We’re Not Broke and the Clinton Surpluses Destroyed the US Economy

By Stephanie Kelton

Two of our nation’s most influential progressive journalists — Slate’s Matt Yglesias and Business Insider’s Joe Weisenthal —  just took on two powerful economic myths.

1. The Myth that The US Government is Out of Money

2. The Myth that A Government Surplus is  a Sign of Fiscal Responsibility

It’s hard to imagine a more empowering message.  As word spreads, elected officials in both parties will lose their primary excuse for inaction on on a whole range of neglected and underfunded programs.  “I’d love to help, but I’m all tapped out,” simply won’t sell.

Nor will the desperate calls for “shared sacrifice” and “entitlement reform” in the name of fiscal responsibility.

A very big thank you to these men, who will undoubtedly suffer the slings and arrows of many of their progressive followers, who have long considered the Clinton surpluses the crowning achievement of modern Democratic governance.


27 responses to “We’re Not Broke and the Clinton Surpluses Destroyed the US Economy

  1. Professor, the housing bubble was caused by deregulation, greedy bankers and greedy consumers. It was not caused by the Clinton surplus. People did not run out and buy homes because the government stopped spending money. They ran out and bought homes because they thought they were a good investment. This argument that there’s a connection between the housing bubble and the Clinton budget surplus (which was very small) does not hold water.


    • Understand and agreed. Here’s a presentation I gave years ago on the housing crisis/deregulation, greed, etc. http://www.slideshare.net/MitchGreen/did-greenspan-blow-it

      I never said (and never would say) that the Clinton surplus *caused* the housing bubble. The surplus emerged as the private sector took on more and more debt to finance a consumption binge that was, in part, fueled by rising home prices.

      • Okay, thanks. I think it’s important to get the causation right here. The economy was “destroyed” by the housing bubble and bust. This was an event totally unrelated to the Clinton budget surplus. The Clinton surplus might have helped contribute to an unstable private sector, but it did not cause the housing bubble and certainly did not force people to buy homes they couldn’t afford. People don’t buy homes just because the government stops spending. In fact, government spending adds to domestic private incomes and is more likely positively correlated to housing price appreciation.

        I agree that the Clinton surplus was not good for the economy, but Business Insider article comes off as taking an extreme position in order to get attention.

          • I think Karl has some fair points, but I feel like Joe and Karl should be able to meet in the middle. Yes, “Clinton’s surpluses began to erode during George W Bush’s first year in office and the US was back to running large deficits again in 2003,” but there were ~6 years of surpluses vs. only ~3 years of deficits, and the surpluses were much larger in magnitude (vs GDP) than the deficits. I think there is a legitimate argument to be made that this contributed to private sector instability, as “Skeptic” writes above, but Karl does not mention this, and this really should be the main takeaway. What do you think, Stephanie?

          • In the forbes articles, it shows the personal savings rate as being positive during the Clinton years. How is this calculated? If the private sector is in deficit during the clinton years, how can it have a positive savings rate?

          • I meant the business insider article has the graph with personal savings rate. And also, how can the chart showing the changes in govt debt alway stay positive? How can the outstanding stock of treasuries grow with a budget surplus?

            • John O'Connell

              Somebody said that Fannie and Fredddie were floating bonds to buy up mortgages like crazy, and that is counted in the total debt, although “off the books” as far as the annual deficit is concerned.

        • Buzz Killington, why do you have to ruin our party? The Clinton surpluses caused the first recession of this millennium. They also did nothing to prevent the Great Recession.

          Dr. Kelton, I humbly suggest that you not change the title of this post. It rocks.

  2. Cool. We’re winning. Slowly.

  3. The myth that the US government is out of money cannot be exposed within the paradigm that pretends that the government creates the money.
    The government is not out of money, it is out of the power to create the money.
    The private banks create the money.
    Without the power to create the money – that power being legal, explicit and comprehensively understood – the government may as well be out of money.
    Without the power to create the money, we are also without the power needed to achieve our GDP potential.
    The article does little to explain the changes needed and the mechanisms by which the government COULD create the money.
    The government issuing debt does not make the government a money-creator.
    It makes the government a debt-creator.
    I see very little real advancement in the making of this statement without the requisite explanations.
    It will engender, rather than overcome, inflation hysteria.

  4. Re the Clinton Budget “Surpluses” and their economic impacts.
    And, speaking of myths.
    The national debt increased in every year of the Clinton Presidency by an average over 200 BILLION.
    The claimed surpluses resulted from robbing intergovernmental balances – for the most part.
    If the government borrowed money at this scale every year, then the ‘smoke-and-mirrored’, so-called surpluses could not result in any reduction in private spending or investment.
    There’s really something WRONG with this picture.

  5. What is the MMT reason for why the federal government would “borrow money?” is there one?

    • John O'Connell

      To provide an interest-bearing alternative for hoarders of the currency.

      Also, the existence of government debt instruments enables the central bank to set the interest rate, by buying or selling them.

  6. My earlier comment said the Clinton era government debt increased by over $200 Billion per year.
    On review, those were by Congress-term.
    The result is that the Clinton’s TRUE deficits (borrowing increases) were only $186 Billion per year on average.
    The increase in per capita national debt was about $4K per.
    I think we (the private sector) are supposed to be grateful.

  7. Thanks Stephanie. It’s good that we’re getting our message out there. But somehow, we’re not breaking through. Can we get Mike on a mainstream show? If I knew anyone high up in showbiz (ha!), I would call them straight away.

    I have to ask, to what extent is Clinton really responsible for the surpluses? No doubt, they were harbingers for financial catastrophe, and I know that they are not achievements. But could the Clinton administration do more than set tax rates and other policies? Were the surpluses the result of a largely independent set of circumstances that led to higher income for Americans, and hence higher tax revenue?

    • Stephanie Kelton

      Right. Budget outcomes are largely a reflection of what’s happening in the real economy.

    • John O'Connell

      Given a set of tax rates and policies, yes, the surplus or deficit in a given year is the result of the economy in that year. But the government is responsible for the tax rates and policies, so ultimately, they are also responsible for managing the deficit or surplus. “No change” is an affirmative management strategy, just as much as any change is. Given the capabilities of our forecasting tools, Clinton and the Congress were jointly responsible for at least making changes to optimize the trend of deficits or surpluses, and so can he held accountable for the results.

  8. John O'Connell

    “the US government has the ability to create US currency in unlimited quantities. It hasn’t run out of money and won’t ever run out of money. It would be nice for people to understand this point separately from controversies over whether public sector programs are wise or just”

    Bravo. This is the message that MMT needs to get out to its progressive followers. If they keep saying that, then there is a chance that MMT will be more widely accepted among conservatives, as well.

    • Please explain the basis of the statement that:
      “”the US government has the ability to create US currency in unlimited quantities.””…..
      as opposed to the CB has the ability to issue excess-reserve liquidity TO banks in exchange for existing BANK debt.
      For the latter, no legislative change is needed.
      For the former, please say what legislation needs to be changed in order for the statement to represent present reality.
      Please be sure to include that explanation to our progressive followers.

      • Clonal Antibody


        The Proof Platinum Coin Siegniorage Option (PPCS) is always available to the Secretary of Treasury. That effectively allows the Secretary to have LEGAL access to as much money as the Administration needs to fulfill Congressional appropriations. Joe Firestone (LetsGetItDone) has blogged extensively about it since Carlos Mucha (Beowulf) thought up the solution. The laws have been in place since 1996

  9. I heard on MSNBC that Obama will announce planned cuts of $ 4trillion in the debt over the next ten years. That doesn’t sound really great to me.

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