Clinton's conservative economic policy

Bill Clinton is rightly admired for the attractive and popular president that he was. But a less well understood aspect of his Presidency was the very conservative fiscal policy that the Clinton administration signed on to despite having campaigned for power on a rather more Keynesian orientation.
This fiscal conservatism was the brainchild of Robert Rubin, Clinton's first Secretary of the Treasury who was a Wall Street Goldman Sachs partner before he entered Government. Rubin lobbied hard for the fiscal conservative stance of balancing the budget and fighting any deficit within the policy group of advisors that Clinton campaigned with. Among those advisors was of course Robert Reich who served in Clinton's first term as Secretary of Labour. Reich was strongly supported by John Kenneth Galbraith who by 1993 was regarded as a senior statesman in the party. Both Reich and Galbraith supported the initial capital works and infrastructure renewal program that Clinton had campaigned upon as a principal tool in fighting the recession of the early 1990s.

Richard Parker in his Galbraith biography has a useful description of this battle over fiscal policy and liberal progressiveness that marked the Clinton presidency. Robert Reich has also written about this in his work Locked in the Cabinet. Joseph Stiglitz who served as Clinton's economic advisor has also written about it in the work The Roaring Nineties in which he explains how lucky Clinton was that this reactionary policy did not backfire because of the reaction of the banks who used bonds as their asset base to the bond market and then flooded the money market with liquidity at a critical moment that overwhelmed the contractionary impulses of the deficit cutting Clinton budgets.As Alan Blinder reportedly put it this outcome was a one time only lucky reaction and not the justification for a new theory of fiscal budgeting.

Clinton to his credit disliked his own policy in private referring to the first budget as no better than an Eisenhower Republican budget but the lucky fact that the   boom in the bond market and the resulting increased liquidity saved the economy from deeper recession was celebrated by Clinton and many of his colleagues as proof that fiscal conservatism worked and was the correct policy for all time.

Here in Canada the Clinton experience was mimicked by the new Liberal government who under the guidance of Paul Martin began to proclaim the virtues of balanced budgets despite the fact that high unemployment lingered far longer than in the US.

As we approach the probable return of the Democrats to Presidential power and the current dominance in the congress of the Democratic party it would be wise for the Democrats to review the fiscal debate and try to avoid repeating the errors of the Clinton conservatives.The nature of miltary spending and the debacle in Iraq clearly need to be reviewed but we should remember that the current fiscal deficit is what has promoted the growth phase in the US and rebalancing the books too precipitously can only lead to contraction.