A Libertarian Perspective on Economic and Social Policy

Lecture 22A Libertarian Report Card

on Clinton and Bush©2007 Jeffrey A. Miron

Introduction

• No matter how compelling one might find libertarian policy views, it is hard to argue with the claim that these are unlikely to carry the day any time soon.– One possible response is to be patient;– A second is to support libertarian candidates.

• A third is to assume that, to make a difference one has to throw in one’s lot with the Democrats or the Republicans (all the while holding one’s nose), and do the best one can in one of those parties.

Introduction, continued

• If one takes this last view, the question is then, – Which of the two parties is the lesser of the

evils?

• On the whole, I think libertarians assume that Republicans, while far from ideal, are less bad than Democrats.– For example, one hears often about the

“libertarian” wing of the republican party.

Introduction, continued

• This lecture suggests that, at least in recent years, the case for Republicans over Democrats (for libertarians) is not at all clear.

• There are areas where the Republican rhetoric sounds closer to libertarianism than does the Democratic rhetoric.

• And the few well-known politicians that can in any way be seen as libertarian are mainly republican:– William Weld, Arnold Schwarzenneger, Rudi Gulianai,

Condaleeza Rice, Barry Goldwater.

Introduction, continued

• But the Bush administration’s record has been abysmal from a libertarian perspective, and even the rhetoric is not so great.

• In any case, this lecture will consider this issue by focusing on the Clinton versus Bush records.

• And it will discuss how libertarians might want to think about political participation.

Outline

• Overall Economic Performance Over the past 15 years

• Specific Bush Policies

• Specific Clinton Policies

• Gridlock and Divided Government

• Libertarians for Hillary!

Overall Economic Performance

• It is useful to begin by looking at overall indicators of economic performance under the past two presidencies:– GDP growth– Deficits– Taxes– Federal Expenditure

• Also, monetary policy, CEA Chairs, etc.

Real GDP, 1959-2006

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

1959

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

Real GDP, 1990-2006

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GDP Growth By Year

1993 2.7

1994 4.0

1995 2.5

1996 3.7

1997 4.5

1998 4.2

1999 4.5

2000 3.7

2001 0.8 Average 1994-2001 = 3.52002 1.6

2003 2.5

2004 3.9

2005 3.2

2006 3.4 Average 2002-2006 = 2.9

Deficit / GDP

-6

-5

-4

-3

-2

-1

0

1

2

3

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Deficits Under Clinton Versus Bush

• There is no debate over the fact that deficits shrank enormously under Clinton (becoming surpluses) but have returned in substantial way under Bush.

• The are several reasons:– Clinton raised taxes, Bush cut them;– Bush has increased spending relative to Clinton;– Stronger economic growth under Clinton;– 9/11 and Iraq.

• How much should we care?– Maybe less than the conventional wisdom.– But overall, hard to sell this as a point for Bush.

Federal Tax Receipts / GDP

0

5

10

15

20

25

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Taxes

• Clinton supported and signed a major tax increase in 1993; signed a substantially smaller tax cut in 1997.

• Bush signed four different tax cuts, in 2001, 2002, 2003, and 2004:– Of these, the first was the largest and most

significant.• The behavior of receipts relative to GDP is

consistent with this.• This is one area where libertarians would give

Bush reasonable marks.

Federal Spending Relative to GDP

Clinton Bush• Defense 3.46 3.81• International 0.19 0.23• Health 1.56 2.34• Medicare 2.15 2.34• Welfare 2.88 2.90• SS 4.45 4.31• Interest 2.76 1.54• Other 2.29 2.79

• Total 19.75 19.95

Spending

• Defense Spending is higher under Bush:– This is not surprising, and there is at least an

argument as to why this might make sense.– International is basically part of Defense.

• Health means Medicaid:– Much of this is inevitable unless one cuts the

program, given increasing health care costs, so it’s not clear how much to blame Bush, but he did not manage to slow health spending;

• Ditto for Medicare.– But, the prescription drug benefit will add to this item

enormously, and Bush gets the blame for this one.

Spending, continued

• The higher level of Welfare Spending is particularly surprising; some of this reflects slower economic growth.

