There remains in the media a love for the Clinton years that should be belied by the facts. Yes, the economy was doing far better then than it is now, but much of its greatness was based on the acceleration of a shift to a financial services economy that was impossible to sustain.
Clinton’s policies — deregulation of the financial industry, including the demolition of the commercial/investment bank wall — created a financial free-for-all that sent Wall Street on a gambling spree that first blew up the tech bubble and, when it finally popped, turned to the housing market, which went crazy and then collapsed.
The destruction of the American economy, which had been years in the making, was a bipartisan effort. But this history, as Dean Baker pointed out yesterday in a post on Clinton’s new book, seems to have been forgotten. Here is Baker’s take:
Clinton promoted both the growth of the stock bubble and the over-valuation of the dollar. The latter came about when his administration organized the “saving” of East Asia following its financial crisis in 1997. The harsh terms of the bailout required the countries of the region to run huge trade surpluses in order to meet their payments. This meant raising the value of the dollar against their own currencies.
Other developing countries wanted to avoid ever being in this situation so they too began to accumulate reserves at a huge pace after 1997 by keeping down the value of their own currencies against the dollar. This led to the huge run-up in the dollar and therefore the large trade deficit that we saw in the last decade and continue to see today.
The demand gap created by the trade deficit was filled by the housing bubble in the last decade. With the bubble now burst it can only be filled by government budget deficits until the dollar falls enough to bring trade closer to balance. Given the enormous disaster that resulted from his economic mismanagement (which could have been reversed had anyone in the Bush administration been awake), it is highly ironic that President Clinton would write a book offering economic advice to the nation.
Ironic, perhaps, but typical. War hawks, so wrong about Iraq, remain the dominant voices in the foreign policy debate, so why should we expect the mainstream media to listen to critics of the capitalist system or banish the men (and yes, it was primarily men) who tanked the economy.
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Hank Kalet 