Through a Glass, Smugly
Short summary
The author argues that Matt Yglesias's story of Clinton's fiscal discipline producing the 1990s boom flattens a messy history. Drawing on Clinton-era economists' own reports, he says tech, the Cold War peace dividend, and luck mattered at least as much as deficit cuts.
- Clinton did not freely choose deficit reduction; he reluctantly gave up his investment agenda after internal fights and pressure from bond markets and the Fed.
- The Clinton administration's 2001 Economic Report credits technology, business reorganization, and policy together, with growth itself helping shrink the deficit.
- Oliner and Sichel estimated IT drove roughly two-thirds of the late-1990s productivity acceleration, and defense spending fell about 30 percent in real terms between 1988 and 1997.
- Blinder and Yellen, both Clinton economists, credit fiscal policy but repeatedly fall back on supply shocks, stock market gains, and a cooperative Fed.
Full summary
The author, writing at Unpopular Front, takes aim at Matt Yglesias's recent New York Times piece asking why politicians aren't acting on voters' top concern, affordability. Yglesias's diagnosis is that federal budget deficits, despite low unemployment, fuel inflation and force the Federal Reserve to keep rates high, which makes mortgages and credit expensive. His prescription is fiscal discipline, deregulation, freer trade, more immigration to expand labor supply, and higher taxes on the wealthy, implemented by technocrats insulated from interest-group pressure. He points to Clinton's 1990s deficit reduction as proof the approach works. The author's core complaint is that Yglesias smuggles in a dozen unexamined premises and treats a contested policy story as common sense.
The author's main rebuttal is historical. Clinton did not choose deficit reduction cleanly. He campaigned on public investment, and an internal fight with the administration's finance wing pushed him toward fiscal consolidation because bond markets punished deficits. According to Bob Woodward, Clinton grumbled, "You mean to tell me that the success of my program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?" The author also notes that the Fed under Alan Greenspan doubled the federal funds rate from 3 to 6 percent by early 1995, a tightening that threatened recession. Yglesias's account, in this telling, flattens that contingency into a tidy story where good policy yields good results and the results prove the policy was good. The author argues that the "helped" in "fiscal discipline helped produce the prosperity" carries most of the weight, and that the evidence for its size is thin.
To test the causal claim, the author leans on sources Yglesias would presumably accept, starting with the Clinton administration's own 2001 Economic Report to the President. That report credits three interrelated factors for the boom: information technology advances in the early 1990s, organizational changes in business, and public policy. It describes a "virtuous cycle" in which tech-driven growth raised revenue and restrained spending, so fiscal health was partly a product of the boom rather than only its cause. The author adds that the end of the Cold War contributed a large peace dividend, with inflation-adjusted defense spending falling roughly 30 percent between 1988 and 1997 according to the Congressional Budget Office. On this reading, Yglesias's clean lesson about technocratic discipline misses the messier mix of technology, productivity, and a favorable geopolitical moment that actually drove the decade.