Clinton Economics Works For America
Bill Clinton came into office as the 1991 recession was subsiding and oversaw the subsequent recovery. Clinton economics proved to be effective in those circumstances which are very similar to now. Dylan Matthews gives us an overview of the results of Clinton economics.
Unemployment fell dramatically between January 1993 and January 2001, dipping to 3.9 percent at the end of Clinton’s term. Unemployment is falling now, and we want it to continue. This is a staple of Obama and Clinton economics emblematic of the party.
Labor force participation trended upward, from 66.2 when Clinton took office to 67.2 percent when he left. One percent may not seem like much, but given that in 2000 it amounted to 2.8 million people working who were previously outside the labor force, it’s significant. This is one of the criticisms, albeit overstated, of the Obama economic recovery that Clinton economics has shown success.
Bill Clinton averaged 3.8 percent growth in real GDP, and poverty declined dramatically under his tenure, buoyed by the growing economy and the expanding labor force. What’s more, the traditional metric excludes transfer payments from food stamps and the Earned Income Tax Credit. Due to Clinton’s expansion of the latter programs, poverty including transfers fell by 3.6 points, whereas poverty without transfers fell by 3.4 points.
Inflation was generally under control during the Clinton years. Both the total inflation rate and the “core” rate, which excludes food and gasoline, averaged precisely 2.6 percent over Clinton’s term. Top income groups fared very well under Clinton as the financial industry exploded taking up a greater share of the economy, but median household also saw wages increase, from $661 a week to $700 a week, in inflation adjusted terms. The vast majority of all Americans, including the poor, saw more aid and income under Clinton economics.
Hillary Clinton Economics
While most of the increase came during the George H.W. Bush years and the recession, extreme poverty was rising by the end of Clinton’s term, and to some extent the rise during the George W. Bush years can be attributed to Clinton’s welfare policy. It’s worth noting that most of these households had multiple children. This is where Clinton economics has it’s biggest critics. This issue is more political than it is a fault of policy however.
Lauren Carroll points out when welfare reform passed in 1996, there were about 636,000 American households living on $2 per person per day or less. As of mid 2013, that figure has more than doubled, to about 1.5 million such households, with about 3 million children living in these circumstances.
The law put a five-year lifetime limit on receiving welfare cash, established as Temporary Assistance for Needy Families (TANF), and it established workforce participation requirements. The previous program had no such requirements. Welfare reform, combined with earned income tax credit expansions and a booming economy was supposed to benefit the working poor.
The instability of the low-wage market revealed the program to be an ineffective safety net for people who weren’t able to find and keep work. They aren’t able to maintain a stable earned income, and as a result they cannot reap the benefits of a work-based safety net and the earned income tax credit.
Just 23 out of every 100 people living in poverty receive welfare cash, as of 2014, and that ratio has dropped nearly every year since 1996 when it was 68 out of 100, according to the left-leaning Center on Budget and Policy Priorities. Welfare reform put TANF administration into the hands of the states in the form of block grants. This means that states can use the funding for cash benefits or for administering programs intended to increase employment, like childcare or job training. But there is wide variation between the states as a result. For example, in 2013, 78 out of 100 impoverished families in Vermont received cash benefits, but just 4 out of 100 did in Louisiana.
This is a very specific and small percentage of American households living on less than $2 cash income per person per day. We’re talking less than .5% of the population.
Second, let’s acknowledge the positive benefits of welfare reform. For example, poverty among single-mother households, which were most affected by by welfare reform, is lower than what it was prior to welfare reform, even during the Great Recession.
Welfare reform is largely a state issue handled by state representatives similar to minimum wage. This is why it’s state and local elections that are far more important than national elections. Only Hillary Clinton is helping candidates sympathetic to the progressive cause of welfare reform. Bernie Sanders may not decide to fundraise for any Democrats down-ticket in spite of amassing a 180 million dollar war chest and outspending his Democratic opponent in several states recently.
The Rich and Super Rich
The Clinton years saw the top 1 percent and top 0.1 percent pull away from the rest of the country more aggressively than they had before. What’s more, taxes didn’t grow more progressive to combat this. According to data from the CBO, taxes and transfers at the end of Clinton’s term did no more to reduce inequality than they did at the start of his term. The wage number varies quite a bit by education level, as high school dropouts saw wages fall from $424 to $407 a week.
