Why The 'Clinton' Recovery Is Unrepeatable

Tyler Durden's picture

Amidst the debates on what the US should do to re-establish an era of prosperity, there are a lot of references in the media and at political conventions to the "Clinton Recovery". This refers to the period from 1992 to 2000, the best in post-war history: 19% equity returns, 3.8% annualized real GDP growth, monthly payroll gains of 265,000 (adjusted for today’s population) and an average budget deficit of less than 2% of GDP. As Michael Cembalest of JPMorgan notes, applying a President’s name to a recovery or recession always seems to be a case of artistic license; you might as well call it "The Kardashian Recovery" in some cases, given how little Presidential policies had to do with it. Most of the time, domestic and global business cycles, monetary policy and other factors were the primary drivers. However, to recreate the policy conditions which prevailed would require a centrist - who most likely would have been excommunicated by his party for heresy as the political middle ground occupied by the party non-conformists is gone.


However, let us assume that there was a “Clinton Recovery”; what policies drove it?

To begin: 2 policies normally considered liberal/progressive: increase taxes on the wealthy and cut military spending to reduce the deficit. In 1993, Clinton raised the top marginal rate (also raising the top bracket, which mitigated part of its impact).

However, later in the decade, he cut the long term capital gains rate to 20%. As for military spending, the US benefitted from that brief synapse in time in between the collapse of the Soviet Union/fall of the Berlin Wall in 1989, and the emergence of another combatant 10 years later whose conflict with the US is almost as costly, and much more diffuse. The origins of this clash are complex, but can in part be traced to Operation Cyclone, a policy enacted by Carter and expanded by Reagan. It was designed to stop Soviet expansion by channeling sophisticated weapons and billions of dollars to militant Islamic groups, mostly via Pakistan. This program arguably backfired, contributing to a series of events in 2001 that brought the decline in post-war US military spending to an end.


Here is where the story deviates from the progressive script: Clinton Administration support for free trade and deregulation. While NAFTA was not the only catalyst for the improvement in trade (the rise of India and China after the Rao and Deng reforms played a role as well), it was a clear sign of the Administration’s support for free trade. Two years later, the Clinton Administration presided over two major deregulation efforts, one involving electricity and the other telecom. An NBER paper from 2003 analyzed data in both the US and Europe, and found that regulatory reforms that liberalize entry barriers spur investment, a trend which benefitted US capital spending during the latter part of the decade (see chart below).


Other aspects of the Clinton Recovery are equally centrist: welfare reform, and private sector solutions to healthcare. The 1996 welfare reform act was a fundamental shift, in that it introduced work requirements for recipients. It also delegated more responsibility to states, and reduced the burden on Federal public finances. On healthcare, it was not the intention of the Administration to rely on private sector solutions. The First Lady’s universal healthcare plan was the President’s preferred approach, but it could not get past Congress. However, around the same time, growth in healthcare expenditures began to slow, a by-product of the HMO era. While HMOs emerged in the 1970’s, private sector control of healthcare costs through managed care gained some traction in the 1990’s, and the growth in healthcare expenditures fell. HMOs leveraged increased enrollment to negotiate discounts from providers, and controlled the amount/type of care that was provided to insured members. When the US Department of Health and Human Services looked back at the 1990’s, they cited competition among HMOs as being one of the major factors leading to slower growth in healthcare expenditures. Healthcare expenditures are still growing at 3%-4% in real terms, which is a problem since the structural growth rate of the US may be declining.


On housing, the Clinton Recovery benefitted from conservative underwriting standards, although his administration’s policies contributed to the eventual housing crisis a decade later. I am not going to go into detail here, since I’ve written about this before. Home prices and housing’s contribution to growth were stable during the 1990’s. However, seeds were sown when President Bush passed the Federal Housing Enterprises Financial Safety and Soundness Act in 1992 (a delightfully Orwellian name since it ended up destroying them). By allowing the Department of Housing and Urban Development to set mandatory affordable lending targets for the GSEs, the government unleashed an avalanche of 3% down-payment loans by the end of the decade (see below), a trend which the private sector then followed, and the rest is history. The Clinton Administration’s contribution to the mess includes raising affordable lending targets from 30% to 50% of all GSE loans.


