>Was not the entire basis of the Clinton economic program, the entire basis
>of his taking credit for the growth during his term, the fact that he
>increased taxes in 1993, thereby reducing the budget deficit, thereby
>causing a decline in interest rates, thereby causing economic and
>employment
>growth?
>
>If crowding out is fallacious, and there is absolutely no link between
>budget deficits and interest rates, what is one to think of the efficacy
>of
>President Clinton's policies as a contributor to economic growth?
>
>David Shemano
>
This is an excellent question. I'll give it a shot.
After discovering early on in his administration that he was
entrapped by deficit politics and the Fed, Clinton made a virtue
of necessity and used the rhetoric of deficit reduction to stymie
Republican efforts to cut upper inocme taxes and to
restore some progressivity to the income tax . Clinton defended
this in very conventional supply-side,crowding-out language.
>From a purely Keynesian perspective, Clinton's early tax bill
(which raised the top rate to 39.6%) was an excellent way to
conduct contractionary policy - taxes were raised, but on
high-saving groups, so the multiplier impact of the
deficit reduction was minimized.
Clinton is an insider politics kind of guy. Not the type to use
the presidency as a bully pulpit. Thus, Clinton last year
announced that record surpluses and debt repayment would
reduce interest rates and set off boundless growth, and politely
overlooked the fact that, thanks to tightening at the Fed,
interest rates were rising. Clinton has not wanted to rock
the boat.
Personally, I don't see that Clinton's policies contributed to
economic growth. Globalization might have helped sustain
the boom, as funds moved in from abroad. But I think Clinton
was just lucky. I also think Alan Greenspan has had an
amazing run of luck. But his luck might just be running out.
Ellen Frank
>
>
