Craig Steiner: The Myth of the Clinton Surplus

[Wrong Direction]

I suspect that if we reinstall the Repubs we would find again that they are still the same drunk spending irresponsible bums that they proved to be before.

So, our choice is between spineless corrupt bums and irresponsible cavalier corrupt bums who march in unanimous lockstep. Kind of scary, isn't it?

No. R's will be stingy until they have a R president who they can't oppose. Oh, and you seem to have omitted the fact that the R's were corrupt bums too. lol

[Wrong Direction]

Look at the big spike up starting at 1980. That's Reagan and Bush.

See the dip down? That's Clinton.

See it go back up? That's Bush, and now Obama.

Context really matters in all of this. Things like government revenues, make-up of Congress, wars, bubbles, and unemployment matter a lot.

For example, while I'm no Bush fan, it's funny that nobody mentions that unemployment was even lower in his administration than it was during Clinton's.

[Wrong Direction]

To be fair (which is never fair) one should acknowledge that the majority of money Obama spent was money spent to address the economic crisis he inherited. A stimulus that was deemed necessary by a broad majority on both sides and from most economic perspectives.

Still, Obama signed it and it is part of his legacy. I do think the "why" is useful though.

Exactly true...and Bush and Reagan inherited recessions and "fixed" things with tax cuts. What Bush actually inherited was somewhat similar to what Obama inherited, in terms of lost wealth in the recent past. It was different in terms of international issues (Bush had the intifada and a fledgling terrorist offensive, Obama had one ending war and another that he has escalated).

All I'm trying to say is that more context matters.

[Wrong Direction]

That's absolutely true, which is why when the economy is strong it's a good idea to decrease the debt relative to the GDP, just as Clinton did. And just as Bush did not do (okay, now I am passing judgement )

They call this a peace dividend, I believe.

[Hubbs]

If, however, you treat the transaction in which the government transferred cash from SS to general revenue as "borrowing", . . .

And, personally, I think that's the way it should be done. I think that the government figures ought to include the money "borrowed" from SS as a debt that's owed to that fund. I think that's the honest way to do things.

Where I have a problem is my suspicion that the same people who are claiming "Clinton didn't have a surplus, because he borrowed money from SS, and that there's a debt", when they trot out their "let's kill SS" agenda, will loudly announce that there is no such thing as an SS trust fund, it doesn't exist, it's never existed, it's just worthless pieces of paper, and SS will be bankrupt on the day when it ever asks for any of that money back. (Or, if they really want to try to simulate panic, they'll pull the "well, if the government were forced to come up, right now, with enough money to fund SS

forever

,

using only current revenues

, then the government would have to come up with a gazillion dollars, therefore SS is a gazillion dollars in debt, right now." game.)

You're only allowing for two possibilities - either the money was saved, in which case we still have it, or it was loaned, in which case we essentially count on payment in the same way that a bank includes a mortgage on its list of assets. But a mortgage only counts as an asset because it involves the bank getting capital it does not possess from somebody else. Either it will get payments from the homeowners, or it will get the house. A bank can't increase its assets by loaning money to itself. (Now, a smart cookie might say that the major banks have essentially been doing just that in a circle-jerk sort of way over the past decade. And I would point out to that smart cookie that we all know the inevitable results of such a plan.)

There's a third possibility: the money was spent. The fact that the right hand of the government gave the money to the left hand of the government before spending it doesn't change the ultimate direction of the money - outward. Away. Not here. And not "away" in the sense that the government turned it into guaranteed future repayment, unless you consider the left hand of the government giving money back to the right hand a guarantee. The left hand has to get the money first. Calling it a "trust fund" is no different than cashing out your entire 401k to throw a huge party, writing an I.O.U. to yourself for that exact same amount, and proudly claiming that you still have a retirement fund.

I don't think it was. We're in a better place than we were two years ago. Two years ago, we were hanging off a cliff with a 2 ton boulder strapped to our ankle. Now, at least we managed to cut the boulder free and grab a twig.