Sam Pizzigatti evaluates the candidates on top earners. The top 1 percent, Americans with over $732,323 in income, have seen their share of the nation’s wealth rise from 25 percent in the 1970s to 42 percent in 2012.
For the top 1 percent, Americans with over $732,323 in income, the changes the Clinton campaign has proposed would shrink after-tax incomes an average 5 percent, an estimated $78,284 in 2017. The top 0.1 percent, America’s richest 116,000 taxpayers reporting over $3,769,396 in income, would see their after-tax incomes drop by 7.6 percent, an average $519,741.
Bernie’s plan sees the top 1 percent after-tax income decrease 33.5 percent, six times steeper than the 5 percent dropoff in top 1 percent after-tax incomes under the Clinton plan. Bernie’s proposal would shear average top 1 percent incomes by $525,365 in 2017. The top 0.1 percent would see their after-tax incomes fall 44.8 percent, or on average $3,081,986 under his plan.
Bernie’s plan is certainly tough on the rich and super rich. His plan is also tough on everyone else as we have documented:
Everyone pays because everyone benefits. The top 1 percent of earners would bear 38 percent of the total tax increase proposed by Sanders, while those in the top fifth of incomes would pay 68 percent of his levies. That top quintile, which includes those earning more than $142,000, would see its taxes go up by an average $44,759. Those at the very bottom of the income ladder would see their taxes go up by $165 while those in the second quintile of incomes — between $23,000 and $45,000 — would pay an additional $1,625. Those in the dead center of the income spectrum face a $4,700 tax increase.
We don’t need everyone’s taxes raised, just those at the upper end of the spectrum. Hillary’s plan does that while giving a middle and lower tax class cut, though her campaign has not released the details on it.
Wall Street Reform
As far as financial regulatory reform is concerned, Neil Irwin gives us the key elements of Hillary’s plan. They include a risk fee on the largest financial firms, more power to regulators to breakup firms, and increased regulation of “shadow banking”.
In a comparison of their plans, Victoria Finkle explains the problems with Bernie’s. Under his proposal, the Treasury Secretary would be required to compile a list of all financial institutions that “pose a catastrophic risk to the United States economy without a taxpayer bailout” within the first 100 days of a Sanders Administration. The Secretary would then have to split these institutions up within a year.
The problem? Dodd-Frank only permits regulators to take a carving knife to banks in cases of severe financial distress and Sanders would need to win over most of the Federal Reserve Board and a majority of the other financial regulators to move forward with his plan. Finkle says there’s more.
Breaking up the largest institutions on such a compressed timeline would cause massive disruption and displacement within the financial industry, even if done in a controlled way. As Sanders himself has noted, the six largest U.S. banks hold more than $10 trillion of assets on the books, handle more than two-thirds of all credit card transactions, and control more than 95% of the $240 trillion in derivatives held by commercial banks. Dismantling that kind of wealth and power would represent a radical restructuring of the banking system as we know it, a system that’s evolved, for better or worse, over decades. That could severely curtail access to loans and other forms of credit in the short term – and even spur bank runs. Given the American financial system’s impact across the world, it would likely have global knock-on effects, too, that could be hard to predict. To paraphrase one financial analyst, a Democrat, I asked about the plan: Folks may be supportive of busting up the big banks, up until their Bank of America ATM card stops working.
Sanders’ plan would also set off intense jockeying from the financial services industry. Presumably, the Treasury Department would be required to come up with criteria for evaluating whether a particular bank poses too much risk to the system, a trick that requires taking into account size, complexity, interconnectedness and a host of other factors. That sounds awfully subjective, music to a lobbyist’s ears. For a case study on what this might look like, consider that the financial sector has reportedly spent billions of dollars first trying to derail the passage of Dodd-Frank and then working to defang its rules. You can only imagine the magnitude of pushback that a mandate to break up the banks would inspire.
