New Pajamas Media Column (’The Pernicious ‘No Real Economic Progress’ Myth’) Is Up
Its subheadline is, “The Bush years have been better for Americans’ wallets than most critics admit.”
It will go up here at BizzyBlog on Saturday morning (link won’t work until then) under the same title (yeah, I finally gave ‘em one they liked).
Tom, I would like to advance a reason why the 8 years of the Clinton Admin were relatively good financial years and why the 1993 tax increase did not kill the economy.
It’s called the price of oil.
http://www.oilnergy.com/hpix/2opostm.gif
During the whole of the Clinton admin, the price of oil was fairly steady. In such an environment, the economy was able to compensate for the massive tax increase. The basis for this idea is since 1973 virtually every economic downturn has been a result of spiking oil prices. The economy is not able to adjust to a fast rise in prices, it can though adjust to a gradual one. This adjustment comes in the form of productivity and energy efficiency via technological advancement. With a stable price for oil, all the productivity and energy efficiency gains became profits in the form of dividends, wage increases and the inevitable economic expansion from those gains.
The Bush Admin has had the unfortunate circumstance to occur during a period that experienced a 4 fold increase in energy cost. Which means that all the continuing productivity and energy efficiency gains were offset by energy costs. That the economy was able to sustain itself without going into recession is a marvel in and of itself and a testament to the tax cuts being recycled multiple times in the economy. What this means is that any idiot having the happy circumstance of timing during a period stable oil prices can preside over an economic boom. The question is not why the economy was so good under Clinton, the question is how could he possibly screw it up? The answer of course was the speculative bubble of the Dot.com bust fostered by low interest rates, and as soon as the interest rates started going up, the PE valuations became too high.
Comment by dscott — August 14, 2008 @ 2:19 pm
#1, I think what you point to is a big factor.
But I think oil was steady throughout the entire Clinton admin, but as the chart at PJM shows, things didn’t really get cranking for people until 1997, the year of the cap gains cut.
Your point about the Bush cuts carrying us despite the oil runup being a marvel is correct. I don’t even want to think about where we might be without it.
The other things that helped Clinton were:
- Gutting the military, which was in essence eating our seed corn, unless you thought the need for a strong military was gone forever, which of course it wasn’t and probably never will be.
- Welfare reform, which gave the economy about 2.5 million new workers (IIRC) in the last 4 years of his admin.
Comment by TBlumer — August 14, 2008 @ 9:56 pm
#2, the fact the economy didn’t get really cranking until 1997 I submit shows it took time for the economy to absorb the loss of potential capital investment from the tax hike in 1993, i.e. 4 years to compensate. The pitiful thing about the 1993 tax hike is had Clinton and the Dems suspended the drilling bans and just collected the royalities and taxes derived from increased domestic resource utilization, there would have been no need for the tax hike. In this sense, for better or worse politically, their incompetence got the better of them thus leading to George W Bush instead of Al Gore.
I’m not so sure about Welfare Reform as I maintain that this was a ruse in an elaborate shuffle to redistribute government benefits to claim they did something when in fact nothing was done, yeah they got off Welfare only to collect handouts in a different manner. There are more people on some type of government handout today than when so called Welfare Reform occured. Pardon my cynicism.
Let’s not forget that the current overflow of illegals got their boost in the final two years of the Clinton Admin when then INS ceased to interdict illegals crossing the southern border. W failed to recognize that in keeping hold over Clinton cronies in INS he unwittingly aided and abetted a Dem plan to flood the country with potential new Dem voters. In doing so, all those people who could have potentially become taxpayers were kept as government recipients. Why should they work when they can get $15/hr worth of government benefits? The unskilled illegals filled the void where domestic labor looked down their nose at minimum wages jobs. Now had the border integrity been kept intact, wages would have risen due to supply and demand thus making it worth their while to work.
Comment by dscott — August 15, 2008 @ 10:28 am