The Deficit Story: Clinton's Surpluses Were Not a Model

The NYT argues for the need to address the deficit in the near future. Given the dominance of this debate by shrill deficit hawks, it would have been more helpful if the NYT had focused on the no reason to address the deficit now point, and emphasized the need for more stimulus as a way to put our children's parents back to work so that our children do not have to experience extended period of deprivation in their childhood.

The NYT piece also presents some misleading mythology. It notes that the last Clinton budgets had surpluses and that he left office with large surpluses projected long into the future. This is a cute story, but the reality is that these surpluses were not sustainable. The economy in the last Clinton years was being driven by a stock bubble. It was inevitable that the bubble would burst, as it did in the years 2000-2002. This through the economy into a serious downturn. (The official recession was short, but we did not start creating jobs again until the fall of 2003.)

The downturn was the major factor behind the shift from Clinton surpluses to Bush deficits, not the tax cuts or even the war spending, which the NYT is right to note is a major factor in current deficits (@$300 billion of the annual deficit is attributable to higher than expected defense spending). The collapse of the stock bubble, by itself, cost the government more than $600 billion in capital gains taxes over CBO's 10-year projection period in 2001.

In short, the economy that supported the budget surpluses of the Clinton years was not a healthy one. Bush's economic mismanagement made it much worse, but the economy was not on a sustainable path at the point he took office.

--Dean Baker

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