The economy seems better using a number of measures like growth. It's just that it's a long, long, long way from fixed. The self inflicted damage was MASSIVE and was never going to be quickly or easily erased.

Do you think we would have been in free-fall forever without the stimulus?

That's absolutely true, which is why when the economy is strong it's a good idea to decrease the debt relative to the GDP, just as Clinton did. And just as Bush did not do (okay, now I am passing judgement )

That way, when the economy does have an inevitable downturn, or if a rainy day occurs, you have some wiggle room. Obama came into office up against the wall. His solution was to spend anyway, which posterity will have to judge. But he should have never been put in that position in the first place.

That's at least closer to true Keynesianism than what we have now. To make Keynes really happy, the government would establish a big slush fund via surpluses during the good years - which, by the way, serves to mitigate Alan Greenspan's famous "irrational exuberance," or, as folks like myself describe it, boom-period malinvestment - then use the saved money to spend when the economy goes into recession, rather than going into debt to fund that spending.

Of course, whether such a plan could ever be considered realistic is extremely questionable.

[SnyderShrugged]

So many posts I want to respond to. I'll try to be brief.

There's nuance here that is (so far) missing in this thread, though I haven't read it all.

The Clinton economy produced a huge tech bubble and actually claims high home ownership and low interest rates as strengths. Note what happened 8 years later with the banks.

Clinton touted the policies. The Republicans were supportive of the policies. Greenspan played well in the sandbox with Bush, Clinton and Bush. Bush II continued the policies with full support of Democrat party leadership like Dodd, Frank and *gulp* Obama.

In other words, I firmly believe the meldtown of 08, which continues today, was the direct result of the economic policy of Washington, not of Bush, Clinton, or anyone else. It was the policy of conventional wisdom...it created a ton of wealth and then destroyed it TWICE (don't forget the huge stock bubble that blew up while Clinton was still in office).

We need to kick them all out.

Nothing I disagree with in this post but I'm curious how it fits as a response to my post earlier?

I was expressing a desire to return to 1997 spending levels.

[Burgold]

Do you think we would have been in free-fall forever without the stimulus?

No, but I think the country as we know it would have changed drastically. There's a very good chance that BOA and CITI would have failed and the banking system in this country would have entirely collapsed. That could have caused a chain reaction that would have sunk more than half the small businesses in America and many of the big ones too. We'd also have no domestic auto industry which by the time that tsunami ended would have cost us hundreds of thousands of jobs.

So, looking at where we are and where there was a very good chance we were heading too one probably shouldn't feel happy, but one should feel a little relieved.

[SnyderShrugged]

No, but I think the country as we know it would have changed drastically. There's a very good chance that BOA and CITI would have failed and the banking system in this country would have entirely collapsed. That could have caused a chain reaction that would have sunk more than half the small businesses in America and many of the big ones too. We'd also have no domestic auto industry which by the time that tsunami ended would have cost us hundreds of thousands of jobs.

So, looking at where we are and where there was a very good chance we were heading too one probably shouldn't feel happy, but one should feel a little relieved.

There is no way to validate those assumptions though. Many economists (those that were found as correct about the impact of the stimulus btw) disagreed with the entire "too big to fail" model. So to me, its likely that the sky will fall POV on BOA and CITI was just an establishment big government set of faulty and unprovable logic to justify a massive expansion of spending and Federal power.

[ABQCOWBOY]

Henry, your debt as compared to GDP chart is pretty informative. I thought about that last night after I posted this, I'm glad you did the legwork for me.

I'm not claiming Clinton doesn't have a better fiscal record than Bush, Reagan or W. The debt didn't increase nearly as fast during the Clinton administration, no one can argue that. But there was no surplus at any time, either.

I don't think that goes far enough. Our aim shouldn't just be to decrease debt relative to GDP, it should be to decrease debt overall during good economic times.

Clinton really had no Wars to contend with, which was a great advantage for him IMO. This is not to say that he could or could not have managed the country well, from a fiscal point of view, but that fact that there was no drain on his financial administration, such as the Cold War, Desert Storm or our current War was a huge advantage for him.

