Capital Commerce hosted a compelling, no-holds-barred economics debate last week between financial pros and blogging greats Donald Luskin and Barry Ritholtz, which had the one downside of not letting me address the controversy that flared up over which economy has been superiorthe Bush economy or the Clinton economy.
First, some context. When Bill Clinton became president in 1993, he was dealt the greatest hand since Phil Jackson became coach of the Chicago Bulls with probable future hall-of-famers Michael Jordan and Scottie Pippen already on the team. The U.S. economy was already expanding, and the disintegration of the Soviet Union seemingly meant that defense spending could come downwhich encouraged Federal Reserve Chairman Alan Greenspan to cut interest rates. Then Clinton got a Republican Congress in 1995 that was also eager to bring the budget into balance.
By contrast, Bush inherited an expansion that was on its last legs, and then he had to raise defense spending to deal with the biggest attack on America in its historyof course, neither Bush nor Congress has shown a whole lot of interest in controlling nondefense spending. Now, one way to statistically compare the two economic records is by looking at the Bush expansion vs. the Clinton expansion. And 21 quarters into each, the economy has grown 16.6 percent under Bush vs. 19.9 percent under Clintonadvantage No. 42. And the unemployment rate 22 quarters into each expansionjobs numbers come out more frequently show that the current unemployment rate is 4.4 percent vs. 4.5 percent under Clinton. Slight edge to No. 43. Now, when you add inor subtract outthe effects of the stock market (for Clinton) and housing bubbles (for Bush) and where each president began, I think this ends up as a "pick 'em" situation at this point. Here is what White House spokesman Tony Fratto told the Washington Examiner last week:
"This is a much stronger expansion in a lot of ways. It's much deeper and more measured ... If you go back to this point in the Clinton expansion, they would have loved to have seen the numbers that we have right now. ... On the unemployment rate, we're a full percentage point below where they were at the same point in the expansion60 or 61 months in. They would have loved to have been at 4.4 percent. They were still up in the mid-5s, which is huge, when you think about it."
OK, let's use Fratto's methodology. I checked the employment data from the U.S. Bureau of Labor Statistics and found that 60 months into the Clinton expansion, the unemployment rate was 4.7 percent vs. 4.5 percent for Bush. The last time the jobless rate was as high as 5.3 percent under Clinton was January 1997, 49 months into the Clinton expansion. Fratto and I went back and forth on the numbers and how to best date the expansions, but his bottom linevia E-mailis this:
"The Clinton administration clearly benefited from an expansion that began well before the election and well before they ever passed a single piece of economic legislation. This administration was clearly hurt by being greeted with a recession and the implosion of the technology bubble well before we ever passed any part of our economic policy."
But my bottom line is that neither Clinton nor Bush was or has been a game changer. (My friend Larry Kudlow has a great post on this topic here.) FDR was a game changer. Reagan was a game changer. I think to be a game changer today you have to 1) revamp America's social insurance program for the 21st-century challenges of globalization and changing demographics, and 2) reform America's creaky and complex tax system to better allow the nation to innovate and compete. Still waiting on those.