As I said in Part I of this series, there is a path to economic recovery from the worst recession since the Great Recession. Firstly, it means studying what economic policies have worked in past recoveries.
It you use job formation as the most important criteria for success, then the Clinton administration wins with its mix of government and private sector programs that cut military spending with the end of the cold war and increase in public spending at no more than 2 percent per year. The policies resulted in four years of budget surpluses from 1996-2000.
The cold war dividend also resulted in the second longest economic recovery on record—1991-2001—only topped by the Obama-Trump era recoveries cut short in February by the pandemic.
Private sector employment increased by 20,970,000 under President Clinton (light blue) in the excellent Calculated Risk, by 14,714,000 under President Reagan (dark red), 11,849,000 under President Obama (dark blue). 9,039,000 under President Carter (dashed green), and 1,511,000 under President G.H.W. Bush (light purple).
But because of COVID-19 during the 46 months of Mr. Trump's term, the economy has lost 2,128,000 private sector jobs (yellow line) to date.
What happened? Most jobs were created, when government spending kicked in to supplement consumer and business activities. Coincidence doesn’t spell facts, as I’ve said, but we can see what worked and to create jobs.
Public payrolls also grew most also during Democratic administrations with the exception of the Reagan administration that wanted to outspend Russia in their arms race. Payrolls grew during Mr. Carter's term (up 1,304,000), then Mr. Reagan's terms (up 1,414,000), H.G.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).
However the public sector declined significantly while Mr. Obama was in office (down 277,000 jobs), and during the 46 months of Mr. Trump's term, the economy has lost 870,000 public sector jobs.
What exactly did Clinton do to create 10 years of prosperity with budget surpluses to boot?? He was not afraid to raise taxes where it was needed to pay for programs that created more jobs, rather than raise the public debt.
He increased taxes with the Omnibus Budget Reconciliation Act of 1993, his first budget. The Deficit Reduction Act raised the top income tax rate from 28 percent to 36 percent for those earning more than $115,000, and 39.6 percent for income above $250,000. It increased the corporate income tax from 34 percent to 36 percent for corporations with incomes over $10 million.
It also ended some corporate subsidies, taxed Social Security benefits for high-income earners, and created the earned income tax credit for incomes under $30,000.
It raised the gas tax by 4.3 cents per gallon. It also limited the ability of corporations to claim entertainment tax deductions.
The +10 years of tepid economic growth since 2010 were caused in part by limiting government programs (e.g., in infrastructure, scientific research) that would have boosted growth, and because President Obama chose to focus on bringing down national debt after the initial $800B ARRA aid package assisting recovery from the Great Recession.
Republicans in particular seem to have been influenced by the rhetoric of anti-tax activist Grover Norquist when he said, "I'm not in favor of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub," which did tremendous to economic growth during that time.
The irony in this history is that economists are already predicting a huge economic recovery next year once enough Americans have been vaccinated, as happened with the recovery from the 1918-19 Spanish flu-induced recession, and which became known as the euphoric “roaring twenties”.
Harlan Green © 2020
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