[Larry]

There's a third possibility: the money was spent. The fact that the right hand of the government gave the money to the left hand of the government before spending it doesn't change the ultimate direction of the money - outward. Away. Not here. And not "away" in the sense that the government turned it into guaranteed future repayment, unless you consider the left hand of the government giving money back to the right hand a guarantee. The left hand has to get the money first. Calling it a "trust fund" is no different than cashing out your entire 401k to throw a huge party, writing an I.O.U. to yourself for that exact same amount, and proudly claiming that you still have a retirement fund.

Or there's a fourth possibility. The spin you're shoveling.

Which is "when the government transfers money from account A to account B, claim that account B has incurred a debt, but that account A doesn't have an asset".

The government took in more money than it spent, in FY 2000. That's a fact.

Now, if you break it down into "SS" and "the rest of the government", then "the rest of the government" had a deficit, and "SS" had a (larger) surplus.

Either the debt to SS exists, or it does not. It's not a case if "it exists when you want to try to eliminate a Democrat talking point, but it doesn't exist when you want to push a Republican one".

[Burgold]

There is no way to validate those assumptions though. Many economists (those that were found as correct about the impact of the stimulus btw) I'd also argue that there's no way to prove that they were correct about the stimulus disagreed with the entire "too big to fail" model.

So to me, its likely that the sky will fall POV on BOA and CITI was just an establishment big government set of faulty and unprovable logic to justify a massive expansion of spending and Federal power.

If you look at the reports and statements from the banks and how many other giants were falling and how many banks and other collosus institutions actually fell... it's a pretty good bet the Citi and BOA were on their way down. Look at the reports coming from those institutions, look at their trading prices during those periods.

[Popeman38]

Or there's a fourth possibility. The spin you're shoveling.

Which is "when the government transfers money from account A to account B, claim that account B has incurred a debt, but that account A doesn't have an asset".

The government took in more money than it spent, in FY 2000. That's a fact.

Umm, according to the link in the original, FY 2000 ended with a deficit of $17.9B. So the govt spent $17.9B more than it took in. They did so by borrowing $248.7B from SS and other retirement trust funds and marking it as revenue, and paying down the public debt of $230.8B. That leaves in increase of the National Debt by $17.9B, which contradicts everything ever written about Clinton. In other words, the govt is doing exactly what Enron and WorldCom was doing, except no one is going to jail. They are cooking the books.

Now, if you break it down into "SS" and "the rest of the government", then "the rest of the government" had a deficit, and "SS" had a (larger) surplus.

Either the debt to SS exists, or it does not. It's not a case if "it exists when you want to try to eliminate a Democrat talking point, but it doesn't exist when you want to push a Republican one".

Wrong. The debt the rest of the govt had was $17.9B more than the SS surplus. Hence how they applied only $230.8B towards the public debt, yet incurred and added $17.9B onto the National Debt. The govt will have to pay back the $17.8B (plus interest) when SS comes calling. From where will the govt come up with that money? They will borrow it from other funds. You can't cover debt with other debt and call it a surplus. You could claim that SS had a surplus, but SS is not supposed to be used as a revenue stream for politicians writing checks that their ass can't cash.

[Wrong Direction]

Nothing I disagree with in this post but I'm curious how it fits as a response to my post earlier?

I was expressing a desire to return to 1997 spending levels.

I probably just didn't read it closely enough.

[Hubbs]

So many posts I want to respond to. I'll try to be brief.

There's nuance here that is (so far) missing in this thread, though I haven't read it all.

The Clinton economy produced a huge tech bubble and actually claims high home ownership and low interest rates as strengths. Note what happened 8 years later with the banks.

Clinton touted the policies. The Republicans were supportive of the policies. Greenspan played well in the sandbox with Bush, Clinton and Bush. Bush II continued the policies with full support of Democrat party leadership like Dodd, Frank and *gulp* Obama.

