Clinton: What Went Wrong With the Economy After I Left?

The former president reflects on the nation's's struggles since he exited the White House 10 years ago

Clinton at Aspen - Daniel Bayer - banner.jpg

ASPEN, Colo. -- During Bill Clinton's two terms as president, the median family income increased by 14 percent, the number of Americans in poverty declined by nearly 17 percent, and the number of children in poverty fell by almost one-fourth.

Since he left office in 2001, the median income has declined by 5 percent, or more than $2,500. The number of Americans in poverty has increased by 38 percent, or about 12 million. The number of children in poverty has spiked by one-third, or nearly 4 million. Few decades in American history have produced such economic losses.

The Clinton-era gains derived, above all, from a dynamic labor market that produced nearly 23 million new jobs from February 1993 to February 2001. Conversely, the stagnation of America's lost decade since then is rooted in a breakdown of job growth: Incredibly, nearly 1.5 million fewer Americans are working today than in the first full month after Clinton left office. The Great Recession that followed the financial meltdown of 2008 vastly compounded the problem but didn't create it. Even while the economy grew from 2001 through 2007, it produced, on average, only about half as many jobs annually as it did during the 1990s.

Clinton didn't gloat about these trends when I interviewed him at the Aspen Ideas Festival last weekend, but he was well aware of them (even adding some of his own). And he had strong ideas about what went wrong in the years after he left office.

Economists looking to explain this decade of futility have offered a panorama of explanations. The bursting of the high-technology bubble and then the attacks of September 11, 2001, started the slide. President Bush's huge 2001 and 2003 tax cuts vaporized Clinton's federal budget surpluses while failing to ignite broadly shared prosperity. Increasing pressure from emerging economies led by China virtually eradicated job growth in industries (such as manufacturing) subject to international competition. Automation "hollowed out" low-skill jobs. The personal debt that Americans piled on to maintain their living standard as incomes declined combined with deregulatory decisions under Clinton and Bush to produce a financial system rotted with risk. After it crumbled, Bush's bank rescue plan and President Obama's stimulus prevented the economy from sliding into full-scale depression but failed to generate the self-sustaining recovery -- the "escape velocity" -- that their architects envisaged.

In our conversation, Clinton pointed to some of these factors (particularly personal debt, the pressure of international competition, and the federal deficits that reopened after Bush's tax cuts). But he also stressed one other: the absence of an innovation big enough to spur change throughout the economy. "When I was president, I got a big break ... and I just put the hammer to it, which is that information technology exploded through every aspect of the American economy," he said. "[It was] no longer limited in its job-generating potential to Silicon Valley and Route 128 in Massachusetts.... It went everywhere."

That momentum waned, Clinton argued, when the economy failed to produce another technological breakthrough of comparable magnitude. "There was no basis to generate broad-based new employment," he said.

Clinton's analysis raises two big questions. What can succeed the 1990s' information revolution as an engine of growth? And what policies are most likely to speed its emergence?

The former president picked clean energy as the new idea most likely to revive job growth. In a National Journal forum on innovation in this issue, several experts offer an assortment of other possibilities -- from improved transportation systems to more-sophisticated genetic engineering to advanced wireless communication.

The more pressing question is what policies are most likely to nurture such breakthroughs. Republicans, with renewed intensity, argue that less government will mean more innovation and growth. That strategy produced benefits during the 1980s. But if lower taxes and less regulation alone guaranteed growth, Bush's economic record would not have been so bleak.

The Democratic alternative that Obama touts is greater public investment in the building blocks of productivity -- education, infrastructure, basic research, and development. Clinton is obviously more disposed toward that approach, but he also pointedly warned that Democrats can't implement it without shifting more federal resources from consumption (mostly through entitlements for the elderly) toward investment. "Our risk is that we'll be so averse to any changes in the entitlement programs that we'll continue to spend ... too much money on today, so we don't have enough money [to invest] for tomorrow," he said.

The big challenge for both political parties is finding ways to tame the nation's ominous long-term public debt while also rejuvenating the economy. In the showdown over raising the federal debt ceiling, Democrats have been more open to restraining entitlements than Republicans have been to raising taxes. Clinton's message is that eventually we'll need to do both to stabilize Washington's finances -- and to free the public and private resources that can foster another great wave of job-creating innovation. "That is the common problem we all face as Americans," Clinton told me. "Whether you think it should be done by the government or not, we are underinvesting in the future."

Image credit: Daniel Bayer