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
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
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
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
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
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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