Nov. 7 (Bloomberg) -- Retired American presidents are like ex-spouses: You often wish they would just leave you in peace.
The sense of embarrassment can run deep with Bill Clinton, the wonk-in-chief who dallied with Monica Lewinsky and pardoned Marc Rich. So I felt some trepidation when asked to appraise “Back to Work,” Clinton’s useful yet tainted prescription for how the U.S. can create jobs for the future and pay off its $15 trillion in debt.
Clinton argues that the U.S. lost its way in the past 30 years because voters became convinced that all the nation’s problems are caused by government -- “by taxes that are too high, bureaucracies that are too big, regulations that are too costly and intrusive.” The upshot was an era of deregulation, rising inequality and financial irresponsibility that culminated in the housing bubble.
“Almost all our economic growth was fueled by home building, consumer spending and finance, all based on easy credit and heavy leverage,” he writes. “We lost manufacturing jobs every year.”
That quotation echoes dozens of books on the crisis, by authors across the political spectrum. Yet Clinton’s argument suffers from two troubling facts. One is that he occupied the White House for eight of those 30 years and contributed to the mortgage binge and deregulation he now derides. The second hitch is that Americans had good reason to believe Ronald Reagan when he made the famous antigovernment assertion that transformed the U.S. political debate.
“In this present crisis, government is not the solution to our problem,” Reagan said in his first inaugural address in 1981. “Government is the problem.”
The crisis of the day was the Great Inflation, the wage-price spiral that drove U.S. inflation from negligible levels in the mid-1960s to double digits in the early ‘80s. That episode, far from being an accident, arose from a well-meaning attempt by successive governments -- Democratic and Republican alike -- to keep the economy permanently near full employment, as Robert J. Samuelson says in “The Great Inflation and Its Aftermath.” Government was a problem, however tempting it is to pin all the blame on the 1970s oil embargo.
Clinton does put his finger on a deeper dysfunction that warps U.S. politics and economics to this day. For all our antigovernment bluster, we Americans never really wanted less government spending; we just wanted lower taxes. The Reagan administration thought it could force reductions in domestic expenditures by cutting taxes; it soon discovered that both parties wanted to keep spending. The result: “They simply borrowed the money to do it,” Clinton writes. The age of large, permanent deficits was born.
As you might expect, Clinton trumpets his own efforts to eliminate the deficit with the Balanced Budget Act of 1997. Never mind that deficits were already shrinking by 1997, thanks partly to the tech boom. The more troubling issue is that income inequality surged during the Clinton years, with the share of national income going to the richest 1 percent of Americans climbing to 15-19 percent in the late 1990s, as Clinton’s former secretary of labor, Robert Reich, says in his book “Aftershock.”
As wages stagnated, most U.S. workers struggled after 1980 to maintain a middle-class lifestyle. The response of politicians on both sides of the aisle was “let them eat credit,” as University of Chicago economist Raghuram G. Rajan puts it.
Though Clinton hardly started this trend, he did contribute to it. Consider his aggressive enforcement of the Community Reinvestment Act and his enthusiasm for James A. Johnson, the Fannie Mae chief executive officer who committed himself to spending $1 trillion on affordable housing.
This was, of course, an extension of a bipartisan homeownership drive stretching back to Herbert Hoover’s days. So we might excuse Clinton for succumbing to the craze. We might even give him a pass for killing what was left of Glass-Steagall, the Depression-era act separating commercial and investment banks. (He himself says CRA loans, some of which went to small businesses, didn’t trigger the meltdown. As for Glass-Steagall, he argues that Federal Reserve rulings starting in the 1980s had already removed restraints on big banks wishing to engage in both activities.)
What’s impossible to ignore is his administration’s onslaught against Brooksley Born, the head of the Commodity Futures Trading Commission who dared to suggest increased supervision for over-the-counter derivatives. Clinton’s excuse for not trying harder to regulate derivatives? The Republicans wouldn’t let me.
“I couldn’t have done anything about it, because the Republican Congress was hostile to all regulations,” he says.
Really? Were all the president’s men, including Treasury Secretary Robert Rubin and his deputy Lawrence Summers, obeying Republican orders when they savaged Born’s modest proposal?
This book presents page after page of intelligent suggestions on how the U.S. can cut its crippling debt, create new jobs and get “back into the future business.” I found much to agree with, notably Clinton’s proposals for debt forgiveness for the almost one quarter of U.S. mortgage borrowers who owe more than their properties’ values -- an idea gaining support among many economists and investors.
I share Clinton’s frustration with ideologues who say the answer to every problem is less government. It’s not: Consider the Marshall Plan or Dwight Eisenhower’s Interstate Highway System. I just wish Clinton didn’t pretend he had nothing to do with the double bubble that ended in the Great Recession.
“Facts,” said John Adams, “are stubborn things.” Even for a nimble thinker like Clinton.
“Back to Work: Why We Need Smart Government for a Strong Economy” is published by Knopf in the U.S. and Hutchinson in the U.K. (196 pages, $23.95, 16.99 pounds). To buy this book in North America, click here.
(James Pressley writes for Muse, the arts and leisure section of Bloomberg News. The opinions expressed are his own.)
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