A New Democrat?: The Economic Performance of the Clinton Presidency.

• Author: BURNS, JOHN W.

When it comes to talk about the Clinton legacy, one question repeatedly asked--if not as often as more awkward alternatives--concerns the president's political philosophy. What kind of a Democrat has Bill Clinton been? It is now part of political folklore that during the 1992 presidential campaign, Clinton declared himself a "New Democrat." On economic issues, the New Democrat label meant that Clinton intended to stake out positions more conservative than those adopted by previous Democratic presidents. The liberal of a of big government, he declared once in office, was over. And indeed, as president, Clinton has certainly promoted major legislation that breaks with liberal orthodoxy. The 1996 welfare overhaul, for instance, ended the sixty-year-old Democratic policy of Aid to Families with Dependent Children. Moreover, a 1997 legislative agreement with congressional Republicans pledged to balance the federal budget for the first time since 1969.

Yet not all of Clinton's major economic policy initiatives have tracked in a New Democrat direction. Although unsuccessful, the president sought to enact sweeping reform of the nation's health-care system. His plan relied on more not less government intervention, on old not new Democrat principles (Skocpol 1996). In 1993, Clinton tried to get Congress to accept a $30 billion economic stimulus package. That year he also promoted and approved one of the largest tax increases in U.S. history--$240 billion over five years. Designed to erode the deficit--which is a conservative economic-policy goal--that legislation, in liberal fashion, contained a tax hike targeted mainly at the wealthiest Americans.

In this article, we examine the Clinton economic record in order to discover whether the president has governed as a New Democrat. This task is important in at least two regards. First, for reasons of democratic accountability, it is critical for citizens of this country to be able to evaluate whether presidents have followed through on campaign pledges. Second, over the course of the post-World War II era, Democrats and Republicans have generally favored different macroeconomic, fiscal, monetary, and regulatory policies (Coleman 1996; Hibbs 1987; Quinn and Shapiro 1991; Tufte 1978).(1) Consequently, which party wins control of the presidency has significant implications for the U.S. economy.(2) Democratic administrations have tended to stress lowering unemployment and interest rates, stimulating economic growth, spending federal money on domestic programs, and increasing government regulation of business. Republicans, conversely, have emphasized lowering inflation and spending less money on federal projects. Vis-a-vis Democrats, they have also stressed lower deficits and less government regulation of business and have been less inclined to place emphasis on economic growth and reducing interest rates.(3) If Clinton is, as he claims, a New Democrat, he will, at the very least, reveal himself to be an anomaly. We may even be witnessing a shift in the economic policy outcomes that can be expected under Democratic administrations.

To assess Clinton's performance, we compare policy outcomes in the Clinton era with those of other postwar Democratic and Republican presidencies. We evaluate four policy areas: macroeconomic policy, fiscal policy, monetary policy, and regulatory policy. We understand that presidents alone do not control economic outcomes. They operate within an environment requiring compromise and negotiation with Congress, especially but not only during periods of divided government. In addition, the Federal Reserve wields significant power over monetary policy, which in turn gives the nation's central bank influence over general macroeconomic conditions. All presidents are also at the mercy of the domestic business cycle--swings in the U.S. economy that politics cannot completely explain--and of the policies of other countries, as well as of the vicissitudes of international capital markets. Presidential action is just one of several variables that affect U.S. economic health.

Nevertheless, although far from all-powerful, presidents retain significant influence over the direction and health of the nation's economy. The president's policies set the fiscal and regulatory policy agenda and therefore greatly shape outcomes in those areas (Light 1999). Fiscal and regulatory policies affect macroeconomic conditions, and presidents, it has been shown, exert much influence over the policies of the Fed (Havrilesky 1995). In any event, examining outcomes is more manageable and fruitful than analyzing presidential intentions and policies. Presidential intentions, unlike economic outcomes, can be nebulous and often symbolic. They are also, for better or worse, not the basis on which Americans cast their votes (Fiorina 1981; Popkin 1991).