So, where does that leave us? To recreate the policy conditions which prevailed during the Clinton Recovery (not necessarily the President’s preferred policies), we would theoretically need to find a Presidential candidate who would:

  • Raise taxes on the wealthy to improve public finances, but also be willing to reduce taxes on capital gains
  • Cut military spending whenever possible
  • Agree to reduce the scope of government entitlements and take on entrenched constituencies, in spite of multiple decades of program expansion, and in spite of the political risks (there were multiple resignations at Health and Human Services after the Welfare Reform Act)
  • Encourage free trade and deregulation
  • Support private sector solutions to healthcare
  • Maintain conservative housing underwriting standards, without coercing private sector entities to act as conduits for fiscal policy/affordable lending programs

Good luck finding this person, since he/she would be a centrist, and most likely excommunicated by their party for heresy.


As shown in the accompanying chart, using the Senate as an example, the political middle normally occupied by party non-conformists is gone.

Source: JPMorgan

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GetZeeGold's picture



Gonna need a Viagra the size of Detroit.


Zero Govt's picture

Viagra might help but Washington and the IRS are currently on a witchhunt of all Americans with foreign accounts which will also shutter their business interests

these 2 bodies with their heads up their rectums are carrying out the direct opposite of Barry OBastards promise to double US exports ...maybe he's hoping bubble Ben will so trash the US Dollar he'll get there

Fredo Corleone's picture

And all of these enumerated items "attributable" to Clinton -- all of these things: would they have existed had the Democrat Party held hegemony in Congress ? I submit to you that NONE of these things would have existed -- neither a single tax rate reduced nor a single welfare program reformed -- had it not been for a Republican Congress leading William Jefferson by the fiscal nose.

Aye, and the irony of it all is that it was largely a Republican Congress, some decade later, which largely unwound and undermined all that had been fiscally accomplished by their predecessors.

falak pema's picture

power is an aphrodisiac and it makes people hubristic. Bush had an agenda that was hubrsitic and he benefitted from Clinton sagacity in Defense spending and Repub fiscal "hands on nuts" restraints on Potus to keep that budget in line; all the while the New Internet economy took off like a delusionary Apollo missile fueled by BAnksta oligarchy power; that deregulation had installed and Clinton nailed to the floor with G-S revoke. 

Free trade was a boomerang in the hands of the banksta brigade; trade imbalances fueled deficits as  Bush's outlandish "clash of civilization" hubris balooned to sanctuarise the FAMILY Oil patch. Fortress Oligarchy America, is now the yoke of american ox now trying to pull in foreign oil; unsustainable addicition incompatible with unlimited fiat printing. 

Selectivity in economic thinking can create illusion to defend past delusion.


poor fella's picture

Exports AND imports as a percentage of GDP?  There's that booster of two people handing a million dollars back and for a few thousand times. Put Exports on the positive side of zero and Imports on the negative side with a corresponding U.S. GDP graph - wouldn't look anything like that.

I'd only trust John Williams to do it to.

Precious's picture

Clinton seems pretty good himself at repeating it anywere, all the time, for $50k a speech.

Jason T's picture

Answer:  Demographics

MiltonFriedmansNightmare's picture

And a little bubble-blowing, courtesy of Alan Greenspan.

LedMizer's picture

And a boat load of deficit spending by everyone from the .gov to Main Street.

MFLTucson's picture

The Clinton recovery did not include Barrack Hussien Obama!!!

Zero Govt's picture

the Clinton recovery didn't even include Clinton let's be honest... much more interested in girls and cigars (no i can't connect the dots either!)

kaiserhoff's picture

Couldn't agree more, and yet, I keep thinking Hillary would have been less of a train wreck.  She's a better man than the Kenyan ever thought about being;)

TheSilverJournal's picture

Interest rates were also being lowered, providing a temporary stimulus. Now, rates have been at rock bottom for years and the destructive nature of artificially lowering rates are being exposed.

kralizec's picture

"Good luck finding this person, since he/she would be a centrist, and most likely excommunicated by their party for heresy."

What a load of bullshit!  Raising taxes?  Since when has raising taxes done anything but result is massive new spending?!

