Between Whitewater and “fornigate”, President Bill Clinton will probably not be remembered for his honesty or integrity. But he did get one thing right. Remember the slogan, “It’s the economy, stupid”? Bandied about when he first hit the campaign trail, back in 1992, he has certainly made good his claim.
The economy is going great guns. The lowest unemployment rate in 26 years, strong growth and virtually disappearing inflation. No wonder the voters wanted him back.
And he can justifiably crow about the first balanced Budget in almost 30 years. The last time this happened another embattled incumbent, Richard Nixon, was in the White House. Imbalance soon followed; then came the excesses of the Reagan years, culminating in a $290-billion deficit in 1992. That amounted to 4,7% of gross domestic product.
Reagan’s defence spending and tax cuts alone were not to blame: two recessions compounded the problem. By the same token, Clinton cannot take all the glory: radical policy changes are not his style, although he did manage to scrape through some spending cuts in 1993. Since the last downturn of 1990-1991, the economy has been growing strongly, helping to offset the deficit and boost federal tax revenues.
As South Africans know only too well, Budget deficits are bad. They mean higher interest rates, fewer spending options for government and less money for private- sector expansion, in turn inhibiting economic activity. So it’s not surprising that cutting America’s debt has been a major preoccupation in Washington. And it’s finally paid off.
Clinton, in his State of the Union address this week, hailed the “good times for America”, promising “balanced Budgets as far as the eye can see”. It was a rousing appeal to the voters, greeted by standing ovations and interrupted by applause 104 times, that deflected attention, albeit momentarily, from his personal problems.
Central to his speech was a call for an overhaul of the social security system. The forecast Budget surpluses should not be spent, he urged Congress, until a long-term plan to secure the future of social programmes is in place. In addition, he called for an increase in the minimum wage, which had some Republicans blanching, and more money for education.
And reassuringly, considering that protectionist noises have been gaining volume on that side of the Atlantic, he is pushing for the stalled fast-track trade legislation to be approved asap. The last thing the world needs in the aftermath of the Asian crisis is for the United States to close its doors.
“We must shape this global economy, not shrink from it,” said the president.
So whatever the outcome of the “zippergate” saga, the US economy is well placed to continue growing, with or without Clinton. A change in the presidency will unsettle the markets, but not for long; Al Gore may be a bit of a bore, but at least the interns will be safe. Nor is he likely to instigate any significant policy changes.
And while the Asian fall-out will have some negative effect on growth — a rate of about 2% is expected this year, against 3,5% in 1997 — US companies will still reap the benefits of lower real interest rates and continuing strong demand at home.
The trade balance will take a bit of a knock as some of that demand is met by cheaper imports, on account of the Asian currency weakness, but that seems to be the only negative on the horizon.
With low unemployment, almost no inflation and respectable growth, the bond market will boom, as will shares. There is no real sign that the dollar’s status as a quality investment has been eroded by this fiasco either; the jump in the gold price turned out to be temporary. Markets are notorious for their short attention spans; before long the Clinton saga will be just another blip on the economic screen.