In other words, I firmly believe the meldtown of 08, which continues today, was the direct result of the economic policy of Washington, not of Bush, Clinton, or anyone else. It was the policy of conventional wisdom...it created a ton of wealth and then destroyed it TWICE (don't forget the huge stock bubble that blew up while Clinton was still in office).

We need to kick them all out.

You're more right than you know.

Decades ago, we decided that we wanted more people to own homes. This seemed like a good decision. Owning a home is lovely. It comes with many perks. But it's pretty hard to pay for one. So, if you want to have an effect on the ability of the general population to buy a home, you have two choices. You can either pursue policies that will make homes cheaper, or you can pursue policies that will make it easier for people to borrow what they need for the purchase.

We chose the latter. We created tax incentives for getting a mortgage, and for making mortgage payments. A slightly larger percentage of the population could borrow the money they needed to pay for a home. This, everybody agreed, was a very good idea. We expanded the activity of Fannie and Freddie. Once again, slightly larger percentage of the population could borrow the money they needed to buy a home. This, everybody agreed, was a very good idea.

I'd like to pause here, because you may be asking, "Um, if you do things that allow more people to borrow money for a home than the number that would be able to do so without those policies, doesn't that increase demand?" Yes. You may then ask, "Doesn't increased demand result in higher prices than would otherwise exist without those extra loans?" Once again, yes. And you may continue by asking, "Wait, you're trying to make it possible for more people to afford a home by doing things that send prices higher?"

Anyway, back to the story. Occasionally, the percentage of people buying a home would stop growing. Such a tragedy could either happen because of outside economic forces, like a recession, or it could happen because the previous efforts to expand home ownership had reached their maximum effectiveness. Coincidentally, housing prices would slow down, or even dip a bit, around those same times. This, everybody agreed, sounded very bad. So little "extra boosts" would be given to homebuyers, often as part of larger efforts intended to "get Americans spending again." After all, if Americans had to devote a greater portion of their incomes to paying off their mortgages, they wouldn't be able to buy as many new widgets, and few things are a better quick-fix for economic numbers than widget-buying. But if Americans were able to pay off their mortgages whenever they sold their homes, and could buy their next home knowing that they'd be able to pay for it whenever they wanted to sell again, then they'd barely have to devote anything to paying off mortgages. Even better, as prices continued to go up, people began to realize that they could borrow the difference between their original mortgage and the new value of their home before they sold it, because when they did sell, their homes would be worth even more, so they could pay the extra loans back, too - and those extra loans allowed for similarly extra widget-buying! This, everybody agreed, was a very good idea. And since More Homeownership was working out so well for so many people, we continued to do things that made it even easier for the Few Non-homeowners to borrow what they needed to buy a home. Practically anyone could borrow that money. Even better, banks discovered that all sorts of folks wanted to somehow invest in mortgages without going through the actual lending process. So the banks began to sell packages of mortgages that would return money as homeowners made payments. Credit-rating agencies told investors that these packages were safer than safe, because it was virtually impossible to default on a mortgage while prices were rising. And rising those prices were - racing upward faster than ever, as a matter of fact. Yet, at the same time, more people than ever could afford a home. This, everybody agreed, did not need to be thought about very much.

Then, one day, we ran out of More Homeowners.

So here we sit. Once every few weeks, someone Very Important will stand up and yell, "We can't allow housing prices to dip any further! It would crush our economy!" Then someone else Very Important will rise and shout, "Indeed! We can't let the economy get any worse! Hardly anyone can buy a home as it is - just imagine how bad it would be under worse conditions!" On cue, a third someone Very Important will come to his feet and declare, "I agree! No two goals are more important than pushing home prices up again, while also achieving More Homeownership!" And even in our current mess, there are nods of approval far and wide. For this, everybody agrees, is a very good idea.

EDIT: Wanted to rewrite a sentence about securitization, then forgot to do the "writing" part of rewriting.

