A FABULOUS FAILUR Clinton’s 1990s and the Origins of Our Times BY NELSON LICHTENSTEIN 38 WWW.PROSPECT.ORG WINTER 2018 A FABULOUS FAILUR illary Clinton’s loss of the industrial Midwest to Donald Trump sealed her fate on Elec- tion Day 2016. This defeat, both narrow and catastrophic, H had many architects, but one of the most consequential occupied the White House nearly 25 years before, when her husband faced an America whose stagnant econ- omy, rampant deindustrialization, and giant trade deficit cried out for structural reforms to decisively break with Reagan- style laissez-faire and renew the allegiance of hard-pressed voters with the party of Roosevelt, Truman, and Johnson. But this was precisely what Bill Clinton failed to do. Many recall the 1990s as a moment of economic tri- umph with increasingly low unemployment, 4 percent annual economic growth, a booming stock market, even a balanced federal budget by the end of the millennium. Economists Alan Blinder and Janet Yellen called those years the “Fabulous Decade” in 2001, while a 2015 opin- ion piece in The New York Times bore the title “The Best Decade Ever? The 1990s, Obviously.” Although the Repub- licans had seized control of Congress in 1994, it is worth remembering that Ronald Reagan’s vice president, George H.W. Bush, took only 37 percent of the vote in 1992 while that stalwart Republican, Robert Dole, won just 40 percent in 1996. Politics were clearly in flux. The Clintons there- fore had the historical moment to recast not just trade, investment, and health-care policies, but the regulations, norms, and expectations that would govern a post–Cold War version of U.S. capitalism. Their failure to take advantage of these fortuitous cir- cumstances doomed any effort to build a more equitable economy or a political order powerful enough to sustain a dominant liberalism, a failure Donald Trump would one day seize. As he told an audience at a steel mill in Monesson, Pennsylvania, on June 28, 2016: “Globaliza- tion has made the financial elite who donate to politicians WINTER 2018 THE AMERICAN PROSPECT 39 very wealthy. But it has left millions of our practiced in Germany, Scandinavia, northern the desire) to undercut the rest of the progres- workers with nothing but poverty and heart- Italy, Japan, and the East Asian “Tigers.” For sive program. Rubin, unlike the others, had ache. America became the world’s dominant example, economist Laura D’Andrea Tyson had begun his career in Democratic politics as a economy by becoming the world’s dominant studied Yugoslav economic planning at MIT donor and fundraiser. producer … creating the biggest middle class and had just published Who’s Bashing Whom? Clinton came face to face with the ideo- the world has ever known. But then America Trade Conflict in High-Technology Industries, logical power surrounding deficit reduction changed its policy. … We allowed foreign coun- a book that argued for a tough trade policy if at a January 7, 1993, meeting at the governor’s tries to subsidize their goods, devalue their the United States were to prevent Japanese mansion in Little Rock. There, Rubin, just currencies, violate their agreements, and cheat evisceration of those industries where the U.S. selected to head Clinton’s National Economic in every way imaginable.” had been an innovative pioneer but lagged in Council (NEC), and Panetta, the new chief of Trump’s rhetoric can never be taken at face low-cost manufacturing technique. the Office of Management and Budget, put value, but during the 2016 campaign he had All of Clinton’s advisers agreed with James forward the case for deficit reduction, sidelin- an uncanny ability to capture the angst and id Carville’s campaign catchphrase, “It’s the ing proposals for the large, innovative stimulus of those citizens and workers, many once solid economy, stupid.” Henceforth, the government that Clinton had advocated during the cam- Democratic partisans, now victimized and would offer a forceful set of interventions both paign. The deficit the Bush administration marginalized by the seemingly uncontrolla- to boost aggregate demand, as in traditional bequeathed to Clinton was roughly 40 per- ble financial and economic transformations of Keynesianism, and also use structural policies cent higher than the estimate just a couple of the last few decades. With some justification, to increase the productivity of capital and labor, months before. More important, stubbornly he called the Clinton era’s North American protect core industry sectors, and enhance the high long-term interest rates had convinced Free Trade Agreement the “worst trade deal” equality of American life. Or so it seemed. Wall Streeters, including Rubin, that a huge in history, and has opposed China’s entrance reservoir of investment money lay frozen and into the World Trade Organization. Indeed, THE CLINTONITES CONFRONT untapped. Interest rates on long-term bonds Trump was the first actual presidential can- THE BOND MARKET—AND RETREAT were now at above 7 percent. Lower interest