Urbin Report

Thursday, July 29, 2004

Remembering the 90's

The Wall Street Journal Opinion Page tosses a dose of reality on The Big Me's recollection:

Allow us to recall a few of the missing details amid this nostalgia trip, starting with the fact that the Clinton years began by inheriting a recovery that was finally gathering steam. The economy grew by more than 4% in 1992, including 4.5% in the fourth quarter, too late to re-elect George H.W. Bush but enough to give the Clinton era a running start.

Mr. Clinton did pass a tax increase in the summer of 1993, but only after Senate Democrats stripped out his new BTU tax and Senate Republicans killed his spending "stimulus." The expansion stumbled in early 1993, no doubt partly on tax-hike uncertainty, then revived late in the year. In 1994 stock markets were flat but interest rates actually rose throughout the year, peaking on the very day in 1994 that Republicans took Congress. That turned out to be the real start of the 1990s boom.

Then the bubble burst--not in 2001, but starting in 2000. The tech-heavy Nasdaq peaked in March of Bill Clinton's final year in office. The National Bureau of Economic Research now says the economy shrank by 0.5% in the third quarter of 2000--albeit too late for voters to feel it that November. After a fourth quarter blip in growth, the economy slipped into recession by the formal definition (at least two consecutive quarters of declining GDP) in the first half of 2001.

In other words, the "Bush recession" began for all practical purposes on Mr. Clinton's watch. The spectacular popping of the dot-com bubble also meant that at least some of the wealth created in the late 1990s had been an illusion. While productivity gains and much of the growth were real, the over-investment in telecom and other areas was so great that it has taken years to recover.

As we later learned, the corporate scandals that burst into public view in late 2001 also began in the 1990s. Set aside who and what caused them, this timing meant that the Bush Administration had to clean up after the scandals, and the regulatory costs associated with that cleanup (Sarbanes-Oxley, etc.) caused a further delay in the recovery of business confidence and spending.