[SnyderShrugged]

If you look at the reports and statements from the banks and how many other giants were falling and how many banks and other collosus institutions actually fell... it's a pretty good bet the Citi and BOA were on their way down. Look at the reports coming from those institutions, look at their trading prices during those periods.

Them going down didnt neccessarliy mean a calamity.

[Hubbs]

Or there's a fourth possibility. The spin you're shoveling.

Which is "when the government transfers money from account A to account B, claim that account B has incurred a debt, but that account A doesn't have an asset".

The government took in more money than it spent, in FY 2000. That's a fact.

Now, if you break it down into "SS" and "the rest of the government", then "the rest of the government" had a deficit, and "SS" had a (larger) surplus.

Either the debt to SS exists, or it does not. It's not a case if "it exists when you want to try to eliminate a Democrat talking point, but it doesn't exist when you want to push a Republican one".

Who said I was trying to eliminate a Democratic talking point? I was strictly talking about the so-called "trust fund." It's a ludicrous notion, unless you believe that I can owe money to myself. If SS income is immediately spent, then it's as much a part of the annual budget as defense spending. I have no problem saying Clinton had a $17 billion surplus one year. It's infinitely more accurate than saying that SS has stuffed several trillion dollars under its mattress.

[Wrong Direction]

You're more right than you know.

Decades ago, we decided that we wanted more people to own homes. This seemed like a good decision. Owning a home is lovely. It comes with many perks. But it's pretty hard to pay for one. So, if you want to have an effect on the ability of a large population to buy a home, you have two choices. You can either pursue policies that will make homes cheaper, or you can pursue policies that will make it easier for people to borrow what they need to buy a home.

We chose the latter. We created tax incentives for getting a mortgage, and for making mortgage payments. A slightly larger percentage of the population could borrow the money they needed to pay for a home. This, everybody agreed, was a very good idea. We expanded the activity of Fannie and Freddie. Once again, slightly larger percentage of the population could borrow the money they needed to buy a home. This, everybody agreed, was a very good idea.

I'd like to pause here, because you may be asking, "Um, if you do things that allow more people to borrow money for a home than the number that would be able to do so without those policies, doesn't that increase demand?" Yes. You may then ask, "Doesn't increased demand result in higher prices than would otherwise exist without those extra loans?" Once again, yes. And you may continue by asking, "Wait, you're trying to make it possible for more people to afford a home by doing things that send prices higher?"

Anyway, back to the story. Occasionally, the percentage of people buying a home would stop growing. Such a tragedy could either happen because of outside economic forces, like a recession, or it could happen because the previous efforts to expand home ownership had reached their maximum effectiveness. Coincidentally, housing prices would slow down, or even dip a bit, around those same times. This, everybody agreed, sounded very bad. So little "extra boosts" would be given to homebuyers, often as part of larger efforts intended to "get Americans spending again." After all, if Americans had to devote a greater portion of their incomes to paying off their mortgages, they wouldn't be able to buy as many new widgets, and few things are a better quick-fix for economic numbers than widget-buying. On the other hand, if Americans were able to pay off their mortgages whenever they sold their homes, and could buy their next home knowing that they'd be able to pay for it whenever they wanted to sell again, then they'd barely have to devote anything to paying off mortgages. Even better, as prices continued to go up, people began to realize that they could borrow the difference between their original mortgage and the new value of their home before they sold it, because when they did sell, their homes would be worth even more, so they could pay the extra loans back, too - and those loans allowed for even more widget-buying! This, everybody agreed, was a very good idea. And since More Homeownership was working out so well for so many people, we continued to do things that made it even easier for people to borrow what they needed to buy a home. Practically anyone could borrow that money. Prices race upward faster than ever, yet, somehow, more people than ever could afford a home. This, everybody agreed, did not need to be thought about very much.

Then, one day, we ran out of More Homeowners.

