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Clintonomics (a portmanteau of Clinton and economics) refers to the economic policies of United States President Bill Clinton during the 1990s. Clinton assumed office at the tail end of a recession, and the economic theories he utilized and implemented are claimed by his supporters to have eventually led to a strong recovery, though Clinton's opponents deny this.

The strategy was outlined in the following three points:

Historical background

During the 1992 presidential campaign America had undergone twelve years of conservative policies implemented by Ronald Reagan and George Herbert Walker Bush. Clinton ran on the economic platform of balancing the budget, lowering inflation, lowering unemployment, and continuing the traditionally conservative policies of free trade. In 1992, Bill Clinton was elected president of the United States of America. During Clinton’s presidency (1993 to 2001), the economic policies he put into place for the U.S. were termed Clintonomics. Five years earlier, before Bill Clinton began his presidency, the stock market dropped significantly. This day was named Black Monday. Clinton inherited Alan Greenspan as Chairman of the board of Governors.

Monetary policy

Clinton had the celebrated economist Alan Greenspan as the Chair of the Federal Reserve’s board of governors throughout his presidency; he also appointed two widely considered “moderate advocates of tight money, Alice Rivlin and Laurence Meyer.” (A New Democrat, 399) Other appointments to the central bank perpetuated this trend of moderates in other nominations.

The effects of this policy of appointing tight money proponents to the Fed are depicted in the Bureau of Labor statistics figure 1 depicting the consumer price index change or inflationary rate which determines the amount of money on the market (See Figure 1).

According to the graph the CPI stabilized during the 1990s at a fairly low rate never going above 5 percent during the Clinton presidency. Which some would say is the result of the Presidents appointment of tight money proponents onto the Fed’s board. This strategy may have greatly contributed to the stabilization and lowering of the rate of change in CPI or the rate of inflation. Which lead to a huge growth in the “Dow Jones Industrial Average from 3255.99 in January 1993 to 11500 in early 2000”( A New Democrat, 399) However it may also have contributed to the expanding of our trade deficit (Exports – Imports) as shown by the graph of percentage change in Economic growth (red line) to balance of trade (blue line) (See Figure 2).

From 1996 to 2000 a steady growth of the trade deficit from -100 Billion dollars to an all time low at the time of nearly -400 billion in 2000.

President Clinton was relatively hands off in this department only asking to tighten or loosen money three times each in eight years in the White Housemarker (A New Democrat) a possible explanation for this is that the Fed had the same sort of ideas that the president’s council of economic advisers believed in, therefore there was not very much discord. Evidence for this is the fact that most of his requests were made during the beginning of his presidency (A New Democrat) presumably before he got his appointments onto the Board.

Regulatory policy

The only laws that could be considered deregulation according to John Burns and Andrew Taylor’s article A New Democrat are The Telecom Reform Act of 2/8/1996, which dispatched the ownership restrictions on radio and television, “agriculture and the pesticides legislation of 1996 and the Food and Drug Administration overhaul of 1997.” (400) which were all signed into law by President Clinton. According to the same article the considerable regulation passed by the congress consisted of The Family and Medical Leave Act of 2/5/1993, which made paternity, maternity and medical leave available, The Minimum wage Increase Act of 8/20/1996 which raised the minimum wage and let states set it even higher if they wished. Also passed during his tenure the “California desert protection, direct lending of educational financial aid, health insurance portability, and safe drinking water legislation.”(400) Clinton wasn't a clear departure from the previous two administrations of Reagan and Bush as there were several deregulation laws introduced into law.Most notably in 1999, Clinton signed the Financial Services Modernization Act, which allowed banks, insurance companies and investment houses to merge. Some point to this as a cause of the financial meltdown of 2008.

Fiscal policy

Clinton signed the Omnibus Budget Reconciliation Act of 1993 into law. This act created a 36 percent to 39.6 income tax for individuals. Businesses were given an income tax rate of 35%. The cap was repealed on Medicare. The taxes were raised 4.3 cents per gallon on transportation fuels and the taxable portion of Social Security benefits were increased. The Taxpayer Relief Act of 1997 reduced some federal taxes. Due to certain phase-in rules, the rate 28% was lowered to 20% in the top capital gains. The bracket that was 15% fell to 10%. In 1980, a tax credit was put into place based on the number of individuals under the age of 17 in a household. In 1998, it was $400 per child. In 1999, it was raised to $500. High-income families had this act phased out. This act took out from taxation profits on the sale of a house of up to $500,000 for individuals who are married, and $250,000 for single individuals. Educational savings and retirement funds were given tax relief. Some of the expiring tax provisions were extended for selected businesses. Since 1998, an exemption could be taken out for those family farms and small businesses that qualified for it. In 1999, the correction of inflation on the $10,000 annual gift tax exclusion was accomplished. By the year 2006, the $600,000 estate tax exemption had risen to $1 million dollars.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 had a “fundamental shift in both methods and goal of the federal cash assistance to the poor.” Temporary Assistance for Needy Families (TANF), Aid to Families with Dependent Children (AFDC), the Job Opportunities and Basic Skills Training Program (JOBS) were among the organizations of this act. The spending was $22.6 billion, in 1995. This bill was followed with reduction of unemployment. The federal budget is the combination of both the U.S. taxes and spending. During Clinton’s presidency, these acts had brought the economy out of its deficit and into a surplus.

