The Bill Clinton Myth

http://www.mises.ca/posts/blog/the-bill-clinton-myth/

However this is a misunderstanding of the difference between spending by private individuals and political spending.  Government is incapable of being run like a business.  Enterprise is based off the principle of satisfying voluntary patrons with no guarantee of success.  Even in a hampered market economy where corporations receive special privileges via the state, the consumer remains the kingmaker.  On the other hand, government receives all income through coercive measures.  Profit and loss accounting is of little concern when losses are borne by the taxpayer and profits are immediately devoted to political projects.  Should the public Treasury run low, tax collectors can be sent forth to shakedown the unpresuming citizens.

When it comes to rational economic calculation, public officials need not worry about spending money effectively. To attribute increased revenue being taxed away from the private economy with robust growth misconstrues how wealth is created.  Government doesn’t create wealth; it merely transfers it between parties.  Similarly, it only consumes capital that has already been produced.  Because society existed before the state and because the state functions off of what it pilfers from society, public expenditures do not add to net wealth.  In order for one tax dollar to be spent, it has to be first taken from the pocket of a taxpayer.  Whatever subjective desires could have been achieved by that dollar become overridden to satisfy the whims of the political class.

The fact that the economy didn’t stagnate under higher taxes during Clinton’s term in office doesn’t demonstrate that taxation has no harmful effects.  Economies aren’t closed experiments where one variable can be introduced and the effects observed.  There are far too many factors at play.  Concrete theories based off certain truths must be applied in such a way to interpret date and wring sense out of it.  Good economic conditions weren’t a result of heightened taxes but instead prevailed in spite of them.  While the productivity gains from the newly widespread use of personal computers and the internet had a positive effect on growth, another factor often goes unmentioned.  The later-half of the 1990s may be looked back upon as golden years but much of the gains experienced by the stock market were not representative of organic growth.  A significant amount of investment came not from natural causes but from monetary manipulation by the Federal Reserve.

Like the decade that preceded the Great Depression, productivity gains which drove consumer prices downward masked the amount of monetary stimulus being pumped into the economy.  When the bubble collapsed, Greenspan once again turned to the printing press to bail himself out.  Instead of causing a bubble in the tech sector, the burst of inflation made its way into the housing sector.  By the time the housing bubble popped, Greenspan left the chairmanship of the Fed to great acclaim.  Milton Friedman writing in the Wall Street Journal declared Greenspan had “set the standard” for Fed chairmen in maintaining stable prices and growth.  In actuality, he and his colleagues of the Federal Open Market Committee were responsible for the continuation of the boom-bust cycle and current Great Recession.

Today, Clinton still takes credit for Greenspan’s manipulated boom.  His supporters on the left love nothing more than to point at his presidency as vindication of the backwards theory that higher taxes equal more growth.  Clinton wasn’t a policy wonk; he was a politician who dipped into the Social Security trust fund to give an appearance of balancing the budget while the national debt still climbed higher.

Through all of his financial scandals, womanizing, aggressive foreign policy approaches, and possible cover ups, it is actually fitting that Clinton is still looked to by the political establishment as someone worthy of respect.  He is representative of F.A. Hayek’s timeless lesson: in government the worst rise to the top and state power corrupts.