Nice try Cembalest, what (cough) centrist do you have in mind?

LawsofPhysics's picture

"Since when has raising taxes done anything but result is massive new spending"-


What happened after WWII again?

< Sarc on >

Yeah, new spending never leads to productive labor and innovation.

< sarc off >

What kind of dipshit are you?  What we have now is liquidity everywhere thanks to ZIRP.  Unfortiunately all the liquidity is going to service fraudulent debt (thank you elitist paper-pishing fucks who add no real value) and so the capital and resources are being mis-allocated and mal-invested.  Please, pull your head out of your ass and wake the fuck up.

Once again these greedy paper-pushing fucks will bring the world to war.  fine, time to cull the fucking herd and find out the real value of everyone's labor.  Fucking bring it.  Long guillotines and any physical asset of real value.

kralizec's picture

So tax and spend to infinity says the clown calling another a dipshit.

Your welcome.

LawsofPhysics's picture

Not much of a critical thinker are you.  Pay attention.  The debt is largly due to bailing out bad management, bad businesses.  Who profitted from this?  The owners dumbass.  Who pays?  The taxpayer.  It's called "socialization of losses". Fuck, how do you think Mitt Romney (and other venture capital firms) "turn those companies around".  They pass a majority of the debt on to Uncle Sam.  This is fascism you dumb fuck, stop reciting shit from either party.  There is only one party; for the banks  and financial houses, by the banks and financial houses.  Here's an idea for you, how about the next time a company goes belly-up the fucking owners, management, and the shareholders pay back the creditors instead.  

What I am saying is prosecute the fucking fraud and restore real consequences for bad behavior AT ALL LEVELS of society.

It will come to this one way or another, be it by an adult conversation or by civil war.  Hedge accordingly.

kralizec's picture

Not arguing the need to end cronyism, I am arguing the need the author of this piece is making for higher taxes as a solution to any of this when it is not.  And take the party crap and stuff it, but keep calling me a dumb fuck, it really enhances your ability to intimidate and influence people.

LawsofPhysics's picture

Your post clearly infers tha all spending is bad.  This is disengenuous at best.

Won't matter now.  The elites are well positioned (I know two venture capital guys with private, well defended plantations where they can grow their own food in places like Barbados and I am a a small fish by comparison).  Unless you have a private army or private island at your disposal, what comes next will tax your resources and capital, period.  Hedge accordingly.

kralizec's picture

OK, all, gotchya.  ; )

And I do not disagree with the direction we are headed nor do I think a peaceful resolution is possible.  Politics cannot fix a damn thing...unless they agree to divvy up the country into several factions...well, politics cannot fix a damn thing!  Getting Obama out will at best buy time.  Some people may want that time to prepare as best they can for the collapse that is inevitable.  No, private armies and islands are not an option, just surviving the inital waves of zombies is a hefty enough task. 

Hedging as best I can.

Vince Clortho's picture

"... prosecute the fucking fraud and restorereal consequences for bad behavior AT ALL LEVELS of society."

A noble thought that would have played well in days gone by.

In the current system it is unfortunately:

Reward the Fraud and pass the consequences for bad behavior to the Taxpayers.

Urban Roman's picture

 Minus one for "tax and spend".

Tax has nothing to do with spending.

Gully Foyle's picture



Billions to be Slashed From U.S. Research Budgets as Stalemate Continues

Cuts will affect startups, universities, and various government labs

Whether you're developing a cure for cancer, or dreaming up solutions to put a human on Mars, there's a chance that you could be out of a job next year.

LawsofPhysics's picture

Our entire eCONomy, in it's current structural state, depends on infinite growth in a finite world.  In the absence of an adult conversation, the only thing everyone should be counting on is the following; that which cannot be sustain won't be sustained.

The laws of physics and Nature really don't give a shit either way.

Hedge accordingly.

toady's picture


That's been my focus for about four years now. I've gotten to a point where me and mine can do pretty well, as long as we aren't caught up in a war. If that happens all bets are off....

WAMO556's picture

Sounds just like a asshole who has never been to war. Yeah, you are long for guillotines as long as it isn't your neck. And what happened to Robespierre during the "Terror"???? That is what I fcking thought. Be VERY carefull for what you ask for, YOU just might be the first in line. Just saying.

