CAMBRIDGE: A pivotal question to be debated in this year’s US presidential election is whether American prosperity resulted from Clinton Administration policies or from deeper changes arising from new technology and globalization. In short, should Bill Clinton or Bill Gates get the credit for America’s boom?
The economic successes of Clinton’s eight years are undoubted. America enjoys its longest continuous economic expansion in history, now more than nine years old. Economic growth averaged 3.6% per year between 1992-1999, far above the 2.9% per year growth between1980-92. 15 million jobs were created between 1992 and 1999; the unemployment rate, now 4%, is the lowest in 30 years. The stock market’s performance is legendary, with capital gains totaling 7 trillion dollars since the start of 1996.
No government, of course, could be fully responsible for such large trends. Still, the Clinton Administration was more than a bystander. For President Clinton took a favorable inheritance B the results of the policies of previous governments, as well as global trends and innovations in science and technology B and skillfully fashioned an economic governance well designed for a knowledge based economy. His Administration deserves much credit, both for policies followed and mistakes avoided.
First the inheritance. A good starting point was the end of the Cold War which enabled the US to reduce military spending by around 2.5% of GDP (comparing 1990 and 2000), a saving worth around $225 billion per year. This helped Clinton reduce the budget deficit in a rather painless manner. The second inheritance was a flexible, deregulated economy with fairly low marginal tax rates, a legacy of the Reagan-Bush era. The third inheritance was low inflation.