internet happened. The only kudos that go to President Clinton is that he did not squash the internet (by taxing email, let’s say.)
I’ll only give Clinton credit for what he didn’t do. But what he didn’t do was significant.
President Clinton’s policies were the key to the balanced, sustainable, noninflationary growth of the 1990s. By quelling fears of future inflation, his policies quelled fears of future inflation and thereby lowered long-term interest rates and promoted productive investment.
Clinton took office in 1993 pledging to cut the federal deficit in half within four years. He persuaded the Democratic-controlled Congress to enact a package of spending cuts and tax increases designed to achieve that goal. This was not an obvious or politically popular step to take. The economy was still very weak. We know in hindsight that the recession had ended, but recovery was not obvious at the time (and when economists ultimately did verify it, they called it a “jobless recovery”).
Every single Republican in Congress voted against Clinton’s budget package. Republican leaders repeated likened the budget to the 1930 Smoot-Hawley Tariff Act, which deepened the Great Depression. The budget squeaked through the House of Representatives by one vote.
But the results validated the Clinton-Rubin position: that slashing the deficit—and thus allaying fears of inflation—would lower long-term interest rates and thereby promote investment and sustainable economic growth.
That is exactly what happened. Inflationary fears raise real interest rates and also encourage people make nonproductive investments in gold, collectibles, and other tangible assets. High interest rates discourage equity investment. Why take the risk of buying stock—including stock in start-up technology firms—if you can make a big, safe profit buying government or blue-chip corporate debt? Clinton’s policies effected a huge, lasting reduction of long-term interest rates and inflationary expectations. Those policies also drove down the price of gold. (I sure which I’d bought gold mining shares back then; since Bush took office they have posted a compounded return of some 30% a year.)
Clinton also played a decisive role in restraining tax cuts by the Republican Congress. For Republican leaders like Gingrich, Armey, and DeLay, fiscal responsibility took a sorry second place to tax cuts. Those Republicans settled for deficit reduction because Clinton wouldn’t let them fund tax cuts for the affluent by running up the debt saddled on future generations.
Clinton was the key. He stood for budget balance at a time when many said it didn’t matter or couldn’t be done. If you look at the budgets enacted since 1980, you’ll see 11 years of fiscal irresponsibility—the budgets enacted under Reagan, Bush Sr., and Bush Jr. You’ll also see 8 years of fiscal responsibility—the budgets enacted under Clinton. Remarkable coincidence, eh?
In the first paragraph of my comment #3, make that:
“By quelling fears of future inflation, his policies lowered long-term interest rates and promoted productive investment.”
I think #3 is essentially right, though I think the gridlock that followed the ’94 elections was probably more than a little responsible for keeping the deficits down in later years of the Clinton administration. As we now know, neither party exhibits more than a fleeting interest in that when they are fully in control.
Still, the most troubling aspect of all this angst is the idea that we are to live pain-free lives – including fiscal pain.
I think that we are setting ourselves up for even more serious problems.
I am not bashing the middle class, and I agree that there are real issues of substance that are weighing on their ability to build secure lives, including the loss of manufacturing jobs, spiraling home prices, etc.
But before we anoint the middle class as some kind of put-upon victim, I want to comment on the notion that the “good times” are no longer good enough to help the middle class make it through the “bad times.” I do not think that is true at all. The middle class today is fundamentally unwilling to delay gratification, to save, to distinguish between wants and needs, to make do with a few luxury items instead of many, etc. Our savings rate is abysmal. At the same time, sales of electronic trinkets which become obsolete in 1-2 years is skyrocketing. The average American Christmas now costs $1,800 (see Bankrate.com). American families now *expect* a hefty vacation every year. As a result, the middle class is strapped to the limit even during good times and does not heed the Biblical warning to lay up resources during fat years to carry us through lean years.
