U.S. Ex-president Bill Clintons Economic Policies.

U.S. Ex-president Bill Clintons Economic Policies.

U.S. Ex-president Bill Clintons Economic Policies.

1) Introduction

      This paper seeks to analyze the Bill Clinton’ economic policies. It may be worth to investigate the economic performance[1] of Clinton as against that of his predecessor and successor.

       The US presidency is bestowed the power to determine is own choice of economic policies. Thus economic policy may be defined as referring to actions or strategic options that a government may choose in take in the economic field. Its is therefore a broad area that include policies on what is the proper level of interest rates to be set,  government attitude and treatment of budget deficit including issues affecting the  labor market, national ownership, and other areas of government that have an economic effect on the lives of its people.

      In choosing a policy direction government can use the following types of policies: fiscal policy, monetary policy and trade policy. If the issue to be addressed is the size the government deficit and the methods it uses to finance it, a government can will use a fiscal policy. If the issue is about the amount of money in circulation that would affect interest rates and inflation, a government may choose monetary policy. If the issues would pertain to tariffs, trade agreements and the international institutions that govern them, a trade policy may be chosen by the same government.

      Since an economic policy is generally directed to achieve particular objectives, like targets for inflation, unemployment, or economic growth, the result of the policy could either become successful or not in the attainment of target. Hence part of this paper to discuss the effect of policy choices made by President Clinton.

2) Economic theories analysis: use at least 2 theories to support/non-support topic

       The economic theories to support the analysis of the topic include the IS -LM Model and the Laffer curve.

      The IS-LM model may be used to evaluate what policy directions the Clinton had chosen in its monetary policy whether is supported a tight or liberal monetary policy.

      The other model to be used to explain the effects of the economic policy is the Laffer curve which was popularized by economist Victor Canto, a disciple of Arthur Laffer, when the former published The Foundations of Supply-Side Economics. The theory behind the Laffer curve had its focus on the effects of marginal tax rates on the incentive to work and save, which can shape the growth of the potential output or the supply side. It may be noted that originally the supply side economics focuses on changes in the rate of supply-side growth in the long run, but the more recent supporters of supply-side economics can now expect short-term results to be possible.

      The idea of the Laffer curve, states that tax rates and tax revenues were distinct — that tax rates that are too high or too low will not maximize tax revenues. Hence there is ground to take the position of supply-siders feeling that in a high tax rate environment, faster economic growth is possible and attainable when one lowers taxes to the right level.  Supporters of the theory invoked the tax cuts done during the Kennedy administration.[2]

        In supply side economics, there is advocacy of large reductions in marginal income and capital gains tax rates to allow the encouragement of allocation of assets to investment, which would produce more supply. [3] Logically therefore supply-siders go for indexed marginal income tax rates as a respond to inflation, since monetary inflation had placed wage earners into higher marginal income tax brackets that remained static. This would mean that as wages increased to maintain purchasing power with prices, income tax brackets were not corrected adjusted accordingly and thus pushing wage earners into higher income tax brackets than tax policy intensions. [4]

3) Impact analysis: society; include a current event to support term project, individual, and government impacts.

      The impact of Clinton;’ economic fiscal policy may be appreciate in the achievements he has done. Some of the achievements of Clinton economic policies include his having kept the longest boom in the US history and having a $4,000 billion budget surplus.

     Schifferes explained that President Bill Clinton is to leave the US Presidency with the longest boom in US history still intact but at the same time there was a sign of rapidly slowing economy.[5] He added that Clinton’s legacy includes a huge and growing budget surplus, which was the product of years of battles between the two major contending political parties in the US, the Republicans and Democrats. An economic policy is however a chosen strategy to achieve a an economic purpose which is basically to the promotion or improvement of the life the American people and as such the choice does not stop the rise of other issues as the choice could not fully attained the target or that certain groups believe that there are better alternatives or that they would point to the consequences of the chosen economic policy.

        Schifferes  has rightly pointed events as predicted when he noted the “the very size of the surplus has provoked an even bigger debate, with a fierce controversy over how much of it should be used to cut taxes, how much for spending increases or reductions in the national debt.”[6]  The choices available must be address by means of a fiscal policy as earlier defined.  It may be argued that cutting taxes would reduce the tax rates which may come from income taxes, property taxes, excise taxes and other tax source. The choice of what tax to cut is a major decision to be made since the Administration may unnecessarily be creating inequalities which are targeted of course to be eliminated.

