Clinton-Greenspan Commission: Restoring Bipartisan Economic Growth

We need former President Bill Clinton and Alan Greenspan to co-chair a bipartisan commission to restore economic growth and reduce inflation. President Bill Clinton has always had a good relationship with President Biden and Alan Greenspan is still respected by both parties in Congress.

Looking at the last two great economic booms of the '80s and '90s, they were caused by both parties working together for long-term gains. Breaking the back of inflation brought about the 1980s boom while President Clinton’s relationship with Federal Reserve Chairman Alan Greenspan was crucial to the growth of the '90s.

The Clinton-Greenspan partnership began in December 1992 at their first meeting in Arkansas. In Bob Woodward’s book “The Agenda,” it was reported that Greenspan talked about the gap between short-term and long-term interest rates at this meeting. 

Greenspan surmised that this gap existed because investors suspected that budget deficits would continue for the foreseeable future. Greenspan told Clinton that a credible deficit reduction plan would spark a drop in long-term interest rates, including mortgages.

Even then, people were refinancing their homes as a source of consumer credit. Greenspan correctly predicted that investors would respond to smaller returns of lower long-term interest rates by investing in the stock market.

According to economist Robert Samuelson, the 1980s boom was the story of breaking double-digit inflation. From 1980 to 1983, annual inflation dropped from 13.5 percent to 3.2 percent.

In his book, “Capitalism in America” Greenspan wrote that the Fed Chair Paul Volcker raised the federal funds rate to a high of 22.4 percent in July 1981. Despite his declining approval ratings, President Reagan had the courage not to pressure the Federal Reserve to lower interest rates until inflation was broken.

President Reagan’s approval ratings took a hit from 68% in May 1981 to 35% in January 1983. After Reagan and Volcker tamed inflation, Reagan won by a landslide in 1984.

Moreover, the economy revived in both instances because people felt a new confidence that the government got control over a seemingly intractable situation. In this decade, a new economic expansion can be brought by combining the two approaches of fiscal responsibility and a tighter monetary policy.

The supply-chain crisis is transitory. Economists have been warning that the real causes of this inflation are the growth in federal spending and Federal Reserve’s quantitative easing program, which Fed-speak for asset purchases.

During the 2008 financial crisis, the federal government responded nearly $4 trillion dollars in asset purchases from the Federal Reserve and approximately $443 billion dollars in the bailouts from the Troubled Asset Relief Program (TARP). The TARP program has ended, but the asset purchases of the Federal Reserve have doubled since pandemic began from $4.2 trillion in March 2020 to over 8.7 trillion in December 2021.

In his 2018 book, “Capitalism in America,” Greenspan wrote, “Entitlements are rising inexorably, and by crowding out capital investment, are reducing productivity and economic growth in the process.”

Greenspan believes we need to reduce spending and our regulatory burden to restore growth.

According to Greenspan, the Swedes reformed their entitlements through a defined contribution system.  Government spending in Sweden dropped from 67% of GDP in 1993 to 49% by 2013.

Regarding regulation, Greenspan wrote that regulation is “a tax on entrepreneurs’ two most valuable resources, their time and their ability to try new things.”

In the 1950s, the Federal Register increased by 11,000 pages every year. By the 2000s, it increased by 73,000 pages per year.

If Congress could pass the REINS Act, Congress would have to vote every time a new regulation cost more than $100 million dollars. Instead of originating from the bureaucracy, Congress would be required to approve a new regulation.

A more predictable regulatory environment will make it safer for banks to loan money. The current system makes it difficult for small businesses to compete with corporations.

According to Greenspan, “General Electric has nine hundred people working in its tax division. In 2010, it paid hardly any tax. Smaller companies have to spend money on outside lawyers and constantly worry about falling foul of one of the Internal Revenue Service’s often contradictory rules.”

In 2010, President Clinton said, “The money is there to get this country out of this mess. Two trillion dollars in the bank is $20 trillion in loans.”

In December 2021, the Federal Reserve had 4.2 trillion dollars uncommitted to loans because the low interest rates have discouraged lending. To use President Clinton’s argument, if the banks loan $10 for every dollar, that’s over $40 trillion in loans.

As the Federal Reserve loans out more money, they will be able to responsibly reduce asset purchases. As asset purchases drop, inflation will go down with it.