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FROM THE OFFICE OF PUBLIC AFFAIRS December 20, 2000LS-1088 TREASURY ASSISTANT SECRETARY FOR ECONOMIC POLICY DAVID W. WILCOX REMARKS TO THE SOCIETY OF GOVERNMENT ECONOMISTS WASHINGTON, DC I. Introduction Thank you for inviting me to speak with you today. It is a privilege to address this group at the close of the Clinton Administration, and to have the opportunity to review the Administration's fiscal legacy. One sure indicator of the importance of that legacy is the fact that, in at least four ways, the state of fiscal policy is fundamentally different today than it was eight years ago. I have organized the bulk of my remarks today around those four fundamental changes. But before reviewing those four changes, let me take you back to the beginning, and recall for you how difficult it was to pass the President's first deficit reduction package in 1993, and how great the skepticism it encountered as to its economic merits. The deficit reduction package passed the House of Representatives on August 5, 1993, by a vote of 218-216, with all Republicans voting against. The next day, the Senate passed the bill, on a vote of 50-50, with Vice President Gore casting the tie-breaking vote, again with not a single Republican vote in support of the package. Much of the commentary in 1993 was, to say the least, skeptical as to the economic merits of the plan. One member of Congress remarked that "this is really the Dr. Kevorkian plan for our economy." Another said: "This plan will not work. If it was to work, then I'd have to become a Democrat and believe that more taxes and bigger government is the answer." Leaving aside the false premise as to the fiscal orientation of the Democratic Party today, we do now know the outcome as to the recent performance of the macroeconomy: During the Clinton Administration, we have enjoyed the lowest unemployment rate in 30 years. Inflation declined to the lowest levels since the Kennedy Administration, and has remained moderate this year despite the run-up in energy prices. Productivity growth has averaged 3.0 percent over the last five years - nearly double its average rate over the preceding 20 years. And real wages finally have begun rising across the economic spectrum. Now there has been a lot of debate in recent years about how to parse out the credit for that macroeconomic performance. To be sure, much of the credit goes to the American people, who have displayed enormous creativity and entrepreneurial energy, and to the development of path-breaking new technology. But as Secretary Summers has noted, the American people were creative and entrepreneurial in 1992 as well, and yet the country could not seem to improve its lackluster economic conditions. I hope it will not surprise you too greatly if I attribute a share of the credit to the strategy of sustained fiscal discipline that was put in place by the President and his economic team. And notwithstanding the economic outcome, I am not aware of any offer on the part of the member of Congress I quoted earlier to carry out his promise and vote with the Democrats! Let me now turn to a more specific discussion of four ways in which fiscal policy has been transformed during the Clinton Presidency. II. Facts and Figures Perhaps the simplest and most obvious way in which the fiscal landscape has been revolutionized is the stunning change in the numbers:
This turnaround in the numbers has brought real benefits to individual Americans:
III. Unified budget accounting versus on-budget accounting A second respect in which the fiscal landscape has been transformed has more to do with the institutions of the budget process than with the performance of the budget itself.
The practical implication of this change is that the budgetary debate now focuses on how best to use $1.9 trillion in projected on-budget surpluses rather than $4.2 trillion in unified surpluses. The beneficial implications for national saving and the performance of the macroeconomy can hardly be overstated. IV. Government saving and the trust funds The shift in the terms of political debate had an immediate and extremely consequential implication for the interpretation of the Social Security trust fund, which represents a third important change in the fiscal landscape:
It is worth digressing here for a moment to address one common misconception about the Social Security trust fund. A number of critics have attacked the "reality" of the trust fund, on the basis that the trust fund holds only "government IOUs." This attack is a red herring. In point of fact, the macroeconomic reality of the trust fund does not hinge on the assets that it holds, but rather on the issue of whether trust fund accumulations are backed by government saving.
The key is whether changes in the level of the trust fund are backed, dollar for dollar, by government saving. If they are, then - for my purposes as a macroeconomist - the trust fund is very real indeed. And this accomplishment - the fact that the Social Security trust fund now has real macroeconomic meaning - is, in my view, one of the most under-rated achievements of the Clinton Administration. V. The near-term implications of out-year fiscal settings A fourth change in the fiscal landscape is that we now have a much keener appreciation for the near-term implications of out-year fiscal settings.
I should note that there is nothing special about fiscal consolidations, and that the logic of this lesson applies equally in reverse: a back-loaded fiscal expansion can, in principle, be contractionary in the near term. The main determining factors include the speed with which the fiscal stimulus is phased in, and the degree to which fiscal policy becomes more expansionary in the future relative to the present. VI. Conclusion The extent of the fiscal progress of the past eight years is almost difficult to comprehend. Now it is no longer common to worry about the mounting fiscal burden that we are bequeathing to our children. Instead, we can realistically look forward to the day when we will have eliminated the debt held by the public altogether. But the fiscal agenda is not finished. Let me highlight two items that the Clinton Administration fought for, but was unable to obtain:
Unfortunately, Congress failed to respond to the President's leadership on either point. But one of the greatest fiscal legacies of the Clinton Administration is that the resources have been preserved to enact those proposed solutions in the future, should the new Congress and the new President choose to do so. For the sake of the nation's economic future, I hope they will make that choice. |
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