Not by way of boasting but by way of example, although I have the resources to have more, my wife and I share one car and still rent an apartment. We think nothing of foregoing a vacation for one year if it makes financial sense to do so, and replacing it with local day trips. We fund our emergency and investment accounts *first*, and then ask what we have left over for iPods and the like. We are constantly asked why we don’t own a house to “build equity.” My response is that as we do not yet have children, we simply don’t *need* all that space. Why have more than a 2 bedroom apartment when we don’t need it? Why pay to heat, cool and insure a house (thereby using more energy and polluting the environment) when we don’t need it? The critical examination of expenditures before they are made, with an eye to distinguishing between wants and needs, is something almost completely lost on the middle class these days.
Also, the rate of inflation is way higher than that reported by the government. Remember the government measures inflation based on the price of a basket of goods. If the price rises, it changes the price of goods. Thus increasing prices for food and energy doesn’t count. Increasing price of college or healthcare doesn’t count. Increasing house prices doesn’t count. (HOuse prices used to count, but when they went up, they were changed to rent prices.). Further, when you get a better model or more pleasure for the same price this counts as “deflation” Thus, a faster computer that costs the same was deflation not stability because you got more out of it.
Look around you. Is it true that inflation is low? When I went to college, a blue collar worker could put 4 kids through college and live in a home kept immaculate by his stay at home wife. The family had health care, vacations at the beach, a car and pensions.
Now that worker has his wife in the workforce, has no pension, unstable health care, vacations camping in a public park, and his kids take out loans and work twenty hours a week, and are hugely in debt when they graduate.
There is inflation. There was inflation during the Clinton term also, when these new ways of measurement became more pronounced.
However, like the meaning of the word “is” inflation depends on how you define it. If you define inflation on the price of a basket containing a pair of socks, a computer chip, and a rubber ball, I guess we are all living in paradise.
#7 — I largely agree with you but it’s become more serious than an unwillingness to delay gratification. The necessities have skyrocketed in price — $4 for a gallon of milk; $1.85 for a dozen of eggs; $1.95 for a bunch of celery; $2.92 for a gallon of gas. These are the prices I pay in the South, which are less than what folks in other parts of the country pay. I cook from scratch because it saves money, but it doesn’t as much anymore.
The prices have been going up in the past year but most people didn’t notice. I’m disabled and my disability check doesn’t go very far so I have to budget carefully and know prices. My budget is seriously strained and those of us on Social Security only got a tiny increase. Mine was $26 per month. Working folks are in the same boat because wages haven’t risen much, certainly not to the degree that all of the basics are costing more.
The problem with renting is you’ll ALWAYS have a monthly payment. My saving grace is I paid cash for my manufactured home and the land it’s on. The property tax is tiny — $20 per month. I could not afford rent or a mortgage payment now that I’m seriously ill and I don’t have to worry about becoming homeless just because I had the misfortune of getting a debilitating disease in the prime of my life. Owning a home provides security like that. I do agree, though, that most Americans buy FAR more home than their needs indicate.
This looming recession is more insidious than that of the early ’90s. We’ve got more factors at play — trillions spent on a war and the “war on terror,” a scary national debt and trade deficit, an incredibly weak dollar, and increasing indebtedness to China. Banks are turning to China and the Middle East for cash infusions. The burst real estate bubble and credit crisis means that folks can’t even sell their homes and move if they need to do so.
So, yes, those who have been living beyond their means are at fault, but the measures they can take to alleviate their situations are disappearing and the basic cost of necessities means they have even less spending power.
“the most troubling aspect of all this angst is the idea that we are to live pain-free lives—including fiscal pain” —DonGander
If we expect the federal government to banish recessions (as Americans seem to have been doing for the past several decades), we will end up protracting unsustainable booms and setting ourselves up for more painful recessions. Recessions are an unavoidable part of free-market economic life. (In a sufficiently stultified market, like that of the old Soviet Bloc, you might avoid economic downturns by having a permanent recession.) Trees don’t grow to the sky. The best the government can do is to adopt steady, responsible policies that promote long-term investment and sustainable growth—and to provide enough short-term liquidity to financial markets so that they continue to function properly.
What else would the “middle class” think? Every day, in every way, the media has been bombarding them with dire predictions, convincing everyone that we are definitely on the way to recession, and/or even depression.
