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Another Clinton Economy? Count Me Out!

How many of you have heard that a President Hillary Clinton would put Bill Clinton in charge of reinvigorating the economy, because “[H]e knows how to do it?”  How many of you remember the 1990s and the Market Crash of 2000?  How many of you think that Bill Clinton would be the answer to the lowsy Obama economy?

Take a minute to read if you think you fondly remember those halcyon days of the 1990s, when there was nothing but riches and opportunity for everyone.  I have said for years that Bill Clinton was the luckiest man alive, for more reasons that I care to discuss.  Our show and our blog are about finances – your finances, our finances, and the finances of this once-great economic powerhouse nation.

Another favorite saying of mine is that Clinton served the only 7-year presidency in American history.  Why do I say that?  Simple – no one ever talks about the way things were left by the time he turned over the keys to Air Force One to George W. Bush.  It is as if the 8th year of Clinton never existed, along with the myriad problems that emerged from his antics and policies.  How about a reminder or two?

A little reflection first is in order, as we need to set the stage.  In 1992, whle first running for election, Clinton promised to “raise taxes on the rich,” while at the same time promising a “middle-class tax cut.”  He kept one of those promises.  Remember the trembling lip and the “I’ve never worked so hard in my life” speech, in which he explained to the middle class that they would not, after all, be receiving a tax cut?  I do!  Sure glad I didn’t have my tax cut pre-spent.

Most of the people know that raising taxes robs the consumers of purchasing power, and thus puts a damper on consumer spending, which is 70% of our consumer-driven national economy.  Cutting taxes has worked every time it was tried, whether under JFK, Reagan, or whomever.  So why were things pretty cushy in the ‘90s, after taxes were increased?  Technology, as well as a couple specific items that seem to have been forgotten.

Coming into the 1993 economy, virtually no one had the Internet in their home.  Dial-up AOL email was a new thing, and investors were pretty much tied to their brokers by land lines.  Then, Charles Schwab and a handful of visionaries started making changes in the way we got financial things done.  Low-cost trading via home-based Internet became widely available.  And the economy grew, as jobs were created in the technology sector, as well as in support businesses across the country.

The information economy had begun.  (I will attempt to supress the urge to thank Al Gore for inventing the Internet.)

As technology grew and costs declined, the “wealth effect” was everywhere, and the excitement was palpable.  Remember Tom Brokaw on the NBC nightly news declaring that the NASDAQ had reached yet another 1,000-point hurdle?  “Dot-coms” were springing up everywhere, and the market was soaring.  But the bubble was forming.  When Clinton was inaugurated, the NASDAQ stood at about 697.  By the end of the technology run it reached 5,048.

Clinton had a lot of help creating this boom.  An electoral backlash to his early unpopular moves brought us the first conservative House of Representatives in over 40 years.  With Newt in the Speaker’s chair, the Contract With America was voted on and passed, item by item.  The budget became balanced, in large part to the reduction in capital gains tax passed through the House.  Welfare was reformed by Tommy Thompson, over the original veto of Clinton.  Things stayed strong for a few more years.

Then some other stuff happened. On March 10, 2000, the NASDAQ closed over 5,048, an all-time high to that point.  Then the bubble burst.  The so-called “dotcoms” started to go belly-up, as their “burn rates” caught up to the cash supplies investors had offered.  Willingness of investors to fund money-losing companies dried up, and capital withdrew from the market.  On Inauguration Day, January 20, 2001 (yes, Clinton actually was president for the rest of 2000), the NASDAQ stood at about 2770, a decline of over 44%.  While the NASDAQ was hit the worst, the other major indices suffered as well, as the DJIA had lost more than 20%, and the S&P500 was down over 3-1/2%.

Worse yet, the economy itself had slowed to a crawl, and even turned negative.  When Dick Cheney said that the Bush/Cheney team had inherited a recession, he was wisely panned in the media.  In truth, he was technically wrong, but actually correct.  The GDP growth was negative in two of the first 3 quarters of 2001 (which is still in the Clinton economic influence era).  Since a recession is defined as two successive quarters of negative growth, the period was not technically considered a recession.  A distinction without a difference, I’d say, if you were out of a job and your 401(k) had suffered.

In the study of economics (my college minor), it is shown that a new Administration takes nearly one year to affect an economy.  That time is spent formulating, presenting, and hopefully passing new policies.  Then comes the reaction of producers and consumers, and their responses take some time to have a measureable effect.  The crash of the market and the recession in 2000 were attributable to bad policy, which had been masked by good luck for too long.  As the early Bush tax cuts were enacted and became effective, the economy recovered, and was doing well prior to the attacks on 9/11/2001.  That is a story for another time, but it also relates to the prior Administration’s lack of awareness.

When you hear the stories about the wonderful Clinton economy, remember this: the 8th year also belonged to him.  I do not want it back.