     On economic boom, Schifferes explained that Clinton’s most lasting legacy is most probably the economic boom that has started upon his assumption to office in 1992[7]. With Fed boss Alan Greenspan as the helm of Clinton’s administration for eight years, reports have it that the economy expanded by 50% in real terms. In absolute terms one could see the US showing a gross national product of $10,000 billion which when view globally is already a quarter of the whole world economic output.

      It was not surprising therefore to see the US economy bringing economic benefits right across the entire populace that the American People had more time other things. The fall in the unemployment rate to 4%, a 40-year-low, while creating some 15 million jobs are only proofs of the legacy. In addition the stock market had accelerated even faster by greater than three times, which was enough to create a bigger number of millionaires, by the thousands particularly among middle class stockholders, and employees of rising companies like Microsoft.

      Yet Schifferes reported that the growth was not evenly distributed.[8] He even pointed the despite the highest boom in economic history of the US during Clinton’s regime at the same time then, the country had highest rate of inequality of any industrialized country.  To note therefore that the inequality increased during Mr. Clinton’s years in office is to admit the there is the sad effect of choice of economic policy – that while one promotes economic growth increased inequality appeared to be the unintended consequence.

     Another effect of Clinton’s policy in on rate of unemployment. It is every country’s goal to attain full employment or to at least attain the minimum level of unemployment rate. As to how the choice of Clinton’s economic policy has affected this economic variable of unemployment, Schifferes, explained it was only in the last few years of the boom during Clinton’s time that economic growth seeped into down[9], when average wages started to rise and unemployment had it fall among minority communities. Being was unable, or unwilling, to do much to combat that inequality, the same could only be taken also a part of the legacy, a negative kind to that effect. It does mean however that Clinton has not lifted any finger but such task may really be in fact insurmountable. This may proved by the fact that some of the policies he embraced, like the expansion of the earned income tax credit, were indeed crafter o redistribute money to working families.

The Clinton’s administration has chosen Debt reduction instead of tax cuts

        Schifferes reported that Pres Clinton decided early in his term of office that debt reduction, rather than tax cuts, was the best way to preserve economic growth. [10]Adopting said policy, appeared to have the support of Mr. Greenspan of the Federal Reserve. Many believed this had caused the close working relationship between the Fed and the US Treasury. Unfortunately, the inequality appeared to have been neglected still. The event also may be considered to set the scene for an argument between Mr. Clinton and Congressional Republicans over which spending to cut in order to reach a balanced budget. But these issues were not enough to stop Clinton in winning a second term in 1996 Presidential election.

     After studying the impact of fiscal policy, this paper can now discuss what were Clinton’s trade policies and their impacts. n International trade tensions,  Schifferes,  (2001) explained that Clinton had left an even more vague legacy in the area of international trade, and leaves office with the US more bare than ever before to the international economy.  He added that the US trade deficit has swollen to over $400bn, financed by foreign buyers of US stocks, bonds and companies.  Schifferes, further added, that investment has been improved by a strong dollar poll which also lent a hand to keep inflation in check. It was found that under Mr. Clinton, the US Treasury authorized a limited intervention in foreign currency markets. The first purpose was of course to put aside the yen from a catastrophic decline, and second, and less effectively, to try and improve the value of the euro, the single currency for Europe.

       In trade policy the Clinton administration may be said to have a more mixed legacy.       Schifferes, said, against strong opposition from within his own party, Mr. Clinton pushed through a trade deal that created the North American Free Trade Area (NAFTA) between the USA, Canada and Mexico in 1995[11].

        Clinton’s negotiating an agreement with China in 1999 is considered as one of his achievement in office that is cleared the way for its membership in the World Trade Organization. Because of this Clinton managed to persuade Congress to back that deal, and this had produced the effect of encouraging the world’s biggest country to continue its path of economic reform and integration in the world economy.  At present now China is one the biggest if not the biggest trading partner of the US.