I’m about sick of it! If anyone would stop, think, take a look around and make some comparison between now and the 80s, they would see “depression’, if not monitarily, at least psycological.
I saw a poll once of 20 somethings. The question was, “are you going to be better off than your parents? The overwhelming answer was “NO”!.
Funny thing about that, if they had any idea how their parents made do, scrimped, and saved, they would have know they ALREADY were!
I know that sounds old-fogeyish, but that doesn’t change the facts.
Gloria in SC
It is true that 20 somethings have more “stuff” than we did. I lived in an apartment until I saved my 20% downpayment, lived next to work, and biked or took the bus until I paid cash for my first car (at 28) and even now live in a relatively modest house with my student furniture (which I hope to pay off this year).
However first, unlike 20 somethings, our parents had stable marriages, which meant more familial wealth, and the expectation that the folks would make sure you got through college. Our parents were not saving for retirement, they had pensions, and any savings were extra. My college tuition cost 4,000 dollars, and total residential college was $6,000 in private school. Nowadays the school I went to charges 40,000 and gets away with it. We never worried about health care, they rarely have it.
Yes, the 20 somethings do have cell phones, tv sets, and a variety of toys. However I think this is largely because if you can’t have the good things in life, meaning the knowledge that you can always count on your parents, spouse and employer to make sure you are taken care of, then a wide screen tv set is something of a consolation.
“However first, unlike 20 somethings, our parents had stable marriages, which meant more familial wealth, and the expectation that the folks would make sure you got through college. Our parents were not saving for retirement, they had pensions, and any savings were extra. My college tuition cost 4,000 dollars, and total residential college was $6,000 in private school. Nowadays the school I went to charges 40,000 and gets away with it. We never worried about health care, they rarely have it.”
This is very, very true. If there’s something that’s changed and has affected today’s young people the most, it’s that “very little lasts.” From relationships to consumer goods. My father often told me that he felt really sorry for my generation. In his day, loyalty and longevity in the workplace were rewarded. Now, the most-experienced workers are often let go because “they cost too much.” (Circuit City’s action last year was a vivid example.) Even worse, companies are importing lower-salaried workers from other countries on the special visas or even hiring illegal immigrants.
The economy is based on nothing lasting. Folks move, change jobs, and buy big ticket items frequently. Consumer electronics are much less expensive than TVs and such back in the day but they don’t last as long, either. Or the technology changes and older models won’t work properly, forcing change when it wasn’t even desired.
The pace of change has been accelerating since Europe climbed out of the trough of the Dark Ages, 1200 years ago or so. The literature of the mid-19th century sounds many of the same themes as the last few posts. The real question is how do we meet this ever more rapid change? I wish I knew the answer. But certainly Christ is a big part of the answer, at least for me.
“The economic worries of 1992 helped elect Mr. Clinton, of course. And by the end of the decade, thanks to both his policies and a huge stock market bubble, the American economy was roaring along again. The deep anxiety of 1992 seemed to be a piece of economic history.
No more. Almost 16 years after Mr. Clinton’s speech at Wharton, the economy is again dominating a presidential race. While the details have changed, the main story line remains remarkably similar. A downturn has reawakened fears that the economy no longer works very well for the middle class.
Today, as was the case 16 years ago, the downturn itself isn’t the main problem. By 1992, as a matter of fact, the economy was already growing again.”
The economic fears of 1992 were media driven and did help elect Clinton. Soon after the election came the claims–oops! We were wrong! The econony wasn’t a problem afterall. As for the economic boom Clinton supposedly engineered–presidents get far too much credit when the economy does well and far too much blame when it doesn’t. Much of the good economic times of the 90s were driven by the dot.com mania. People were investing, stocks were climbing–every investor was a genius–then reality struck. Most of the dot.coms never made a profit and never would. Then there was Enron–everybody was making money there (well, except the consumers in California who were paying through the nose). The more recent economic good times were fueled largely by real estate–once again investors in real estate all looked like geniuses–almost everyone was making money–the realtors–the banks–the title companies–the construction companies–the people flipping properties and helping to drive up the costs–then reality hit again–many of the properties were grossly overpriced–now we’re in a mode of correction.