Presidential Economy

Do presidents really have an effect on the US economy? That question was put to me. Here’s my reply.

The Clinton era was an utter and complete financial disaster — to the point where Republicans won the midterms in a landslide, and were able to force through tax reductions and other Federal constraints.

Clinton knew he would never be re-elected without a gargantuan advertising effort and outside help. This led him to seek, and accept, money from communist China in exchange for US military secrets (ultimately resulting in approximately 100 indictments of Democrats and Chinese agents). Known now as Chinagate, it resulted in a long Senate investigation and impeachment charges being levied — until distracted by Monica Lewinsky.

But back in 1995, the Republican Contract with America and other reforms gave businesses and people hope that they could invest and grow, and that government would be held in check. It worked — and by the election of 1996, the economy had recovered well (which Clinton took credit for with the media’s enthusiastic assistance).

Clinton was still in trouble, but faced only the weak candidate Bob Dole who was endlessly mocked by his habit of referring to himself in the third person, replacing “I” with his full name in speeches. The joke at the time was that as a  young Navy man, Bob Dole didn’t say “Aye aye, sir” — he said “Bob Dole Bob Dole, sir!”

Dole lost, to no one’s surprise. And the nascent Internet boom really began having an effect, particularly on Wall Street through IPOs. By late 1997, the connection between tax policy and the economy was so clear that even 80% of Democrats went along with the Republicans’ Taxpayer Relief Act of 1997, cutting capital gains tax from 28% to 20% and (the next year) allowing “long-term” capital gains to be one year instead of 18 months.

The years 1998 and 1999 saw a massive influx of revenue, more even than Congress could spend. But they gave it their best shot, ramping up huge numbers of spending bills week after week, all on the notion that the Internet boom would last forever. More spending was legislated-in to begin in following years.

But the overheated market faltered during Clinton’s last year (beginning the drop from March-April 2000), partially because it was so obvious that the claims were ridiculous. The WebVan episode brought this to wide attention, when a 15-employee San Francisco neighborhood grocery delivery company with three old delivery trucks was given a market valuation larger than General Motors.

The Dot-Com boom was over. By December 2000, NASDAQ had lost half of its value. All of this was covered up by the media over the previous months, because they really wanted Gore in office. And in January 2001, the Office of Management and Budget projected ten years of surpluses as if Congress’s new spending wouldn’t be an issue and the Internet boom (already over) would last for those ten years. The momentary surplus had already been doomed — but this made it look like Bush’s fault.

The economic collapse of 2000-2002 was turned around quickly by Bush’s tax cuts, despite September 11’s giant shock to the nation. And the economy did well until the overextended home loans pushed by Rangel and Frank and Dodd (in charge of the Fannie Mae/Freddie Mac entities) began their collapse during the final year of the Bush administration. This was helped along by endless scare stories from the media, again making this Bush’s fault. They even blamed the Clinton-Enron relationship on Bush, and amazingly got away with it.

The Democrats and media needed a bad economy to get a Democrat elected, and that’s what they got. That Bush had fought against the housing overextension but had been beaten back by Democrats, was ignored.

For the past six years, businesses have been once again afraid of what Obama might do — and his propensity to ignore the Constitution gives them little comfort. The rise of Republicans over the past year, culminating in the successful Republican landslide of 2014, gave businesses enough hope to create some economic gains in recent quarters. But the aftershock — realizing that the big-government, spineless Republican congress is no big help — will continue to act as a drag on the economy.

Obama made some changes for the election of 2012 that kept us out of a double-recession, technically. His administration changed how GDP is calculated so that increased indebtedness to union pension plans counts as “product” — giving GDP a very artificial (and ridiculous)  boost.

So, presidents do indeed have a direct effect on economies.

==============/ Keith DeHavelle