Reply To: Clinton years prosperity?


The most important statistic about the federal budget’s impact on the economy is its size relative to the economy. If the federal government is taking a smaller portion of society’s resources, then more are left in private hands to be used efficiently.

Under Clinton, the federal budget as a percent of GDP fell steadily from around 23% in 1992 to around 18% in 2000. That’s more than a 20% reduction.

Under Reagan, it rose from 22% in 1980 to 24% in 1983 and then fell to 21% in 1988. Overall, it fell 5%. Under Bush I, it rose from 21% in 1988 to around 23% in 1992. A rise of nearly 10% in just four years.

Clinton was clearly the fiscal conservative even compared to the overrated Reagan.

Part of the explanation for the greater prosperity of the 1980s and first half of the 1990s (before the dot com boom and bust) was the reestablishment of a workable international monetary system based on the dollar after the debacle of the 1970s. Under this system international trade finally reached the level of world integration that had been attained under the classical gold standard before 1914.

The monetary inflation and credit expansion of the Fed found outlets around the world during this time, which permitted American companies to earn profits (and stock markets to soar) while price inflation at home was kept in check. This started to unravel first with Japan in the early 1990s and then southeast Asian countries in the middle part of the decade. After that the boom was felt here at home in the dot com debacle.

Of course, you’re right that people are naturally engaged in economic progress through the market economy, which continues to raise our standards of living even with government’s depredations. It’s not bad enough that politicians rob us of the prosperity we could have enjoyed, they insist on taking credit for the prosperity left to us that we ourselves are producing.