Assessing Economic Expansion (Semi-Vanity)

Joint Economic Committee ^

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The Clinton Administration has argued that economic policies it sponsored in large part "explain" the robust economic performance witnessed in recent years. The 1999 Economic Report of the President, for example, argues that the recent economic successes "are the result of an economic strategy that we have pursued since 1993… Our new economic strategy was rooted first and foremost in fiscal discipline ...the market responded by lowering long-term interest rates."5 The centerpiece of the Administration's 1993 "fiscal discipline" was increased tax rates. These tax increases, or tight fiscal policy, purportedly reduced the budget deficit, and from a Keynesian perspective, lowered aggregate demand by draining spending power. This restrictive (lower budget deficit) policy, in turn, lowered interest rates, thereby eventually stimulating the economy.6 Some argue that this new "tight" fiscal policy was consciously accompanied by an "easy" monetary policy. This explanation has been often repeated by Administration officials in testimony, speeches, or press interviews.

There are a number of problems with this explanation. Some key inconsistencies of the explanation, for example, include the following:

The timing of interest rate movements is decidedly inconsistent with the Administration's explanation. According to the Clinton Administration, the passage of the Budget Act in 1993 was followed by a decline in interest rates. Yet movements in both short-term and long-term interest rates contradict the Administration explanation. First, for example, both long-term and short-term interest rates fell for several years prior to the enactment of the 1993 Budget Act (see figure 11).7 Clearly, these interest rate declines had nothing to do with Clinton Administration fiscal policy. Second, both short-term and long-term interest rates substantially increased rather than decreased after the 1993 Budget Act was passed. Thus, the Budget Act did not cause a fall in interest rates as claimed by the President or other Clinton Administration officials. Moreover, the substantial increase in short-term interest rates after the Budget Act was enacted demonstrates that the Federal Reserve did not adopt an easier policy at that time. Additionally, both short- and long-term interest rates for the most part remained above summer 1993 interest rate levels for years after the Act's passage. In sum, interest rate movements clearly are inconsistent with the Administration's oft-voiced explanation.8

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From a Jan. 2000 report...the whole site is cool...

http://www.house.gov/jec/growth/assess/assess.htm

This one is about economic performance as related to the stock bubble... http://www.house.gov/jec/growth/assess/assess.htm

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"The current expansion was not initiated by Clinton Administration policy. The economic expansion began in early 1991, almost two years before Clinton's inauguration. Clearly, the expansion itself was not initiated by any policy action of the Clinton Administration. "

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-Raising taxes does not promote economic growth without inflation.
-The current expansion began well before the inauguration of President Clinton, and thus could not have been initiated by Clinton Administration policies.
-The budget deficit began contracting well before Clinton Administration policy could have been implemented. Hence, the budget deficit reductions were not initiated by Clinton policy.
-The timing of interest rate movements is decidedly inconsistent with the Administration's explanation.
-The Clinton Administration's own economic projections were not consistent with its after-the-fact explanations.
-The Clinton Administration's explanation of the recovery ignores the growth-enhancing effects of a gradualist, price stabilizing monetary policy.
-The Clinton Administration provides an inaccurate explanation of the disappearance of budget deficits.