Paul Krugman, the New York Times columnist, after obliquely informing us of his acquaintance with a literary text, “Remembrance of Booms Past”, promptly forgets and cherry-picks the data. We learn that, under the watchful eye of Bill Clinton, the U.S. economy experienced an economic boom – a fact no one would deny. Krugman then takes a cheap shot at President Reagan, claiming that Reaganomics of the 1980s had nothing to do with setting the stage for the Clinton boom of the 1990s. This claim is debatable. Then, Krugman moves back onto solid ground with the fact that private investment surged in the 1990s and fueled the boom. Krugman reminds us that the surge in economic activity was aided by technical change. And then a very slippery bit of footwork, again: Clinton’s tax increase on the wealthy did not kill the boom. Well, this is certainly true. But, we don’t know how much stronger the boom would have been without Clinton’s tax increases. That’s of no interest to Krugman. The answer would spoil Krugman’s story: tax increases are associated with “goods”, not “bads”.
When we look back at the Clinton years, the stunning fact that emerges is that Clinton was the most fiscally austere, small-government President since 1952. The accompanying table supplies the facts – the Big facts – that Krugman chooses to ignore. Bill Clinton cut government’s share of GDP by a whopping 3.9 percentage points over his 8 years in office. When President Clinton took office in 1993, federal government expenditures accounted for 21.5 percent of GDP. At the end of his second term, President Clinton’s big squeeze left the government as 17.6 percent of GDP. Since 1952, no other president has even come close.
Some argue that Clinton was the beneficiary of the so-called “peace dividend,” whereby the post-Cold-War military drawdown led to a reduction in defense expenditures. The problem with this explanation is that the majority of Clinton’s cuts came from non-defense expenditures.
Admittedly, Clinton did benefit from the peace dividend, but the defense drawdown simply doesn’t match up to the cuts in non-defense expenditures that we saw under Clinton. Of course, it should be noted that the driving force behind many of these non-defense cuts came from the other side of the aisle, under the leadership of Speaker Gingrich.