So here we sit. Once every few weeks, someone Very Important will stand up and yell, "We can't allow housing prices to dip any further! It would crush our economy!" Then someone else Very Important will rise and yell, "Indeed! We can't let the economy get any worse! Hardly anyone can buy a home as it is - just imagine how bad it would be under worse conditions!" On cue, a third someone Very Important will come to his feet and declare, "I agree! No two goals are more important than pushing home prices up again, while also achieving More Homeownership!" And even in our current mess, there are nods of approval far and wide. For this, everybody agrees, is a very good idea.

This is one of the better posts I've read on this site.

For all of the people who want to blame these issues on bank greed, please read the above, consider the mortgatge tax credit, historically low interest rates, Fannie and Freddie incentives to target low income and minorities, and please have an open mind that much of this problem is caused by government activism, though bank greed is another large part (which I'm not trying to discount).

And then, consider how government activism could effect other things. Chapter 2 of this book could be college tuition prices. Chapter 3 could easily be the cost of healthcare. Chapter 4 - productivity of public education...

[Wrong Direction]

Who said I was trying to eliminate a Democratic talking point? I was strictly talking about the so-called "trust fund." It's a ludicrous notion, unless you believe that I can owe money to myself. If SS income is immediately spent, then it's as much a part of the annual budget as defense spending. I have no problem saying Clinton had a $17 billion surplus one year. It's infinitely more accurate than saying that SS has stuffed several trillion dollars under its mattress.

It's also worth noting that, even with deficits, the budget was clearly in much better shape during the Clinton administration. [insert R congress, promulgation of the pc and internet and associated increases in productivity, tech bubble, welfare reform, Cold War peace dividend, free trade agreements and more as meaningful context.]

[Henry]

Long post I won't re-quote

I rather enjoyed that. Did you write it?

[Hubbs]

No, but I think the country as we know it would have changed drastically. There's a very good chance that BOA and CITI would have failed and the banking system in this country would have entirely collapsed. That could have caused a chain reaction that would have sunk more than half the small businesses in America and many of the big ones too. We'd also have no domestic auto industry which by the time that tsunami ended would have cost us hundreds of thousands of jobs.

So, looking at where we are and where there was a very good chance we were heading too one probably shouldn't feel happy, but one should feel a little relieved.

If you look at the reports and statements from the banks and how many other giants were falling and how many banks and other collosus institutions actually fell... it's a pretty good bet the Citi and BOA were on their way down. Look at the reports coming from those institutions, look at their trading prices during those periods.

I think you're combining the stimulus and the bailouts.

This is one of the better posts I've read on this site.

I rather enjoyed that. Did you write it?

Gracias. And yes, I did. Got caught up in some sort of economic reply to an earlier post, and it turned into that. Not really sure how that happened, but now I'll have to spend an extra twenty minutes doing actual work sometime later. Stupid ES addiction.

[Seabee1973]

Cutting taxes while running up a deficit is what I really had an issue with. That's just pandering to get votes at the expense of all of us. Taxes have to go up that's just a fact of life. No other way to fix the situation. I don't buy into the trickle down mumbo jumbo. Reagan just left his deficit for Bush 1 to fix and lose the re-election because of.

Lots of things both parties do to pander to get the votes

[ABQCOWBOY]

Cutting taxes while running up a deficit is what I really had an issue with. That's just pandering to get votes at the expense of all of us. Taxes have to go up that's just a fact of life. No other way to fix the situation. I don't buy into the trickle down mumbo jumbo. Reagan just left his deficit for Bush 1 to fix and lose the re-election because of.

Why do Taxes have to go up? Why can't programs be cut?

[Popeman38]

Why do Taxes have to go up? Why can't programs be cut?

Because you can't cut programs, that gets you voted out of office faster than raising taxes.

[ABQCOWBOY]

Because you can't cut programs, that gets you voted out of office faster than raising taxes.

A true statement.

[NoCalMike]

Most liberals aren't that big a fan of Clinton's economic policies either because he basically gave in to Reaganomics and the Free Trade/NAFTA crowd. Clinton did his fair share part of keeping the bubble inflating and passing it on.

I am not arguing any of that, I am arguing that it is somehow "liberal economic policy" that was behind it, because nothing about it was "liberal"