       Not all trade talks resulted to success.  Schifferes explained this fact where Clinton also played a central role in the collapse of the Seattle trade talks – intended to launch a new world trade round in 1999. His having proceeded  against the advice of his own trade negotiators to urge the inclusion of labor standards issues in the trade talks, he had caused the alienation of  many third world delegates. The Seattle talks resulted acrimonious failure, with all sides pointing a finger to the US for inadequate preparation and surrendering to the domestic political pressures. The effect of the failure was to increase trade tensions with the European Union, which is the only real rival to the US among world trade blocs.[12]

4) Economic graphs: two (2) graphs detailing factual data about the topic

Figure A. US Growth

Reference: BBC News, http://news.bbc.co.uk/1/hi/business/1110165.stm

Figure B. The deficit graph.

Reference: http://econ161.berkeley.edu/Politics/wherethedeficitcamefrom.html

5) Current Issue analysis: detailed example of current economic issues, and changes in economic policy.

       The policy of tax cuts was not adopted by Clinton since be believes surplus would sustain economic growth. This was in opposite policy of President Bush who instead supported tax cuts.

     In comparison with Clinton policy of budget cuts, the economic policy[13] of the George W. Bush administration treated things differently.   The first term of George W. Bush saw the Congressional approval for tax cuts: the Economic Growth and Tax Relief Reconciliation Act of 2001, the Job Creation and Worker Assistance Act of 2002 and the Jobs and Growth Tax Relief Reconciliation Act of 2003, which all increased the child tax credit and removed the tax term “marriage penalty.” The same was however believed to have generated increase complexity was increased due to new categories of income taxed different rates and new deductions and credits, however while simultaneously, there was no change in the number of individuals subject to the alternative minimum tax after an increase.

        Bush made to Congress an initial proposed $1.6 trillion tax cut[14], but with strong opposition hence he resorted to town hall-style public meetings across the nation during his early first term for an increased public support for it using the argument with his economic advisers that unspent government funds deserved a return to taxpayers. Not without opposition due to the threat of recession as reports would same had come from Federal Reserve Chairman Alan Greenspan, but Bush was banking on the belief that such a tax cut would cause economic stimulation and job creation. A number of economists, including the Treasury Secretary and ten Nobel prize laureates had contacted Bush in 2003, had opposed the tax cuts on the grounds that such would not be growth stimulus, but would indeed increased inequality and worsen the budget outlook considerably.[15] But Bush was found to be winning his way as he was able to convince five Senate Democrats to join Republicans with the approval of a tax cut program.

       It would be interesting to see the effect of those decisions on unemployment, economic growth and inequality. As recorded unemployment increased from 4.2% in January 2001 to 6.3% in June 2003, but the same had decreased to its present rate of 4.5%.[16] Contrary to what was feared lack of growth stimulus in using tax cuts, it may be noted, that the economy has continued to increase under the Bush regime although growth was below on the average in comparison to the average for business cycles for the period 1949 through 2000. Real GDP recorded an overall growth at an average annual rate of 2.5%. [17] From 2001 and 2005, GDP growth exhibited a pegged increase at 2.8%, which is17.6% lower than.

      As for the effect on unemployment rate, the number of jobs created increased by only 6.5%, 28.5% below the average growth rate of 9.1%. The expansion in average salaries was less than half as expected; 1.2% versus 2.7%, respectively.  Record had it that only investment residential real-estate increased by 26% faster than average.[18]

     Compared with Clinton administration, a great number of economists do not agree of the Bush administration’s policies and they ended up telling that the economy is only benefiting the wealthy, with an increased inequality between the top 1% and the rest of society.[19]

6) Researcher conclusion about economic topic and researched findings overall

       This paper concludes that Bill Clinton may have many enemies but his record in terms of the economic performance of the US economy is simple unprecedented. The Clinton administration has supported budget cuts instead of tax cuts believing that the first was the key to sustain growth. Although Bush has changed policy by resorting to tax cuts , growth as also observed from the US economy but not as good as that of Clinton.

7. Works Cited:

“CBS Interviews Former Treasury Secretary Paul O’Neill]”, {www document} URL http://www.informationclearinghouse.info/article5510.htm, Accessed November 26, 2007

Akerlof, G., et. al, Economists’ Statement Opposing the Bush Tax Cuts, 2003 {www document} URL, http://www.epi.org/stmt/2003/statement_signed.pdf, Accessed November 26, 2007.

