February 11, 1994
"Clinton Got Economic Help -- From Bush"
San Jose Mercury News
By Timothy Taylor
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IRONICALLY, MANY of the same factors that cost George Bush his chance at re-election are now helping Bill Clinton look good on this year's budget, and the economy generally.

For example, Bush's 1990 budget deal alienated his Republican base, but also provided the model for how Clinton reduced the deficit last year. In 1990, Bush raised taxes on the rich by tinkering with top rates and limiting their deductions and exemptions; he increased excise taxes on gasoline, alcohol and tobacco; he cut defense spending and put a variety of caps in place on entitlements and discretionary spending.

According to the Congressional Budget Office, the Bush budget deal will succeed in reducing total deficits by about $500 billion from 1991 to 1995. Clinton's budget last year had the same $500 billion target, and approached that target with very similar tools.

During Bush's presidency, the Federal Reserve tried to increase the money supply by enough to drive down interest rates, while not moving so fast as to trigger additional inflation.

With the Bush deficit-reduction plan in place, interest rates were dropping before Clinton ever took office: for example, the rate on 3-month Treasury bills dropped from 8.12 percent in 1989 to just 3.45 percent by 1992.

But business and consumer confidence plunged when Iraq invaded Kuwait in the fall of 1990, perhaps in memory of how Mideast turmoil had rocked the U.S. economy during oil price hikes in the 1970s. Even after Iraq was defeated, the self-fulfilling negative expectations continued, helping to trigger the recession.

To make matters worse, Bush proved incapable of explaining what had happened, or of making a case for his own leadership. By November 1992, the American public was unwilling to give him the benefit of the doubt. Whether it was his fault or not, Bush presided over an economic shake-out.

Clinton is continuing the general thrust of Bush's budgetary policies, while reaping the gains from Bush's 1990 budget deal: the struggle to make sure inflation stayed under control during the Bush presidency; the fall in interest rates from 1989 to 1992; the greater efficiency of U.S. firms after the layoffs and budget-cutting of the last few years; and the bounce-back of economic growth as confidence returns.

Nobody ever said life or politics was fair. But although Clinton can claim credit for the current good economic news, he has to spend at least the next three years struggling to limit federal spending under his own version of Bush's "flexible freeze."

Six years ago, Democrats thought the flexible freeze was nuttier than an almond orchard. Now, that idea from Bush's 1988 presidential campaign has become the unacknowledged theme of President Clinton's budgetary strategy.

The basic notion of the flexible freeze was to hold the line on total spending, while allowing some shifts of priorities within that total. Over time, as top Bush economic adviser Michael Boskin argued, economic growth would gradually increase tax revenues, and reduce the deficit.

In 1988, Democrats would mention the flexible freeze only if allowed to snicker. But look at the pattern of Clinton's proposed budgets: spending growth is projected at 2.4 percent for 1995 and 5.1 percent in 1996. In comparison, the nominal gross domestic product (which includes both inflationary and real growth) is projected to rise 5.9 percent in 1995 and 6.0 percent in 1996.

Clinton aims at holding spending growth below the overall growth rate of the economy, and accomplishing his goals by shifting priorities between various programs. As the introduction to the budget states: "Except in emergencies, we cannot spend an additional dime on any program unless we cut it from another part of the budget."

Of course, Bush's flexible freeze never worked out. Instead of a freeze, federal spending actually increased from 22.1 percent of gross domestic product in 1989 to 23.5 percent by 1992.

Even with the tax increases that Bush agreed to in 1990, the tax take declined as the economy staggered into recession, falling from 19.2 percent of GDP in 1989 to 18.6 percent in 1992. Now Bush is spending time with his grandchildren, when he's not out playing golf.

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