Clinton economy overshadowed by the Bush economy

Bill Sammon of the Washington Examiner reports today that the White House says the economy over which this administration has presided is more robust than the Clinton era economy;

The White House says the economic surge that began five and a half years ago on President Bush’s watch is more robust than the much-touted expansion during the Clinton administration.

“This is a much stronger expansion in a lot of ways,” White House spokesman Tony Fratto told The Examiner. “It’s much deeper and more measured.”

Fratto’s assertion was disputed by Gene Sperling, economic adviser to presidential candidate Hillary Rodham Clinton, who spoke to The Examiner in his capacity as former National Economic Adviser to President Bill Clinton.

“That’s a rather absurd claim,” said Sperling, a senior fellow at the liberal Center for American Progress. “In terms of job creation, in terms of wage growth, in terms of business investment, in terms of poverty, there’s absolutely no comparison.”

Sperling is right – there is no comparison. The last half of the Clinton economic growth was built on pure speculation rather than based on sound economic indicators. Stock prices were 80 times earnings – meaning that dividends didn’t justify the stock prices. That’s called speculation. The Clinton Administration announced in 1997 that they had completely made the stock market safe for investors by ending negative business cycles. Just three years before we discovered how Enron had fooled investors into investing in their failing company for more than three years.

In fact, Enron should have become the symbol of the Clinton Administration’s economic policy. Enron’s board and employees were complicit in building a cardboard facade around an empty building. I find it hard to feel sorry for Enron employees who lost their fortunes in company stock. There had to be rumors circulating among them about the fake trading floors, ther had to people who knew Enron was engaged in defrauding investors.

At the very least, employees had to know that no one invests their entire lifesavings in one company. Irrational investments result from succumbing to greed. My wife works for Lockheed Martin, but we certainly don’t have all of her retirement in L-M stock. What goes up eventually comes down. You don’t win in the stock market by following the crowd – you have to be there when everyone gets there and then leave quickly. 

By the same token, there had to be members of the Clinton Administration who knew they were defrauding the American people by trumpeting the ballooning US economy that was inevitably heading for a crash. Companies with no business plans were selling stock hand over fist, investors were borrowing on their houses to invest. And when it all began to collapse in March 2000 (oddly enough on the day that the Clinton Administration Justice Department filed charges against Microsoft), investors who had believed the bluster and chest pounding from the Clinton White House had to come up with cash to pay off their debts (in their refi’d homes and margin accounts), which meant selling depreciated stock, which in turn drove the market lower.

So while the stock market spiraled south, companies who had pennies of earnings and had existed soley to sell their stock, shuttered their doors and layed off employees in droves. Who did the Clintons blame? Who else – Candidate Bush who had, supposedly, “talked the economy down”. In fact, there were employees working for companies that shouldn’t have existed in the first place. The Clintons thought that they could base an economy on their incessant yammering.

But this economy is based on solid growth, no one has tried to talk this economy as hard as the Democrats (worst economy since Herbert Hoover?) and it remains unaffected. Investor confidence is moderate, employment is solid (although it must turn south sometime and probably this year), investors are investing in solid companies, not speculating – although Jim Cramer would like them to do otherwise. 401k and IRA money is still pouring into the market at a record pace with increased contribution limits (thanks to the Bush tax cuts).  

Sperling has always been one of the “legacy builders” at the Clinton Administration, but no amount of blather can rewrite history.

Category: Economy, Historical