didate of one of the two major parties—Ross But a revival and modernization of New Deal– rates would arguably free up investment and Perot ran on a third-party ticket—to assert style liberalism was stillborn at the dawn of the spending far beyond Robert Reich’s proposed that trade policy was both cause and symbol Clinton era. Just as Republican Dwight Eisen- $50 billion stimulus program. of blue-collar malaise. hower legitimized the New Deal by accepting But cutting the budget meant eliminating many of its accomplishments, Bill Clinton rati- much of the social investment raison d’être BILL CLINTON AND HIS MOMENT fied much neoliberal policy long before Newt promised during the campaign. Clinton cam- Although conventional historical and jour- Gingrich led the GOP to victory in the 1994 paign strategists like James Carville, Paul Beg- nalistic thinking places Ronald Reagan at the congressional rout or Clinton sought to trian- ala, Stan Greenberg, and Mandy Grunwald, center of the conservative turn in American gulate with his opponents in 1995 and after. as well as Hillary Clinton and Ira Magaziner, trade and fiscal policy, we know that ratifi- Key economic advisers put in place during were incredulous. There were no guarantees cation of such a policy turn takes place only the transition, notably Robert Rubin, Larry that shelving campaign promises would gener- when the ostensibly hostile opposition party Summers, Lloyd Bentsen, Leon Panetta, and ate a positive response from the bond market, accommodates and then advances this trans- Alice Rivlin, advanced a far more orthodox even if Federal Reserve Chair Alan Greenspan formation. And that is what the administration set of economic priorities than those on Clin- delivered easier monetary policy in exchange of Bill Clinton did—normalize key aspects of ton’s “industrial policy” left. They would soon for deficit reduction. An appalled Clinton, con- the Reagan economic worldview. As Clinton dominate. Despite his own initial opposition, fronted with reality according to Rubin, told famously put it in his 1996 State of the Union President-elect Clinton was persuaded to give his economic team, “You mean to tell me that address, “The era of big government is over.” up a major economic stimulus package, includ- the success of the program and my re-election That declaration came after the Democratic ing targeted investments, in exchange for the hinges on the Federal Reserve and a bunch of rout in the 1994 congressional elections, but low interest rates his advisers thought the bond fucking bond traders?” Carville would later much of that policy shift toward the right came market would sustain if only the deficit were remark that were he to be born again, he want- earlier, even before the GOP achieved legisla- tamed by a combination of constrained social ed to be reincarnated as the most powerful tive veto power. spending and higher taxes. thing in the world, the bond market. This Clinton capitulation was not inevitable. It was a tradition of Democratic presidents But it was Clinton himself who had appoint- The campaign’s manifesto, “Putting People to appoint Wall Street–friendly Treasury sec- ed deficit hawks like Rubin and Bentsen, the First,” had been largely based on recent work retaries, to reassure the financial markets. But new secretary of the Treasury, who in turn chose : scott applewhite / ap images by Robert Reich, Ira Magaziner, and other under Roosevelt, Truman, and Johnson, these the orthodox Summers as a top assistant, later 38–39 “Friends of Bill” who tilted left. Many of Clin- appointees lacked the power (or in the case of to succeed Bentsen as secretary. Not everyone ton’s advisers admired the economic statecraft FDR’s Treasury secretary, Henry Morgenthau, in the Clinton White House accepted this logic. pages 40 WWW.PROSPECT.ORG WINTER 2018 Writing to Rubin and Clinton in early February, both Council of Economic Advisers Chair Laura Tyson and council member Alan Blinder argued that “deficit reduction at the expense of public investment is self-defeating.” Blinder and Tyson wanted a gradual, multi-year program to lower the deficit, combined with “a shift in govern- ment spending toward public investment pro- grams.” Importantly, Tyson and Blinder argued that “any plan to bring down the deficit by large amounts—and hold it there—in the late 1990s and into the next century will require changes in our health care system.” Magaziner hoped that spending caps on health care and the intro- duction of a system of managed competition would indeed have a long-range impact on fed- eral spending, possibly by 1996, mooting the need for other spending cuts. But the Clinton left was outgunned. Rivlin at the Office of Management and Budget, as well as Bentsen and Roger Altman at Treasury, wor- ried that an insufficiently tough deficit reduction plan would send the wrong political and fis- Going Right And Left: President Clinton with Treasury Secretary Lloyd Bentsen and Labor Secretary Robert Reich cal signal to Wall Street.