Clinton's Economic and Social Policies
J. Bradford DeLong
>Brad, the key here is the "White House Incompetence".
>Clinton had a number of valuable programs which
>he got elected by first term. There was for example an apprenticeship
>program, health insurance, state financed college tuition.
I agree that White House incompetence is a key link.
A story. In the summer of 1994, a friend of mine--David Cutler--who
had worked for the campaign in 1992 and for Laura Tyson in 1993
was heading out to give a talk on health care reform, so he called
up the White House health care "war room" and asked
if they could give him three horror stories--with real names,
faces, dates, and insurance companies or HMOs--about what bad
things happened to people under our current, unreformed system.
The response was that they couldn't do that--that they couldn't
provide any support to anyone who wasn't an administration spokesman--at
least not without the approval of Ira Magaziner.
Remember Godfather's Pizza? The guy who stood up and told
the President that he was a hard-working entrepreneur whom the
President was going to bankrupt by making him pay for his workers
There was a counter: that at present Godfather's Pizza was
loading the costs of paying for its workers onto other businesses
that did provide health insurance for their employees, that when
Godfather's Pizza employees got sick the money that should have
gone to pay for their coverage went into Mr. Entrepreneur's pockets
while somebody else paid the freight, that the Clinton Plan Mark
I would have offered Mr. Entrepreneur a 40% *discount* on health
insurance--that the Federal government would pay 40% of his costs
in order to induce him to join the system. And that anyone who
turned down an offer to provide his employees a benefit for 60
cents on the dollar that they would value as worth much more
than a dollar--such a guy does not have his employees best interests
We sent it up, where it died: not in the administration's
interest to be so combattive. We offered to give our analysis--spin-free--to
the more sophisticated health care reporters. Silence. We offered
to give our background materials and estimates to a "friendly"
My conclusion was that the Clinton White House had a lot of
people who didn't want help on their issues, but only wanted
to protect their turf--and who viewed anyone who wanted to help
them as a potential enemy out to get their job. The Clinton White
House also had a lot of people who graded you on how many strikeouts
you made: so to get a perfect score, all you had to do was make
sure that you never took a turn at bat.
>Instead, his major "accomplishments" seem
to be balancing
>the budget, NAFTA and revoking AFDC
"Balancing the budget" was surely worth doing--a
major win for economic growth--and was a minor win (boosting
tax rates on the rich, expanding the EITC) on the income distribution
front. NAFTA had next to no direct impact on the U.S.--remember
that Mexico's economy is smaller than Los Angeles's--and was
probably a minor win in the sense that it gives Mexico a little
bit more running room in its development options, but surely
it was not worth the damage that winning NAFTA inflicted on the
Revoking AFDC would have already been a disaster had we been
unlucky enough to have a big recession in the late 1990s, and
may well be a disaster in the early 2000s when the next recession
comes by, and is on the same level of morality as... the execution
of Mr. Rector.
>Why weren't any of
>these policies pursued in Clinton's second term. Even if
>could pass health insurance or any valuable program it might
>be much better in the long run to fail trying.
Why weren't any of these policies pursued after the 1994 election?
Gene Sperling had to move heaven and earth within the White House
to get permission to allow me and others in the Treasury to help
Moynihan fight the balanced budget amendment. "Triangulation"...
>Why in your estimation was this botched. We know that the
>population in general is in favor of national health insurance.
The people are in favor of national health insurance, but
also believe that government is administratively incompetent--and
the corrupt tool of the special interests. The Clinton health
care plan looked--hell, was--administratively incompetent...
But... But... We need a lot more income redistribution to
shave off extremes if we want to have a healthy society. We...
Paul Krugman put it much better than I can...
To a naive reader , Edward N. Wolff's top-heavy: A study of
the increasing inequality of wealth in America might seem unlikely
to provoke strong emotional reactions. Wolff , a professor of
economics at New York University, provides a rather dry matter
of fact summary of trends in wealth distribution, followed by
a low-key case for a modest wealth tax. Although Wolff has done
a commendable technical job in combining data from a number of
sources to produce a fuller picture-in particular his book tells
us more about both long term trends and international comparisons
that has previously been available-the rough outlines of this
story have been familiar and uncontroversial among economists
for at least the past five years.
And yet Wolff's book was the target of an astonishing barrage
of conservative attacks: multiple op-eds in the Wall Street Journal,
hostile book reviews, and so on. Why should such a mild-mannered
little volume provoke such rage?...
