Lessons to learn: President Clinton

Former President Clinton has written a new book: Back to Work: Why We Need a Smart Government for a Strong Economy. Worth reading. The book basically covers two topics. His policy agenda for how the federal government should both get the economy growing again and deal with its structural deficit. And the case for why active – what he calls smart – government is the best approach to position Americans to do well in the economy of the future.

His policy agenda includes lots of interesting ideas, some put forward by others from both parties, some new. Worth exploring when you read the book. But the reality is we can’t get to those and other good ideas for how the federal government might help the economy as long as many Americans believe government is the problem. That is why I want to focus this post on the case he makes for active government and against what he calls our thirty year antigovernment obsession.

Clinton is willing to go where almost no Democrats have been willing to go since the 2010 elections. Taking the Tea Party on directly by making the case that active government is an essential ingredient in growing middle class American jobs. The book provides detailed evidence from America’s past as well as what is going on in the rest of the world to make a compelling case that the countries who are doing best are those using government to grow the economy.

One of the book’s most telling tables is about job creation during the administrations of every president from Eisenhower. Clinton’s two terms saw the largest job gains over those 14 presidential terms (56 years). More than 11 million new jobs for both of his two terms. The lowest job creation over that period are the two administrations of George W. Bush. Clinton’s approach to governing: higher taxes, particularly for high income Americans; fiscal discipline and active government engagement in growing the economy occurred while the country added 22 milllion jobs. The second President Bush’s approach to governing: lower taxes, particularly for high income Americans; a huge increase in the budget deficit and dramatically reducing the federal government’s involvement in the economy  occurred while the country added one million jobs.

Clinton concludes: “The antigovernment movement’s most cherished conviction is that we can’t raise taxes on the “job creators”.  And not just when the economy is weak – not ever. … The biggest problem with their argument is that we tried it their way for twenty of the last thirty years, and the strategy of using blanket tax cuts for high-income individuals didn’t work. In these twenty years, average job growth was under one million per year, income inequality increased dramatically, more people fell from the middle class back into poverty, and more middle-class people with non existent pay raises kept up with inflation by maxing out their credit cards and taking second mortgages on homes, until household debt exceeded 125 percent of income.”

And the same pattern holds true when you look internationally. Clinton provides detailed international rankings on a set of metrics related to economic well being as well as taxes. Not surprising the U.S. lags on most. Most interesting to me is the comparison between the United States and Germany. Germany, of course, has become exhibit #1 for the right on why America didn’t need a stimulus. Turns out they didn’t need a stimulus because they are a high tax country with an expansive permanent safety net and active government involvement in industries like manufacturing and alternative energy. All of which the right rails against. Between 1965 and 2009 taxes grew in Germany from 31.6 percent of GDP to 37 percent. Here they fell from 24.7 percent to 24 percent.

Clinton writes:”If the antigovernment activists are right, the countries catching up or surpassing the United States … must have done it by cutting taxes, spending and regulations – there is no other way. … Of the thirty-three nations in the OECD, we rank thirty-first in the percentage of GDP directed to taxes … and we are twenty-fifth in the percentage of GDP devoted to government spending. … The most important lessons you can take from this… is that in the twenty-first century, the American Dream requires progress we won’t achieve without effective government policies including direct investment, incentives to speed business and job growth, and public-private partnerships to create an environment where these things can happen.

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