This has affected the economy in that the balanced budget and even more the surplus increased investor confidence in the economy, leading to an increased amount of investment, especially in the stock market. This change is exemplified by the dramatic increase in the Dow Jones industrial index.

Macroeconomic policies

Bill Clinton’s macroeconomic policies of his presidency can best be looked at through three main categories: gross domestic product (GDP), inflation rates, and unemployment rates. The first factor we will examine will be the GDP.

As Bruce Bartlett points out in his article Those Were the Days, Bill Clinton inherited from his predecessor, George H. W. Bush, a deficit of 4.7% of GDP. Although the deficit was not a large priority in Clinton’s initial macroeconomic policy, he made its reduction a higher priority later in his term (Burns and Taylor 393). Among many parts of Clinton’s policy to lower the deficit, he allowed for the passing of laws that raised the money in the US Treasury (Burns and Taylor 395). Clinton also, as Bruce Bartlett pointed out in the same article, cut federal spending and also raised taxes of the rich to lower the deficit.

The pursuit of low inflation rates was another large aspect to Bill Clinton’s macroeconomic policies. He, unlike most other post-war Democrats, worked to keep the inflation rates low, and succeeded (Burns and Taylor 389). The mean inflation rates of Bill Clinton were at 2.3%, which are low when considering the fact that that is about half of the rates of Republican Presidents (Burns and Taylor 389).

Lower unemployment rates were another large part of Clinton’s macroeconomic policies. Many argue that Clinton cost many Americans jobs because he supported free trade, which some argue caused the U.S. to lose jobs to countries like Chinamarker (Burns and Taylor 390). Even if Clinton did cost Americans some jobs because of free trade support, he allowed for more jobs than were lost because the unemployment rate of his presidency, and especially his second term, were the lowest they had been in thirty years (Burns and Taylor 390).

Macroeconomic effects

The easiest way to look at the macroeconomic effects of Clinton’s presidency is to look at three main points: gross domestic product (GDP), inflation rates, and unemployment rates.

Clinton took the deficit of 4.7% of GDP in 1992 and turned it into a surplus of 2.4% of GDP in 2000 . Federal spending fell to 18.4 percent of GDP. in 2000 from 22.2 percent in 1992 . Although Clinton raised taxes in 1993, he cut them in 1997 .

Clinton also lowered inflation rates down to 2.3% . Democratic presidents had an average of about double that rate, and Republicans had even higher rates (Burns and Taylor 389). This lowering of interest rates contributed greatly to the good economic health exhibited during Clinton’s presidency.

The average unemployment rate of Democratic presidents, excluding Clinton, is currently about 4.3% while the average unemployment rate for Republican presidents is currently at about 6.1% (Burns and Taylor 390). Bill Clinton’s policy achieved a thirty year low in April 2000 with an unemployment rate of 3.9% (Burns and Taylor 390).

A comparison of all post World War II unemployment rates can be observed in Figure 2. Clinton lowered the US unemployment rate significantly throughout his entire presidency, and lowered it much more than other presidents did (Burns and Taylor 391). This low rate reflects the healthy economy of Clinton’s Presidency because, as most economists agree, unemployment rates tend to be low in times of economic growth periods. We can see through a simple correlation that Bill Clinton’s economic policies promoted a healthy economy and, as a result, had lower unemployment rates (See Figure 5).

Criticisms of Clintonomics

A major criticism, as Bruce Bartlett points out in his article Clinton Economics, is that Clinton should have done more to better the US Social Security Program. Bruce Bartlett says that Clinton was able to achieve a budget surplus during his presidency, but “…he chose to sit on [the surplus] rather than use [it] to fundamentally restructure Social Security”. Bartlett continues by saying that by restructuring Social Security, Clinton would have both benefited the nation as well as his party. He would benefit his party by using up money that the Republicans would use for drastic tax cuts, something the Democrats would not completely agree with.

The BBC internet article entitled Bill Clinton’s Economic Policy also supports the criticism made by Bartlett. The BBC points out that although Clinton helped US Social Security in the short run by putting away some government money for it, he did very little for the program in the long run. The BBC says that Clinton failed to make significant changes to the Social Security Program and because of that, the changes will all be left up to George W. Bush, the president after Clinton.

Another criticism shared by most economists was that Bill Clinton, by creating the North American Free Trade Agreement (NAFTA), made it cheaper for manufacturing companies to outsource their jobs to different countries, especially Mexicomarker, then export their product back to the United States. This policy, combined with the increase in minimum wage, caused a significant decrease in the amount of unskilled jobs in the United States. This trend continues even today in other sectors of the economy.

Some liberals and progressives believe that Clinton did not do enough to reverse the trends toward widening income and wealth inequality that had begun in the late 1970s and became especially pervasive during the 1980s. The marginal income tax rate was 70 percent in 1980 but was lowered to 28 percent by 1986; in 1993 it was raised to 39.6 percent but remained far below pre-Reagan levels. Clinton's administration also afforded no benefit to unionized labor nor did it favor strengthening collective bargaining rights. As a result the distribution of income in the 1990s did not become more equal.

See also


Image:US Consumer Price Index Graph.svg|Figure 1



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