To understand the significance of Wolff's book, consider this
simple parable : there are two societies. In one everyone makes
a living at some occupation-say, fishing-in which the amount
people earn over the course of the year is fairly closely determined
by their skill and effort. Incomes will not be equal in this
society-some people are better at fishing than others, some people
are willing to work harder than others, but the range of incomes
will not be that wide. And there will be a sense that those
who catch a lot of fish have earned their success.
In the other society, the main source of income is gold prospecting.
A few find rich mother lodes and become wealthy. Others find
smaller deposits, and many find themselves working very hard
for very little reward. The result will be a very unequal distribution
of income. Some of this will reflect effort and skill: those
who are especially alert to signs of gold, or willing to put
in longer hours prospecting, will on average do better than those
who are not. But there will be many skilled, industrious prospectors
who do not get rich and a few who become immensely so.
Surely the great majority of Americans , no matter how conservative,
instinctively feel that a nation that resembles the second imaginary
society is a worse place than one that resembles the first.
It is also no question that our nation today is much less like
the benign society of fishermen-and much more like the harsh
society of prospectors-than it was a generation ago. The evidence
is overwhelming, and it comes from many sources-from government
agencies like the Bureau of the Census, from Fortune's annual
survey of executive compensation, and so on. And, of course,
there is the evidence that confronts every one with open eyes.
Tom Wolfe is neither an economist nor a liberal, but he is an
acute observer. When he wanted to portray what was happening
to American society, he wrote the bonfire of the vanities.
Here's a rough ( and reasonably certain) picture of what has
happened: the standard of living of the poorest 10 percent of
American families is significantly lower today than it was a
generation ago. families in the middle are , at best, slightly
better off. Only the wealthiest 20 percent of Americans have
achieved income growth anything like the rates nearly everyone
experience between the 40's and early 70's. Meanwhile the income
of families high in the distribution has risen dramatically with
something like a doubling of real incomes of the top 1%.
These widening disparities are often attributed to the increasing
importance of education. But while it's true that, on average,
workers with a college education have done better than those
without, the bulk of the divergence has been among those with
similar levels of education. High-school teachers have not done
as badly as janitors but they have fallen dramatically behind
corporate CEOs, even though they have about the same amount of
Also, the growth of inequality cannot be described simply
as the rise of some group, such as the college-educated or the
top 20%, compared with the rest; the top 5 percent have gotten
richer compared with the next 15, the top 1 percent compared
with the next four, the top 0.25% compared with the next 0.75,
and onwards all the way up to Bill Gates. The important contribution
of Wolff's book is that it reinforces the evidence that much
of the important action in American inequality has taken place
way up the scale, among the extremely well-off.
Wolff focuses on wealth rather than income-on assets rather
than cash flow. This has some advantages over annual income
as an indicator of a family's economic position, especially among
the rich. Someone with a very high-income may be having an unusually
good year, while it is not unheard of for wealthy families to
have negative income if they make a bad investment; in each case
their assets will be a better clue to where they really fit into
the rankings. More important, however, wealth is in some ways
a better indicator than income data of what is happening to the
very successful-simply because it is so narrowly held: in 1989,
the top 1 percent of families owned 39% of the wealth but received
only ( a still impressive) 16% of the income.
A particularly striking statistic in Wolff's book should put
an end to the still widespread tendency to discuss the growth
of inequality in America by tracking the fortunes of the top
20 percent, or of college-educated workers. Between 1983 and
1989, while the wealth share of the top 20 percent of families
rose substantially, the share of percentiles 80 to 99 actually
fell. In other words when we say that America's rich have gotten
richer, by the " rich " we did not mean the garden
variety yuppies--we mean true plutocrats...
Many conservatives have probably stopped reading by now, or
at least stopped being able to respond to this article with anything
other than blind anger, but for those who are still with me let
me make a crucial point about the statistics: they say nothing
about who, if anyone, is to blame. To say that America was a
far more unequal society in 1989 than it was in 1973 is a simple
statement of fact, not an attack on Ronald Reagan. Think about
the parable of the fishermen and prospectors: the greater inequality
of the latter society did not come about because it has worse
leadership but because it lives in a different environment.
And changes in the environment--in world markets or in technology--might
change a society of middle-class fishermen into a society with
dismaying extremes of wealth and poverty, without necessarily
being the result of deliberate policies.
In fact, it's pretty certain that this is what is happening
in the United States . Ronald Reagan did not single-handedly
cause the incomes of the rich to soar and those of the poor to
decline. He did cut taxes at the top and social programs at
the bottom, but most of the growth in inequality to place in
the marketplace, in the pre-tax incomes of families. ( there
is a wide range of opinion as to just what happened with the
markets, though clearly technology and the changing international
trade scene played key roles. ) furthermore, the upward trend
in inequality began in the 70's under Nixon, Ford, and Carter
and continues in the nineties under Clinton; similar trends,
if not so dramatic, are visible in many other countries.
