For One U.S. President, Deficits Mattered
In his 1992 campaign for president, Bill Clinton called for federal investments to revive the U.S. economy. But soon after he was elected, he had to change course, when it turned out that the budget deficit was far higher than projected. The ensuing battle over his first economic plan would define the rest of his presidency. Here are excerpts of interviews my colleagues and I conducted with Clinton administration officials for my book, "Inside the Clinton White House: An Oral History."
Robert Rubin, National Economic Council director: [During] the campaign, the so-called twin deficits, the fiscal deficit and the deficit in public investments, [were] all fit together into one program that eventually wound up in that little booklet "Putting People First." … [W]hen they got all finished with it, they had room for a vigorous public investment program, a middle-class tax cut and deficit reduction....
It was only after the election, when [budget director Richard] Darman put out that last set of projections … and greatly increased … the deficits, that we had to go to President, or President-elect, actually, Clinton, and say we have to reconfigure this thing because the configuration you have is based on numbers that no longer are applicable. That’s when . . . he had to give up his middle-class tax cut and he had to scale back his spending.
Mack McLarty, White House chief of staff: Bob Rubin called me … probably early to mid-December… [He] sounded like a Houston Space Center announcement. “Mack, we have a problem.” And the problem was the deficit had been forecast at one level, and it was actually $60 to $80 billion higher…. And all of a sudden, all of these assumptions which had been relatively valid … in the campaign were suddenly not workable. And so it meant you were either going to have to raise more taxes or make deeper spending cuts….
Alan Blinder, Council of Economic Advisers member: The only questions were -- because after all this was root-canal politics -- whose ox you are going to gore, how much, how, and what's plan B…. I'm the one who warned him … that if things go wrong, what you'll probably have is a recession about the size of the one that George Bush experienced…. I mean, he was aware there were hazards here, that if we didn't get the bond market rally, if we didn't get cooperation from the Fed -- and the Fed, remember, is very independent and Alan Greenspan was not known to be a Democrat -- if that didn't happen, there was a hazard that you raise taxes and cut spending and the economy is not that strong anyway, and you wind up with a recession.
Mack McLarty: Let me just assure you, the first 100 days … [we] spent countless hours in that Roosevelt Room, going over the economic plan, line by line…. President Clinton knew that budget. He wanted to have his imprint on it, he wanted to discuss -- not every issue -- but he wanted to be sure it reflected his priorities…
He would say, “Now, Mack, that would just be like Jonesboro.” And I never will forget, [Treasury Secretary] Lloyd Bentsen would look like, “Where is Jonesboro? What are you talking about?” It was [Clinton’s] way of saying, “I want to be sure I understand this, the decision we’re making here, and what impact it’s having. And are we going to get a return on this dollar? And is it really needed?”
Alice Rivlin, deputy director of the Office of Management and Budget: One of the things that struck me very much at the time was how much [Clinton] knew, in enormous detail, about programs that affected states, and particularly that affected a small, poor, agricultural state like Arkansas. If we were talking about food stamps or Medicaid or some kinds of fairly esoteric agricultural programs that I didn’t know much about, he knew all about it. So we’d go down these lists and talk about, “Can we cut this, can we cut that?”…
Roger Altman, deputy Treasury secretary: The vote [on Clinton’s 1993 economic package] was really the most dramatic moment I ever experienced in six and a half years of government service. … The House voted first, and on the day of the House vote we didn’t think we had the votes, or at least we thought the odds were too high that we would lose. … [Clinton] knew that if we lost this vote it was a severe blow. So he was frantically calling members of Congress as various requests came in for him to do so. The number of possible votes at that stage had dwindled down to a tiny number, votes that were undecided.
I recall speaking about 20 minutes before the vote to [Representative] Marjorie Margolies-Mezvinsky (D-PA), with whom I had developed a friendship, and it became evident to me that she was very reluctant but willing to vote for the bill. I put the president on the phone with her and, of course, she cast the decisive vote… [For her], it turned out to be the equivalent of walking the plank.
The president said to me at one moment when we were alone, and with great heat, “Roger, you see, there’s no constituency at all for Wall Street economics,” which is how he viewed his plan, that he’d sold himself to Wall Street and you see there’s no constituency for that because we’re about to lose.
Anyway, then Secretary Bentsen and I repaired to the little study off the White House, … watching [the vote] on television, mostly in silence. Then Marjorie made her famous walk to the well, with the Republicans serenading her, “Bye, Bye Marjorie.” But if there’s a more dramatic moment that one can have in government service, at least if you’re working in some sort of economic capacity, I can’t think of it…. I think history will probably record that as the most important achievement of President Clinton’s overall presidency, not the vote itself of course, but the ultimate effects of it.
George Mitchell, Senate majority leader: Every single … Republican voted against it and almost all of them said that if Clinton’s budget passed, interest rates would go up, unemployment would go up, the economy would tank, job creation would go down, inflation would rise. In other words, what they said is all the bad things would go up and all the good things would go down. And of course as we all know, the opposite happened. All the good things went up, and all the bad things went down. They were 100 percent wrong.
Roger Altman: One of the many stunning things about [that vote] is the fact that none of those Republicans paid a price of any kind for that… [Senator] Phil Gramm (R-TX), I’ll never forget, predicted that it would usher in a new depression -- I mean depression, not recession. He voted against it; we had a boom -- he never paid a dime’s worth of price for that.
Alice Rivlin: I think there were multiple causes for the boom of the 1990s. … By the mid-1990s we were able to take advantage of the potential of information technology for increasing productivity, and the economy just took off. The increase in the rate of productivity increases is what is really significant here.
But I think policy helped…. We finally got the budget deficit coming down and very low interest rates, or interest rates coming down, and by the end of the decade very low.
The Federal Reserve helped, I think, considerably. Monetary policy worked out well in this period. The Fed slowed the economy down in '94, when they thought there was some danger of inflation, then reversed in '95.
But then I think there's another set of things that were enabling conditions. We'd had a long series of policies that deregulated the economy in various dimensions, increased its competitiveness -- trade, culminating with Nafta, and deregulation of airlines, and a lot of other things, trucking. And then, even going back to the '80s, the restructuring of American industry in the '80s under the threat of Japanese competition and the high dollar, which was very punishing at that point, and really decimated the Rust Belt. They had to restructure in a major way.
…So it all came together in the '90s: the technology, the good policy, the readiness of American industry to take advantage of it. Also a new business ethos, much more competitive and aggressive -- it had become normal to re-engineer your company and try to be more efficient. This was kind of revolutionary stuff in the late '80s. By the '90s, it was what business people did.
Henry Cisneros, secretary of Housing and Urban Development: [The] deficit reduction strategy … was the greatest success of the Clinton administration. That is to say, it created the conditions in which all the other successes of the Clinton administration could go forward.
The longest expansion in American history, record job formation, record business formation, declines in poverty rates, lowest minority poverty rate since statistics were compiled in the 1960s, actual reduction in the gaps in distribution and income, highest home ownership rate in American history. Social indicators improving, including educational dropout rates, teenage pregnancies. All of that based on general prosperity, which was a result of the deficit reduction strategy.
This is the third of three excerpts from “Inside the Clinton White House: An Oral History,” which will be published by Oxford University Press in October. Read the first and second parts here and here.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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