Friday 21 July 2017

A useful solution sadly tainted by facts

Back to Work
By Bill Clinton

James Pressley

RETIRED American presidents are like ex-spouses: You often wish they would just leave you in peace.

The sense of embarrassment can run deep with Bill Clinton, the wonk-in-chief who dallied with Monica Lewinsky.

So I felt some trepidation when asked to appraise 'Back to Work', Clinton's useful yet tainted prescription for how the US can create jobs for the future and pay off its $15 trillion debt.

Clinton argues that the US lost its way in the past 30 years because voters became convinced that all the nation's problems are caused by government.

The upshot was an era of deregulation, rising inequality and financial irresponsibility that culminated in the housing bubble.

"Almost all our economic growth was fuelled by home building, consumer spending and finance, all based on easy credit and heavy leverage," he writes. "We lost manufacturing jobs every year."

That quotation echoes dozens of books on the crisis, by authors across the political spectrum.

Facts

Yet Clinton's argument suffers from two troubling facts. One is that he occupied the White House for eight of those 30 years and contributed to the mortgage binge and deregulation he now derides. The second hitch is that Americans had good reason to believe Ronald Reagan when he made the famous anti-government assertion that transformed the US political debate.

"In this present crisis, government is not the solution to our problem," Reagan said in his first inaugural address in 1981. "Government is the problem."

The crisis of the day was the Great Inflation, the wage-price spiral that drove US inflation from negligible levels in the mid-1960s to double digits in the early 1980s. That episode, far from being an accident, arose from a well-meaning attempt by successive governments to keep the economy permanently near full employment.

Government was a problem, however tempting it is to pin all the blame on the 1970s oil embargo.

Clinton does put his finger on a deeper dysfunction that warps US economics to this day.

For all the anti-government bluster, Americans never wanted less government spending; they just wanted lower taxes. The Reagan administration thought it could force reductions in domestic expenditures by cutting taxes; it soon discovered that both parties wanted to keep spending. The result: "They simply borrowed the money to do it," Clinton writes. The age of large, permanent deficits was born.

As you might expect, Clinton trumpets his own efforts to eliminate the deficit with the Balanced Budget Act of 1997.

The troubling issue is that income inequality surged during the Clinton years, with the share of national income going to the richest 1pc of Americans climbing to 15-19pc in the late 1990s, as Clinton's former secretary of labour, Robert Reich, says in his book 'Aftershock'.

Lifestyle

As wages stagnated, most US workers struggled after 1980 to maintain a middle-class lifestyle.

The response of politicians on both sides of the aisle was "let them eat credit", as University of Chicago economist Raghuram G Rajan puts it.

This book presents page after page of intelligent suggestions. I found much to agree with, notably Clinton's proposals for debt forgiveness.

I share Clinton's frustration with ideologues who say the answer to every problem is less government. I just wish Clinton didn't pretend he had nothing to do with the double bubble.

"Facts," said John Adams, "are stubborn things." Even for a nimble thinker like Clinton. (Bloomberg)

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