Bill Clinton More Popular Than Barack Obama

After 1980, only Clinton had a decent economy. This was the only time when average real incomes rose instead of stayed flat or declined. Tax cuts, especially for the rich, don't bring recoveries. They never have. Bush gave the biggest tax cuts in history and the economy was slow even before the crash of 2008. Growing corporate and household consumer debt was the only way to sustain the economy. Bush had a notorious jobless recovery. It took about four years from the end of the 2001 recession for unemployment to drop back to pre-employment levels. The modest growth from 2004 to 2007 was due primarily to a housing and stock market bubble creating a "wealth effect" allowing people to borrow against rapidly appreciating financial assets. WIthout this private sector debt, aggregate spending would have declined and the economy would have remained in a recession. Tax cuts had nothing to do with the modest growth spurt between 2004 and 2007. It was massive consumer borrowing in lieu of growing real wages.

The growth in the stock market wasn't based on conditions in the domestic US economy. Foreign investors purchased over a trillion dollars in US stocks after 2002 because the dollar was still strong and US equities were a safe investment in the midst of a global recession. The other source of growth was global markets; US transnational corporations made most of their profits and overall revenues overseas, not in the US where the economy was stagnant. This was well known and often pointed out in the financial press. This plus low real interest rates fed the housing bubble after 2002 which allowed massive consumer borrowing. This same set of conditions gave rise to the boom under Clinton; his surpluses were of no help and growing private sector debt is what sustained sufficient aggregate spending levels to perpetuate the boom. Clinton had the best economic growth despite his tax increases.

Obama has agreed to keep the Bush tax cuts for the middle class and has even given them more cuts. The working poor got more cuts too.. He plans to let the tax cuts expire for the wealthy. I hope he keeps the estate tax. He is also unfortunately bowing to GOP pressure. This will delay the recovery and perhaps kill it altogether. The rich invest and make jobs NOT because they get tax cuts-they are already sitting on trillions in cash-but because they expect a good rate of return. This can only happen if consumers have sufficient income to spend. Right now they have less and less income to spend and are cutting way back on their borrowing. This is why the economy is recovering so slowly. Aggregate spending is stable but not growing despite high deficits because consumer spending has dropped by an even greater amount than the federal deficits. British economist Wynne Godley always reminded us that total aggregate spending-private, government and foreign capital inflows/exports-must be taken into consideration when judging the economy's future prospects growth.

steve of IL 4:15AM July 22, 2010