The Vermont senator has also said he would reinstate a Depression-era law that’s made a surprising comeback in recent years, the Glass-Steagall Act, which would separate commercial banking from riskier investment activities. The proposal is a nod to Senator Elizabeth Warren, who popularized the idea several years ago in a bill of her own. But even Warren has conceded that the change may not have stopped the financial crisis, because many of the firms that led to the meltdown, including AIG and Lehman Brothers, were not connected to depository institutions anyway. She made this point in an oft-cited 2012 interview with New York Times journalist Andrew Ross Sorkin. Theoretical arguments about whether Glass-Steagall could have stopped some of the damage persist to this day, but they overlook what I consider the most significant part of that 2012 interview, that Warren “considers Glass-Steagall more of a symbol of what needs to happen to regulations than the specifics related to the act itself.”
Politically, we have boiled the plight of the low wage worker down to minimum wage. While the issues are far more complex, we should evaluate their minimum wage plans.
The minimum wage is $7.25 an hour on the federal level although it can be higher in states and localities. Sam Levine points to Hillary’s support of the $15 minimum wage since she launched her campaign for President in April of 2015.
Noam Scheiber really focuses on the issue. Unlike free trade or financial sector profits, the minimum wage issue is not one that in principle creates a political problem for Hillary because she’s long supported a minimum wage increase. The challenge is the sheer speed at which the center of the debate has shifted, and the hunger among voters for action.
Mayor Rahm Emanuel, of Chicago, a former Clinton White House aide, recently backed a measure raising the minimum wage in the city to $13 from $8.25 by 2019. Senator Patty Murray, of Washington, is lining up support among a wide array of Democratic senators for a proposal that would raise the minimum wage to $12 an hour by 2020. The recent minimum wage increases in California and New York see them applied regionally, and over a course of 5-7 years in annual increases up to $15 per hour in 2022.
Alex Seitz-Wald reported when Hillary Clinton said she supported a $12 per hour minimum wage. I think it’s pretty telling.
“I favor a $12 an hour minimum wage at the federal level,” Clinton said at a town hall in Coralville, Iowa. “That would be setting it at a level that would be equivalent to the point in our history where the minimum wage was at its highest” since 1986, she said.
Clinton’s rivals for the 2016 Democratic presidential nomination, Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley, support a call by many labor unions to raise the wage to $15 an hour, a move already made by several cities like Los Angeles and Seattle.
Clinton, however, has said that she’s worried that rate would be too high for rural areas or smaller cities like Little Rock, Arkansas, which have lower costs of living. “I do, however, believe that other communities that want to go higher than $15 should be able to do so,” she added in Coralville.
The former secretary of state has previously said she supports a bill introduced by leading Senate Democrats to raise the wage to $12 hour. That’s higher than the level chosen by Obama, who has called for raising the wage to $10.10 an hour.
Bernie introduced a bill for a $15 dollar-per-hour minimum wage. Again, both candidates support 15 dollars per hour locally, wherever they want to or can enact it, but Bernie is only worried about workers while Hillary seems to be worried about workers, customers and businesses. Connor Wolfe sums it up:
There are plenty of studies showing both the negative and positive impact a $15 minimum wage could have. The increase is difficult to study empirically because it has only been enacted on the city level and none have yet gone into full effect. Some experts fear the increase could also force employers to cutback on their workforce because of the added cost of labor.
The nonpartisan Congressional Budget Office has found both positive and negative results when it looked at previous minimum wage increases. Its research found any increase of the minimum wage will likely result in at least some job loss. The higher the increase, the more impact it will have on employment.
Bernie Sanders plans to increase taxes on the population overall and those at the upper end of the income bracket tremendously. If the revenues are insufficient to cover the new spending, the additional borrowing could increase interest rates, which would further raise investment costs. However, the additional spending could generate its own positive economic benefits to the extent that it would increase the nation’s investment in productive physical and human capital. Clinton economics proposed by Hillary means a number of tax increases as well, but she has targeted the wealthy and businesses, and plans a tax cut for those further down the income ladder.
Bill Clinton, who averaged nearly 242,000 monthly job gains during his eight years in the White House, is the greatest jobs president of our lifetime. Investments in education, infrastructure and basic non-military research, while stabilizing and eliminating the deficit, are the hallmarks of Clinton economics which Hillary has pledged to continue.
When it comes to the rich, super rich, Wall Street reform, and low wage workers, parts of her husband’s economy that were not great, Hillary’s plans are much more focused, feasible and implementable than are those of Bernie Sanders. Clinton economics have shown to be great for a recovering economy, and that is exactly where we are today.