LawsofPhysics's picture

Former ARMY AMEDD corp.  I have had to clean up the mess of war.  Don't really know a polite way to say this other than, go fuck yourself -

Just saying, let us know when you are ready for an adult conservation. That which cannot be sustained, won't be. Life is hard, deal with it.

WAMO556's picture

Not a trigger puller. Still just a REMF.

Goat Cheese Please's picture

LoP - I might have have heard you make the "value of everyone's labor" statement before.  Innocent question...what do you mean by this - the emporer has no clothes moment where we see what a sham this debt-fueled, service driven, non-productive economy of ours is?  Please explain further.

darteaus's picture

Because the Internet is already invented?

Urban Roman's picture

And because the NINJA loan is already invented.

There can only be so many new inventions like that.

LawsofPhysics's picture

Bullish (for civil war).

francis_sawyer's picture

With all the ammo that the alphabet soup agencies are acquiring... Coupled with QE-infinity... The US could hit paydirt in a decade if it could just keep its guns holstered...

insanelysane's picture

This time is different.  Back when it was Carter v Reagan, a vast majority of Americans needed a job to survive and thus voted for the candidate that gave them the best shot at getting a job.  If it were Carter v Reagan in 2012, the polls would be 50-50 because a much larger percentage of the population believes they can survive without a job.  Of course in 2012 Dems and Repubs could care less about jobs.  When was the last time either party mentioned anything specific about jobs?

We either need protectionists policies that force manufacturing back into the US and we need the people collecting government checks for not working to do some work and at least improve the rotting infrastructure that we hear so much about.  The government continues to whine about this rot while at the same time writing checks to millions of people to not work.

toady's picture

When was the last time either party mentioned anything specific about anything?

Flakmeister's picture

Notice how the price of oil was not mentioned.....

GetZeeGold's picture



$4.00 gas is great if you're selling it.....not so much if you have to buy some.


marathonman's picture

$4 gas is not so great if you have to refine it from Brent North Sea Crude.  Better margins from WTI and Canadian Syncrude.  However in the greater scheme of things $4 gas is not good for refiners as it incentizes people to buy more fuel efficient cars and cuts your volumes over time, compresses or reverses profit margins, and increases competition.  Refiners and retailers don't want higher gas prices.  They want higher margins.

larz's picture

most of that is tax the stations are NOT killing it

larz's picture

most of that is tax the stations are NOT killing it because remember stations are owned by little people

Gully Foyle's picture


Neither are fall of the Soviet Union, the tech boom or the creation of mainly part time and low paying jobs.

Also not mentioned is the budget jiggery pokery Clinton admin used to create the smoke and mirrors surplus.

I once watched one of the Washington Times editors, I think, discuss Reagan Bush taxes. He stated that from the moment Reagan tax cuts kicked in congress was forced to add new revenue streams, like taxing tips. This eventually lead to the Bush "read my lips no new taxes" debacle where he was forced to increase taxes.

Clinton benefitted from that as well. But it will never be mentioned anywahere.

It's hard to fully explore these complex issues with a minimal amount of paragraphs.

Flakmeister's picture

Agreed, things are never so simple as they are made to be in media....

Also not mentioned was the rise of the PC and the Internet....

Hell, I still remember the pro forma EPS calculation for the Packard-Bell IPO....

LawsofPhysics's picture

Don't date yourself Flak,

but yes, structurally, the world's eCONomy still relies on on infinite growth in a finite world.

Flakmeister's picture

Too late for that....

I remember RFK's funeral like it was yesterday....

Debtonation's picture

It's hopeless for the USSA

GetZeeGold's picture



We're number 7!!!!


Quick.....snap a picture.


DaveHanson's picture

Health care costs came down temporarily in the mid-90s.  This was not because of "private sector solutions", but despite them.  The cost reductions were more plausibly a reaction to fear of what would happen (single-payer, "public option", etc.) if health care costs continued to soar unchecked.

That points to a more general problem with this piece.  Correlation is not causation.

GetZeeGold's picture



Really glad that crap is free now.