Bush Touts $1.6 trillion Tax Cut. CNN (2001-02-01) {www document} URL http://transcripts.cnn.com/TRANSCRIPTS/0102/05/se.01.html, Accessed November 26, 2007.

Carroll, Thomas (1983) Microeconomic Theory Concepts and Applications, St. Martin Press, New York, USA

Labor Force Statistics from the Current Population Survey. U.S. Department of Labor. {www document}URL, http://www.bls.gov/webapps/legacy/cpsatab1.htm Accessed November 26, 2007.

Labor Force Statistics from the Current Population Survey. U.S. Department of Labor. {www document}URL, http://www.bls.gov/webapps/legacy/cpsatab1.htm Accessed November 26, 20079

Lou Dobbs on the Bush administration’s economic policy, {www document} URL, http://www.cnn.com/2006/US/10/17/Dobbs.Oct18/index.html Accessed November 26, 2007.

Price, L. ; Ratner, D. (October 26, 2005). Economy pays price for Bush’s tax cuts.. {www document}URL http://www.epi.org/briefingpapers/168/bp168.pdf, Accessed November 26, 2007.

Samuelson and Nordhaus (1992), Economics, McGraw-Hill, Inc, London, UK

Schifferes, Steve, Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007

Slavin (1996) Economics, Fourth Edition, IRWIN, London, UK

[1] Samuelson and Nordhaus (1992), Economics, McGraw-Hill, Inc, London, UK ; Slavin (1996) Economics , Fourth Edition,  IRWIN, London, UK
[2] Kottmann, The President Reagan Information Page: Federal Income Tax Revenues (1994-2005), http://www.presidentreagan.info/income_tax_revenues.cfm
[3] Price, L. (October 25, 2005). The Boom That Wasn’t: The economy has little to show for $860 billion in tax cuts. {www document}URL, http://www.epi.org/briefingpapers/168/bp168.pdf Accessed November 26, 2007
[4] Lou Dobbs on the Bush administration’s economic policy, {www document} URL, http://www.cnn.com/2006/US/10/17/Dobbs.Oct18/index.html Accessed November 26, 2007.
[5] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[6] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007

[7] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[8] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[9] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[10] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[11] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[12] Schifferes, Steve ,  Bill Clinton’s economic legacy, US DGP,   Monday, 15 January, 2001, {www document} http://news.bbc.co.uk/1/hi/business/1110165.stm, Accessed November 26, 2007
[13] 1.         Carroll, Thomas (1983) Microeconomic Theory  Concepts and Applications, St. Martin Press ,New York , USA
[14] Bush Touts $1.6 trillion Tax Cut. CNN (2001-02-01) {www document} URL http://transcripts.cnn.com/TRANSCRIPTS/0102/05/se.01.html, Accessed November 26, 2007.
[15] Akerlof, G., et. al, Economists’ Statement Opposing the Bush Tax Cuts, 2003 {www document} URL, http://www.epi.org/stmt/2003/statement_signed.pdf, Accessed November 26, 2007.  “CBS Interviews Former Treasury Secretary Paul O’Neill]”, {www document} URL http://www.informationclearinghouse.info/article5510.htm, Accessed November 26, 2007.

[16] Labor Force Statistics from the Current Population Survey. U.S. Department of Labor. {www document}URL, http://www.bls.gov/webapps/legacy/cpsatab1.htm Accessed November 26, 2007
[17] Labor Force Statistics from the Current Population Survey. U.S. Department of Labor. {www document}URL, http://www.bls.gov/webapps/legacy/cpsatab1.htm Accessed November 26, 2007
[18] . Price, L. ; Ratner, D. (October 26, 2005). Economy pays price for Bush’s tax cuts. {www document}URL http://www.epi.org/briefingpapers/168/bp168.pdf, Accessed November 26, 2007.
[19] Lou Dobbs on the Bush administration’s economic policy, {www document}URL, http://www.cnn.com/2006/US/10/17/Dobbs.Oct18/index.html Accessed November 26, 2007



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