December 22, 2015
This is what the NYT told readers in an article that reported Secretary Clinton wants to embrace her husband’s economic record as president. While the last four years of the Clinton presidency did have low unemployment and rising real wages for workers at the middle and bottom of the income distribution, these gains were driven by the demand generated by the stock bubble.
The bubble led to a surge of investment in high tech, as start-ups were using the money they could raise from issuing stock to finance their investment. (Generally companies first issue stock to allow the founders to cash out some of their profits.) The stock wealth generated by the bubble also led to a consumption boom as savings rate fell to what were at the time record lows.
While the bubble did produce a period of prosperity, its collapse was both inevitable and predictable. While the recession resulting from the crash is usually thought to have been short and mild, it actually led to what was at the time the longest period without job growth since the Great Depression. The economy did not gain back the jobs lost in the recession until January of 2005. At the time, the economy was being propelled by the housing bubble.
Clintonomics set the economy on this path of bubble driven growth through its engineering of the bailout from the East Asian financial crisis. The result of the bailout was a huge run-up in the dollar against other currencies. Developing countries, which had been borrowing capital, switched to become huge lenders of capital as they tried to accumulate all the reserves they could to protect themselves from facing a similar situation as the East Asian countries.
The direct result of the run-up in the dollar was an explosion in size of the U.S. trade deficit, as the over-valued dollar made U.S. produced goods and services less competitive in the world economy. The trade deficit has led to a huge gap in demand (now around $500 billion annually) which can be filled only by large budget deficits or bubble-driven growth.
It is striking that Secretary Clinton would embrace policies that have led to so much pain for large segments of the American public. This could hurt her prospects in getting the nomination or winning the general election.
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