Yet income distribution is a politicized subject all the same.
The reason is obvious: the question of inequality is relevant
for policy-making. In the fisherman society, for example, people
might feel that only invalids, widows, and orphans deserve public
support. In the vastly unequal prospecting world, however, it
is easy to imagine a broad public demand that those who have
been lucky enough to find gold be required to share a significant
fraction of their winnings with those who have not. Indeed it
is hard to see how such a redistributionist program would not
be popular--if the public understood just what was going on....
Where did the 50k number come from? _I_ don't make that
It's what you need to be "middle class" this year--smack
in the middle of the third quintile of family income.
If you want to look at (pretax) average family incomes over
time (in 2000 dollars; adjusted for inflation), you can look
at the average incomes of the:
Year 2000 1973
Top 5%: $264K $154K
The next 15%: $113K $85K
The upper middle class (60%-80%): $73K $59K
The middle class (40%-60%): $50K $43K
The lower middle class (20%-40%): $32K $30K
The poor: $13.6K $13.6K
Now there are problems with these numbers. Briefly, they are
pretty good numbers if you are trying to gauge a family's ability
to purchase stuff that was made in 1973. But they don't take
account of the fact that people in 2000 have available a lot
of extra stuff that wasn't invented yet back in 1973. To the
extent that people value the ability to buy all the new stuff
that has been invented, these numbers understate economic growth:
it is not the case that America's poor today have no higher real
incomes than America's poor back in 1973.
On the other hand, since 1973 we have become a much more unequal
country. If you and your family are lucky (and skilled) enough
to occupy one of the top 5% slots in our country's labor-and-income
market, you are 70-plus-the-value-of-newly-invented-stuff richer
than your counterpart was back in 1973. If you and your family
occupy one of the 20%-40% slots in our country's labor-and-income
market, you are only 7-plus-the-value-of-newly-invented-stuff
richer than your counterpart was back in 1973.
Now I don't think that the U.S. upper class is any more skilled
or entrepreneurial or deserving or socially useful relative to
the rest of the country now than it was back in 1973--certainly
economic growth was faster in the 27 years before 1973 than it
has been in the 27 years since, suggesting that today's upper
class is less "deserving" than that of 1973 if your
gauge of the desert of an upper class is how well the whole society
does. Yet it is getting a much bigger share of the total economic
Not to put too fine a point on it, but redistribution of
wealth is only a mechanism of government, not the purpose of
government. According to Locke, Government is (or should be)
a reflection of the social contract among a nation's people.
In America, the social contract was initially intended to guarantee
freedom above all else
Not the case with William Bradford and John Winthrop: their
aim was to establish a Godly society, and extremes of wealth
and poverty were seen as inconsistent with that goal. They were
the only ones who established *explicit* social contracts.
Also not the case with either Hamilton or Jefferson, both
of whom wanted to use the government to shape the economy in
their respective desired directions.
And Adam Smith as well believed that extremes of wealth and
poverty--to guarantee to people the freedom to starve--were bad
things for a nation:
"Is ...improvement in the circumstances of the lower
ranks of the
people to be regarded as an advantage or as an inconveniency
the society?.... Servants, labourers, and workmen of different
make up the far greater part of every great political society.
what improves the circumstances of the greater part can never
regarded as an inconveniency to the whole. No society can surely
be flourishing and happy, of which the far greater part of the
members are poor and miserable. It is but equity, besides, that
they who feed, clothe, and lodge the whole body of the people,
should have such a share of the produce of their own labour
to be themselves tolerably well fed, clothed, and lodged..."
>I admired your selection of links and thought maybe
you had a few more
>on the minimum wage... I know the 'party lines' but was hoping
>something of a more nuanced argument that could be relayed
in a less
>divisive way than simply 'business vs. labor'... your argument
>workers are now paid only one-fourth of their productivity,
I fear, may
>be lost on many. I am trying merely to frame the debate to
>non-economists. What are your feelings on the proposed increase?
>rather more bluntly, how can the proposed minimum wage increase
David Card and Alan Krueger have a complicated argument about
the personnel strategies of firms that pay low wages that leads
them to their conclusion that increases in the minimum wage might
well *increase* employment. My view is that their argument is
much too clever to be correct, and that the best way to read
their statistical results is that they are masking a small (but
negative) effect of the minimum wage on employment.
