The Case for Bill Clinton’s Economic Record

How do you argue with success? One answer is to become a Democrat.

President Joe Biden learned this lesson recently when many in his party dismissed the 5.7 percent GDP growth and 6.2 million new jobs created in his first year and instead complained about his inability to corral Joe Manchin to support Build Back Better. A more far-reaching instance is the criticism from Democratic pundits on the left that Bill Clinton failed middle-class and lower-income Americans.

Criticism is a staple of every president’s diet. But this meme is especially insidious because it’s hard to make progress when you deny or ignore what works.

The anti-Clinton meme is personal, because I helped the then Arkansas governor fashion his economic program in the lead-up to his 1992 election. It was a “New Democrat” plan to “Put People First” by investing in infrastructure; upgrading people’s skills; reducing the deficit to promote business investments that raise people’s productivity and wages; lowering barriers to trade in American goods, services, and investments; and supporting innovation by letting new industries like the internet develop before considering new regulation.

By virtually any metric, Clinton’s strategy produced the strongest economy of the past 50 years. Yet critics on the Democratic left insist that the 42nd president’s policies were a short step from Republican laissez-faire in service to the superrich.

Several critics have recently made that spurious case through their reviews of a new book by an Oxford University historian, Gary Gerstle, The Rise and Fall of the Neoliberal Order. For example, one reviewer in The New Republic dismissed Clinton’s center-left approach as “a message of free markets and disdain for government regulation and spending” and warned that “the longer the Democrats retain their commitment to Clinton- and Obama-era politics, the worse the outcome is likely to be.”

The most sweeping indictment came from a reviewer in the The New York Review of Books, Robert Kuttner, who claimed that Clinton’s policies led to “widening inequality, diminished economic security, and reduced confidence in the ability of government to aid its citizens.” We can test those claims against the record. For example, Pew Research reports that Americans’ trust in their government increased sharply during Clinton’s two terms, rising from 25 to 44 percent.

The real-world results on economic growth, employment, household incomes and wealth, and social spending under Clinton also refute the new critiques. Kuttner claimed, for example, that Democratic “neoliberals” produced “far less” growth than “between the 1940s and the early 1970s when the economy was governed by principles of managed capitalism.” This notion is demonstrably wrong: The GDP data issued by the Bureau of Economic Analysis shows that the U.S. economy grew at average annual rates, after inflation, of 4 percent during Clinton’s two terms (from 1993 to 2000), compared to 3.9 percent in the 1950s, 5.2 percent in the 1960s, 3.7 percent in the 1970s (including during the tenure of the proto-neoliberal Jimmy Carter), and 3.6 percent in the 1980s.

Clinton’s record is most striking compared to his successors: Growth averaged just 1.9 percent per year under George W. Bush, 2.2 percent per year under Barack Obama (recognizing that he inherited an economy in financial collapse and with cratering housing values). It averaged 2.5 percent per year under Donald Trump before COVID-19 hit, and his mismanagement of the pandemic drove down his record for average annual real growth to zero.

Kuttner also claimed that “earnings and job security for most people stagnated or declined” during the Clinton years. Demonstrably untrue again: Median household income, adjusted for inflation, increased 14.5 percent from 1993 to 2000, compared to gains of 10 percent under Ronald Reagan, 2 percent under H. W. Bush, 10 percent under W., 6 percent under Obama, and 5 percent under Trump. It’s the same story for job security: Unemployment fell from 6.9 to 4 percent under Clinton, then increased from 4 to 7.8 percent under W., declined under Obama to 4.7 percent, and then rose again to 6.4 percent under Trump.

To be sure, income inequality has increased steadily as the compensation gap has widened sharply between college graduates and those without a bachelor’s degree. During Clinton’s terms, however, the incomes of less educated Americans continued to rise at healthy rates. For example, the inflation-adjusted incomes of households in the two lowest-income quintiles increased 16.8 percent under Clinton, compared to gains of 2.4 percent under Reagan, 1 percent under H. W. Bush, 14 percent under W., and 7.6 percent under Obama.