Macroeconomic Policy

We begin with an analysis of inflation and unemployment, two significant measures of macroeconomic conditions in the United States. As we suggested earlier, Democratic and Republican administrations have been associated with differing levels of inflation and unemployment since the New Deal. When compared with their Republican counterparts, Democratic presidents have tended to lower the rate of unemployment and tolerate relatively high levels of inflation. Some studies claim these policy differences result from the class base of the parties (Hibbs 1987; Tufte 1978), whereas others maintain that differences in macroeconomic outcomes derive from Democrats and Republicans' differing beliefs about how to generate economic growth (Coleman 1996; Quinn and Shapiro 1991). Whatever the specific causes of the phenomena, one point seems clear: fluctuations in inflation and unemployment outcomes depend significantly on the partisanship of the president. If Clinton is a New Democrat, he should therefore tolerate less inflation and more unemployment than have previous Democratic administrations.

Figure 1 displays the annual December-to-December percentage change of the consumer price index (CPI) from 1947 to 1999. As stated, we can see that the years when Democratic presidents occupied the White House generally exhibit higher rates of inflation than those years when Republicans controlled the presidency.(4) In New Democrat fashion, the Clinton administration breaks with this general pattern. The mean inflation rate under Clinton stands at 2.3 percent, about half that achieved by Democratic administrations and even lower than the postwar Republican average.

[Figure 1 ILLUSTRATION OMITTED]

As alluded to earlier, no economic condition is entirely within the president's control. Indeed, long-term political and economic developments in the United States have undoubtedly contributed to the low level of inflation during Clinton's presidency. The decades-long decline in the membership and power of labor unions has resulted in a lessening of pressures for wage and benefit increases, a situation that the increased job insecurity, of the 1990s has only intensified (Blecker 1994; Gordon 1994). In addition, breakthroughs in computer technology and the worldwide drop in oil prices have contributed to a decline in the cost of doing business in the United States (Mandel and Farrell 1998; Zuckerman 1998). The OPEC oil shocks, the Vietnam War, and burgeoning federal budget deficit, on the other hand, conspired to trigger an overall spike in prices from the early 1970s through much of the 1980s (Berman 1994, 37-59; Matusow 1998). Whatever the impact of exogenous forces, however, it must still be noted that Clinton's performance on inflation clearly does not hurt his New Democrat credentials.

The same can be said for unemployment. Figure 2 shows this other critical macroeconomic indicator, specifically, the mean monthly unemployment rate by year since 1947. The figure shows, as expected, that unemployment has been lower under Democratic administrations than under their Republican counterparts (Hibbs 1987; Tufte 1978). The mean unemployment rate for Democrats, excluding Clinton, stands at 4.3 percent, much lower than the 6.1 percent average for Republicans. To be sure, it must be said that Clinton is bringing unemployment down, and as the thirty-year low of 3.9 percent for April 2000 illustrates, his record has been extremely impressive during the second term. But again, Clinton's performance looks like that of a different kind of Democrat. As if to underscore the point, the president has been a vocal advocate of free trade. Labor unions have assailed the North American Free Trade Agreement, the World Trade Organization (WTO), and permanent normal trade relations with China as costing jobs in the United States.(5)

[Figure 2 ILLUSTRATION OMITTED]

Fiscal Policy

We now examine the Clinton record in historical perspective with respect to three indexes of fiscal policy: discretionary domestic spending, the federal budget deficit, and taxes. We begin with discretionary domestic spending.(6) Democrats are the party most closely associated with domestic spending, through their traditional support of social welfare programs and public works projects. At times, Republicans also have supported domestic expenditures, but they have been far more likely than Democrats to voice concerns about wasteful government spending (Hibbs 1987). Figure 3 displays the annual percentage change of discretionary domestic spending from 1947 to 1999 and largely confirms our expectations.(7) The figure demonstrates that years when a Democrat was president tended to have larger increases in discretionary domestic spending than those years when a Republican occupied the Oval Office. Notice, for example, the relatively large and consistent increases in the mid-1960s.(8) Spending in the Clinton era, however, has more closely resembled that of Republican regimes, with the conspicuous exception of Ford's term and a few years of Eisenhower's terms. Indeed, Reagan's terms aside...