Here’s something I bet you thought you’d never see at the perilously liberal Huffington Post.
In a Dean Baker article published Tuesday with the astonishing title “There Is No Santa Claus and Bill Clinton Was Not an Economic Savior,” the second sentence read, “Just as little kids have to come to grips with the fact that there is no Santa Claus, it is necessary for millions of liberals, including many who think of themselves as highly knowledgeable about economic matters, to realize that President Clinton's policies sent the economy seriously off course.”
Far from it, as he is currently co-director of the Center for Economic Policy which even the liberal Wikipedia categorizes as “progressive.”
It is therefore fascinating to see a liberal economist on Christmas Day go after the saintly Clinton.
“[T]he point of economic policy is to produce an economy that improves the lives of the people in a sustainable way,” wrote Baker. “Clinton badly flunked this test.”
Baker then proceeded to speak inconvenient truths that the left and their media minions have ignored for over a decade.
“The Clinton economy was driven by a stock bubble,” he wrote. “This is not a debatable point. The ratio of market-wide stock prices to corporate earnings was well over 30 to 1 at the peak of the bubble in 2000. This is more than twice the historic average.”
Baker next described why it was in fact the run-up in stock prices that drove the economy in the ’90s and not the Clinton tax hikes or anything to do with his fiscal policies.
“[S]ince any good huckster could make millions selling shares in dot.whatever, we had many hucksters starting nutball businesses that never had a prayer of making a profit. This is not much of a long-run economic strategy, but in the short-term it led to an increase in investment.”
But that’s just the beginning.
“The other way that the bubble drove the economy is through the wealth effect on consumption. The run-up in stock prices generated roughly $10 trillion in bubble wealth,” Baker confessed. “The wealth effect from stock is usually estimated to be 3-4 cents on the dollar. This would mean that the bubble generated between $300 billion to $400 billion annually in additional consumption. This would have been 3-4 percent of GDP at the time ($480 billion to $560 billion annually in today's economy).”
If consumption associated with the stock bubble’s wealth effect was responsible for three to four percent of the GDP, since GDP grew by roughly four percent per year when Clinton was president, that means much of the growth was due to the bubble.
Of course, this growth was unsustainable because as we know from experience, all bubbles burst. When that happens, a recession occurs.
Fortunately for Clinton and his fans in the media, his tenure was about to end thereby allowing him to pass the torch on to George W. Bush just as things were collapsing.
“The S&P 500 was more than 10 percent below its 2000 peak and the NASDAQ was down by more than 40 percent on the day that Bush took office,” Baker acknowledged. “This pretty much guaranteed the recession that began in March of 2001 just as the collapse of the housing bubble placed President Obama in the middle of terrible recession in January of 2009.”
That’s correct. For the last four years, we’ve been bludgeoned by the left and their media minions about a recession that Obama inherited. What they dishonestly fail to report is that Bush inherited one as well.
But there was one surprise left from Baker.
“The 2001 recession was the main reason that the surplus vanished in the 2002 fiscal year.”
That’s correct. The so-called surpluses vanished because of a recession that was handed to Bush by Clinton and not because of tax cuts.
Wouldn’t it be glorious if more liberals in the media would be this honest?