The income gains of average and lower-income Americans under Clinton rested partly on productivity gains linked to booming business investment. Real fixed business investments increased on average 9.4 percent per year under Clinton, the fastest growth of any postwar presidency. That investment boom lifted productivity growth to an average of almost 3.1 percent per year during Clinton’s second term, providing a solid basis for broad income progress. By contrast, business investments grew at average annual rates of 3.7 percent under Reagan, 1.5 percent under H. W. Bush, 2.8 percent under W. and Obama, and 2.4 percent under Trump.

Turning to wealth, the rich certainly became richer in the Clinton years—as did average people. The Federal Reserve reports that the net worth of the median American family, adjusted for inflation, jumped 41 percent under Clinton (1992 to 2001). Again, that record was a lot better than Clinton’s successors: The net worth of a typical family fell 38 percent under W. (2001–10), recovered 14 percent under Obama (2010–16), and increased 18 percent under Trump before the pandemic (2016–19).

The Democratic left’s meme has Clinton sacrificing social spending to balance the budget. Again, the claim is demonstrably untrue. After inflation, spending on all domestic discretionary programs grew 10 percent under Clinton, including real increases of 14 percent for transportation, 15 percent for education, training, and social services, and 6 percent for natural resources and the environment.

These critics also lambast the Clinton program for shortchanging poor people, citing welfare reform. This charge also is wrong: Under Clinton, inflation-adjusted spending for income security programs, including welfare, grew 15 percent, and Medicaid spending rose 37 percent, the greatest growth of any postwar presidency. Further, the poverty rate fell from 15.1 to 11.3 percent, the sharpest decline of any postwar presidency. Clinton’s first budget also expanded and reformed the Earned Income Tax Credit, the primary government support program for working poor Americans. Total EITC support jumped from $8.8 billion to $26.1 billion over Clinton’s two terms.

Clinton also used a highly progressive strategy to produce the first balanced budget in 30 years. While expanding social spending and federal support for low-income people, Clinton’s budgets cut Pentagon spending by 12 percent after inflation. They raised the top federal tax rates on wealthy people and highly profitable companies. The tax changes, on top of the strong economic growth, resulted in a 54 percent increase in federal revenues after inflation over Clinton’s two terms, which produced four years of budget surpluses until W.’s tax cuts slashed federal revenues.

Clinton’s economic record inevitably includes its share of mistakes. His administration agreed to leave financial derivatives unregulated when a different decision could have lessened the financial crisis. In fairness, however, most of the responsibility lies with George W. Bush, who had governed for seven years before the crisis broke. Even as the housing bubble began to crack and the markets for mortgage-based securities and credit default swaps continued to expand rapidly—and even after Bear Stearns failed in 2008—Bush’s Treasury Department and Federal Reserve officials never used their oversight powers to probe the stability of our largest financial institutions.

There also is a legitimate debate about trade liberalization under Clinton and the distribution of its costs and benefits. Yes, Clinton oversaw the creation of the World Trade Organization. But the WTO doesn’t determine where U.S. companies can produce many goods at the lowest cost (for both American and foreign consumers). And yes, Clinton agreed to China’s accession to the WTO, and China used its exports to the U.S. and Europe to become an economic powerhouse that rivals us. But Clinton cannot be blamed for not being clairvoyant: China’s prodigious growth moderated steadily from 1993 to 2000, and when Clinton left office in January 2001, that growth was just 8 percent of its 2020 level, and China’s exports totaled about 10 percent of their 2020 levels.

The Clinton administration did share a broadly held expectation that as China became a significant player in the global economy, business considerations would force Beijing to treat its Western customers and investors fairly. Some optimists even hoped that China’s integration into international trade and finance would convince its leaders to follow the examples of Japan and South Korea by introducing more democracy. But as China’s leaders consistently disappointed those expectations, the responsibility for effective U.S. responses fell not to Clinton but to his successors.

The worst thing about the current “neoliberal” meme is not its wholesale distortion of Bill Clinton’s economic record. The real danger lies in Democrats believing that mainstream economic policies to promote the interests of average people are corrupt and cannot succeed. That misapprehension could reduce the alternatives to right-wing or left-wing economic nostrums that will almost certainly and painfully fail.