On the other hand, if we want to keep America a middle-class
country of patriots (as opposed to a Latin American-style country
with sharp class divisions, and vicious and destructive class-based
politics), we need to be taking steps to moderate the rise in
income inequality that the market seems to be dealing us this
The problem is that all of the programs to attempt to offset
some of the rise in income inequality by lifting the boats at
the bottom have defects. Handing out federal vouchers for education
and training means that a lot of people will spend their vouchers
on frauds and cheats; having the federal government contract
directly for education and training programs is probably worse;
the earned income tax credit takes the IRS, an agency designed
to raise money from the rich through random terror, and transforms
it into a social welfare agency which cannot be good for its
long-term effectiveness; the minimum wage can keep firms from
hiring workers (and, in countries like France, can destroy the
low end of the labor market and create mass structural unemployment).
My view is that--given what the market has dealt us over the
past generation--we ought to be doing somewhat more to offset
the rise in the inequality of market income. My view is that
at present we are probably spending a bit too much on the earned
income tax credit, a bit too much on federally-contracted training
programs, too little on the minimum wage, and too little on job
But it's a hard problem. All of the options have drawbacks.
And so you want to find that balance between them that does some
good while minimizing the total amount of drawbacks...
With respect to your "big government" discussion...
I think that President Clinton in his State of the Union address
trying to buffalo you--or, rather, not you but his left-of-center
supporters (like me) who actually think that the U.S. would be
a better place if its government did a little bit more and was
somewhat closer to a western European social democratic-style
When President Clinton announced $100 billion in new initiatives,
I believe that he is counting up the cost of his proposals (which
will not be enacted into law) over the next five years. Think
of something like $20 billion per year--$70 per person per year--in
new spending proposals instead, and compare that to the $9,182
billion forecast of GDP during the 2000 fiscal year. Total production
in this country is something like $33,400 per person per year.
Federal government non-interest spending) is some $5,570 per
person per year.
Thus the $70 per person per year of which Clinton talked so
much in his State of the Union Address is a marginal change--a
marginal change that Clinton is trying to trumpet as bigger than
it is to try to please his left. But it won't mark the return
to big government.
We have big government--$5,570 per person per year in non-interest
What is that $5,570 per person per year spent on?
Well, the big-ticket items are, in dollars per person per
$1,370 Defense, plus veterans benefits, plus military retirement,
international aid (the last of these a measly $70 per person
per year--the cost of empire, you might say; or the cost
of the national security state, others might say; or the cost
the military that allowed our ideas time to win the Cold War,
others might say.
$1,470 Social Security benefits--there are, I think, good
having a partly public pension. Social Security is not terribly
generous, and entirely-private systems like Chile seem to burn
up an awful lot of money in marketing and administrative costs.
$1,280 Medicare plus Medicaid--there are, I think, good reasons
having large public health programs. The most important of them
is what the insurance people call adverse selection: you need
insurance in order to pay for treatment should something
horrible happen to you, but for-profit insurance companies
have every incentive to try to figure out who the bad risks
are, and to refuse to insure them at anything but high cost.
(But I don't think we get terribly good value for our Medicare
and Medicaid spending for a whole host of reasons.)
$540 Welfare broadly construed (food stamps + temporary assistance
to needy families + child nutrition + earned income tax
credit + foster care + other "income security" programs).
little over 1.5 percent of domestic product.
These four add up to $4,660 per person per year. That is 80%
of what the U.S. government does. And by and large I think it
is reasonable. I think it is worth spending, and I think it is
spent about as well as it could be, given the realities of how
If I were suddenly named Czar of the federal budget, I would
probably cut 1/3 out of defense (the Cold War *is* over, after
all), keep Social Security benefits about where they are, shift
some of Medicaid over to public health and try to think hard
about how to get better value out of the hospital sector, and
boost welfare spending--especially because attempts to do welfare
on the cheap in the past have left some horrendous penalties
to enterprise and industry in the system, and because a frighteningly-large
share of America's children are poor.
But I'm a social democrat...
The little-ticket items are:
$196 Civil service retirement.
$84 Unemployment insurance.
$149 Federal transportation expenditures.
$185 Federal education expenditures (including student loans).
$65 Science and space
$95 Health research and public health.
$81 Natural resources and environment.
$135 Justice and general government.
$100 "Other" domestic discretionary.
$25 Farm price supports.
$22 Universal service fund (Americorps).
Everyone can find at least three of these that should be zeroed
out immediately, and at least one that should be tripled...