Teddy Bloggie Blog Blogging

Why did unemployment go down during the Clinton administration? Was it purely by chance or did policies inacted during the administration have an impact? I think the answer is a bit of both. The Clinton era focus on deficit reduction and economic integration vs Bush's focus on tax cuts and protectionism surely pulled on different levers in the economy. It's hard to do a comparison and say exactly what the different effects were since we can't talk about the policies under the assumption of ceteris paribus. However, even if policies don't have a direct link, the effects on foreign and domestic investment must play an important role. When U.S. citizens and foriegn investors see that U.S. government spending is under control and U.S. debt is being reduced, they feel better about the future. Long-term interest rates, they know, will be lower than if the country pursues Bush-esque economic policies and economic growth will be higher (we would be saving and investing in the future). Maybe I'll delve into this some other time...

Beside comparing the outcomes of policies we can also look at the the people and ideas that were embodied in those policies. Clinton had a better economic policy team; I have no doubt about that. I would argue that the policies between 1992-2000 were coherent, and Clinton's economic team didn't have to change their rhetoric as the Bush team has had to do. Clinton's aim was simple and easy: more butter, less guns, less debt. But Bush's agenda has so far been confusing and incoherent. For example, we were told that the big tax cuts were necessary because the American people deserved to share in the nation's surplus. The people who pay the most taxes should get the most back, they argued and passed. When the surplus vanished under the weight of $1.6 trillion tax cut, and as the nation faced deficits in the hundreds of billions and a new recession, the rhetoric changed. We were told that the tax cut was a way to prime the economy, fiscally pumping cash into the economy. But for one thing: people who receive the biggest tax breaks aren't the ones who have a high propensity to spend that extra income. If you give tax breaks to people who are hovering near poverty, they'll probably spend any extra disposable income they get and help the economy along the way. However, if you give the money to people who make more than $270,000/yr. they probably won't feel compelled to spend the extra money. It just doesn't fly. As circumstances change, policies should change (not your reasons for your policies). Anyway, I've digressed far enough from what I wanted to point out.

What I meant to say is, one way that we can measure the health of the economy is to look at the unemployment rate. Luck, or presidential timing, has a lot to do with what you see in unemployment statistics, but if trends speak for themselves, then the answer to whether people and policies matter is obvious and clear.