Thank You 1990s Political Gridlock

By Hassett, Kevin A. | The American Enterprise, March 2000 | Go to article overview
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Thank You 1990s Political Gridlock

Hassett, Kevin A., The American Enterprise

Thank You 1990s Political Gridlock

IF FORCED TO PICK ONE MEASURE of the quality of a President's economic policy, I will generally choose the average return of the stock market during his term. The stock market is the world's most sophisticated computer, and more than any other indicator it balances out the pluses and minuses of economic activity, inflation, and interest rates. And the market is forward looking. If the President seeks to boost growth with shortsighted policies, the market will factor that in. If a President sacrifices current gain to create a climate that will be more beneficial in the long run, the market will give him credit for that as well.

Which brings us to an interesting problem for believers in limited government. The adjoining graph ranks U.S. Presidents back to Roosevelt by the performance of the stock market during their terms. And according to this measure, the best economic President--by far--is Bill Clinton.

Back in 1992 when Clinton took office, visions of economic catastrophe danced in the heads of Republicans. The Democrats controlled the House, and liberals' cleverest schemes were about to become the law of the land. It was a critical break when Hillary's grandiose health care plan failed. But tax rates were raised significantly. Other interventionist policies--such as higher minimum wages--were introduced.

Yet fast-forward seven years, and we find ourselves amidst one of the economic golden ages of U.S. history. What gives?

Some observers point to the radical shifts in economic policy launched by Ronald Reagan in the early 1980s and argue that Clinton, at the margin, made things a little worse, but Reagan's legacy was so powerful that Clinton's damage was insignificant. Others argue that the Internet revolutionized industry in the 1990s, and that the current boom has nothing to do with government at all. Others say Federal Reserve Chairman Alan Greenspan is the real hero.

There is some truth to all of these arguments, but they neglect an important fact. If liberal Democrats had been able to have their way with the economy over the past seven years, they surely would have contrived horrific enough policies to overpower even these potent economic positives. So we are left with just one conclusion: The '90s have not been an era of economic foolishness in Washington. Whether he intended it or not, the Clinton presidency has been a fairly good time for government-keep-your-hands-off economics.

One reason is that Clinton surrounded himself with an excellent economic team. Former Treasury Secretary Robert Rubin, current Secretary Larry Summers, economic advisers Joe Stiglitz, Janet Yellen, and Alan Blinder, to name a few, are first-rate economists. Clinton also installed some dicier advisers like Robert Reich, Ira Magaziner, Gene Sperling, and others. But the Rubins in the administration provided a formidable front-line defense against the would-be economic meddlers. Aside from Hillary's health care debacle, most of the Clinton proposals--the "Hope" Scholarships, for example--have been miniaturistic symbols only, great for 'I'm-your-friend' sound bites, but so inconsequential in size as to pose no threat to the ticking of the national economic clock.

But my trusty stock market indicator provides another clue--one indicating that the most important factor behind our recent economic spurt was something other than the wisdom of Bill Clinton and his advisers. Consider: The average stock market return during Clinton's first two years, when the Democrats controlled the House of Representatives and the President mostly got his way, was only 5.7 percent. That places Clinton near the bottom in our historical ranking. It wasn't until the Republicans captured Congress that the stock market surged, thereafter producing astonishing returns averaging 30.6 percent a year.

The Contract with America and the Republican economic priorities certainly fueled our economic boom.

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