Yesterday Vero testified before the House Ways and Means Committee. The topic was “Impediments to Job Creation.” The other witnesses were Stanford Professor Edward Lazear, AEI Resident Scholar Andrew Biggs, and Center for American Progress Senior Economist Heather Boushey.
All of the witnesses, I thought, did an excellent job. But Vero was particularly good.
Politicians on both sides seemed keen to establish that the economy was healthy when their guy was in the White House and unhealthy when the other guy was in (nevermind that no serious macroeconomist would argue that it is ever this simple). This put Democrats in the awkward position of extolling the virtues of the Clinton Administration’s economic policies. It is true, of course, that the 1990s were a prosperous time. But does it matter to these Democrats that—comparatively speaking—the policies that emerged when Clinton was in office were significantly more market-friendly than those that have characterized the last twelve years? Consider:
- Clinton stands alone among post-WWII presidents in presiding over a period in which federal spending as a share of the economy actually shrank (going from 21.4 percent in 1995 to 18.2 percent in 2001).
- Clinton negotiated and ushered through Congress the most-significant free trade agreement of my lifetime.
- Clinton signed welfare reform (perhaps reluctantly), signaling the only major retrenchment in the welfare state since LBJ (and that’s counting all 8 years of the Reagan presidency).
- Clinton signed the largest reduction in capital gains taxation in U.S. history.
Arguably, the most-significant anti-market policy of the Clinton years was the 1993 marginal income tax hike. But just to put that in perspective, recall that this legislation raised the top marginal rate by 8.6 percentage points from 31 percent to 39.6 percent. Now recall that Reagan had lowered it over 40 percentage points from 70 percent (!) to 28 percent.
On balance, it is hard to characterize the Clinton years as anything but a marginal improvement in economic freedom (indeed, that’s what the data show).
Why, again, were Democrats so eager to remind us of the prosperity of the Clinton years?
Oh yeah, because their guy was in power. Which brings me to the Republicans. For their part, they were eager to defend the Bush record. Never mind that during that presidency:
- Spending as a share of GDP rose from 18.2 percent to 25 percent.
- The president pushed, and got, the first new entitlement—Medicare prescription drug benefits—in nearly half a century.
- The president imposed steel tariffs as high as 30 percent.
- No fewer than FOUR countercyclical fiscal policy measures were undertaken: cash rebates in 2001, countercyclical investment incentives known as “bonus depreciation” in early 2002, tax rebates in 2003, and more rebates in the 2008 stimulus bill (it is seldom remembered that Obama’s 2009 stimulus bill was the second such bill during the Great Recession).
- Congress passed and the president signed a sweeping and wholly-unprecedented bailout of hundreds of financial firms (prompting the president to acknowledge that he had “abandoned free-market principles.”).
Against this backdrop, politicians of both parties seem obsessed over the Bush tax cuts. Nevermind the fact that they were temporary, that they only reduced the top rate by 4.6 percentage points, and that they did not coincide with concomitant reductions in spending.
Does that sound like a strikingly free-market record to you? Indeed, the data show that it is not.
Why, again are Republicans so eager to remind us of the good-ol’ Bush years?