As Bill Clinton prepares to leave office, it seems clear that he will leave behind the most meager record of accomplishment of any president this century, including those that only served a single term. There is no landmark legislation he can point to, no major international crises resolved, not even one good line from a speech that people might remember favorably. The only thing Clinton can really point to is a generally good economy. Now even that is in jeopardy, threatening what little there is of a positive Clinton legacy.
The Clinton administration line is that the economy is in great shape, and is only showing weakness because President-elect George W. Bush is irresponsibly talking it down. In short, we are supposed to believe that the $10 trillion U.S. economy was in perfect shape until Dec. 13, when Al Gore finally conceded the election. But immediately thereafter, when Bush began warning about an economic slowdown, this delivered such a massive psychological blow that the whole economy suddenly turned South.
This has to be the silliest economic theory to be put forward by any president since Gerald Ford thought that if everyone wore "Whip Inflation Now" buttons it would stop prices from rising. Clinton's pathetic argument is nothing but a transparent effort to pin the blame on Bush for economic conditions that developed on his watch. Even the most casual review of the relevant economic data irrefutably demonstrates that growing economic weakness long predates Bush's victory.
For example, the Index of Leading Indicators, the federal government's main forecasting measure, has been showing weakness all year. It has fallen in 6 of 11 months through November, with only 3 months in positive territory. The index was unchanged in 2 months. Since March, the index has been up only once, and has fallen in 4 of the last 5 months.
One of the key elements of the leading indicators is consumer confidence, which was plunging long before Bush became president-elect. The Conference Board's index peaked in May, and has fallen in 4 of 6 months since. The consumer confidence index has now fallen from a level of 144.7 to 133.5 in November. More recent data suggest that a further decline will likely be registered for December.
A useful compendium of recent economic data was issued by Congress' Joint Economic Committee on Dec. 15. It shows that current economic conditions, as well as forward-looking data, have been pointing toward a slowdown for some time. These include the following:
-- High interest rates. The Federal Reserve has raised short-term rates 6 times since June 1999, putting the rate that banks charge each other at 6.5 percent.
-- Rising energy prices. Oil and natural gas prices have risen sharply over the last year, leaving consumers with less money to spend or invest.
-- Falling stock market. All the major indexes are down, especially the technology-heavy NASDAQ. Lower stock prices reduce financial wealth, which also reduces consumer spending, and raise the cost of capital, which causes investment to fall.
-- Employment growth slowing. Since mid-year, private employment has grown by just 122,000 jobs per month, compared with 202,000 in 1999.
As a result of these factors, Americans have become far less optimistic about the economy than they were earlier in the year. According to the Gallup Poll, 26 percent of Americans thought the economy was excellent in July. In the latest poll, taken in early December, that figure had fallen by more than half to just 12 percent. At the same time, those saying the economy is in poor shape have doubled from 4 percent to 8 percent.
Perhaps even more disturbing is the sharp decline among Americans who think economic conditions are getting better, and the rise of those who think things are getting worse. In January, Gallup found that 69 percent of Americans thought things were getting better, and only 23 percent thought they were getting worse. By early December, the first figure had fallen to just 39 percent, while the second rose to 48 percent.
Needless to say, all of this has happened well before the presidential election was resolved. So even if one buys the Clinton administration's absurd theory that mere statements can cause an economic downturn by themselves, it is hard to see how Bush's comments could have had any impact long before he became president-elect.
Bush is right to warn about the impending downturn so that swift action can be taken to avert it. Unfortunately, the Clinton administration dares not act for fear of giving credence to his view, and thus being forced to acknowledge its own responsibility. This has created a contradiction within the Clinton administration. One the one hand, its political hacks, like speechwriter Michael Waldman, say Bush is driving the economy into the ground with his warnings about slowing growth. But on the other hand, Clinton's economists continue to project good times far into the future.
This two-pronged strategy allows Clinton to have his cake and eat it, too. Projections of good times allow him to say that large budget surpluses will continue unabated, while he has laid a foundation for blaming any downturn on Bush. To his dying breath, I expect Bill Clinton to say that the national debt would have been paid off if only his policies had been continued.
Bush should take advantage of this typical Clinton, too-clever-by-half strategy. He should embrace Clinton's rosy scenario and resist the temptation to issue revised economic and budget projections. Democrats cannot very well attack him for being overly optimistic if he uses Clinton's surplus projections to justify a tax cut. And if they argue that such projections are not valid because of slowing growth, they implicitly must blame Clinton.
Bush will have a very narrow window of opportunity to press for a tax cut while budget projections are still based on strong growth. Once it becomes clear that growth is slowing, surpluses are going to evaporate, complicating his plans for a tax cut.