• Social Security has declined, but this does not reflect any specific policy choices.

• Lower interest spending is because Clinton ran surpluses, decreasing debt.

Spending, continued

• The stunning item is “Other.”

• Virtually everything in this component is bad government (e.g., pork).

• Yet Bush and the Republicans have increased it substantially relative to Clinton.

• They should be embarrassed (some of them are, but not enough).

Specific Policies: Bush

• Sarbanes-Oxley

• McCain-Feingold

• Medicare Prescription Drug Benefit

• No Child Left Behind

• Stem Cell Research and Abortion

• Iraq and the War on Terror

• Social Security

Corporate Accountability and Sarbanes-Oxley (2002)

• This Act was passed by Congress, and signed by Bush, in the wake of Enron, WorldCom, etc. scandals.

• The idea is to ensure accountability by requiring greater reporting of accounting issues and increased involvement of CEOs, CFOs in the process.– For example, these execs have to sign off on

a huge range of documents to demonstrate they are “aware” of the accounting issues.

Sarbanes-Oxley, continued

• Libertarianism thinks SOX is stupid.• It generates enormous paperwork and

compliance costs.• It cannot prevent corporate fraud.• The scandals were rare to begin with.• Investors either pay no attention to SOX, since

they know it’s a sham; or they acquire a false sense of security about corporate accounting;

• So, SOX is at best a waste, and possibly counterproductive.

Campaign Finance and McCain-Feingold (2002)

• The Bipartisan Campaign Reform Act, which Bush endorsed, did two main things:– Banned soft money contributions to national

and state political parties– Banned issue ads paid for by soft money from

corporations and unions during the 60 days prior to an election.

• Libertarians oppose all campaign finance regulation, and this is the worst by far.

McCain-Feingold, continued

• The first problem with MF is that, like all previous CFR, it will have no real effect:– There will be a shift in power from political

parties to groups producing issue ads, but there will be explicit or tacit cooperation between parties and these groups, so that the net results will be similar to what occurs now.

– In particular, groups producing issue ads can use their hard money to produce these ads and save the soft money for other things.

McCain-Feingold, continued

• The second problem with MF is that restricting the ability of individuals or groups to spend their money promoting ideas is Orwellian:– It is unimaginable that anyone who claims to care

about freedom, liberty, free speech, and the like can endorse a policy that is so antithetical to exactly these things.

• The third problem is that Libertarians view the influence of money in politics as being benign or beneficial at least as often as it is detrimental.

• So, the right policy would have been repeal of previous CFR, not the addition of more.

Medicare Prescription Drug Benefit

• Adopted in 2003, this new entitlement adds coverage of prescription drugs to Medicare.

• The program is incredibly complicated: – The rules about co-pays, deductibles, donuts, and the

like are mind-numbingly complex.

• The estimated cost is enormous and keeps going up:– Over the next ten years: initial estimates were $400

billion, then $540 billion, then $720 billion, and so on.

Medicare Prescription Drug Benefit, continued

• There was certainly an argument for changing the structure of Medicare to include prescription drugs.– Policy should not give an incentive, e.g., for surgery

rather than medication.

• So, Libertarians oppose Medicare in its entirety.• But even putting this aside, the right approach

would have been to cut other parts of Medicare so as to maintain expenditure neutrality rather than generating huge additional expenditure and complexity.

No Child Left Behind

• This 2002 Act, highly touted by Bush, does two main things.– It mandates high-stakes testing on all schools;– It creates penalties / rewards for poor performance

(e.g., vouchers for students in failing schools).

• The libertarian view is extremely skeptical of high-stakes testing.

• And it is incredibly skeptical of having the federal government impose one approach on all states:– Variety and experimentation are good; NCLB tends to

shut this down.

No Child Left Behind, continued

• Libertarians are more positive about vouchers.

• But the bureaucratic hurdles to actually getting vouchers used seem large; it is hard to see how NCLB will ever cause large-scale adoption.

• Most importantly, NCLB distracts attention from expanding competition rather than attempting (government) accountability.

Stem Cell Research

• In 2002, Bush announced that federal government funding for stem cell research would only be available for the roughly 60 pre-existing stem cell lines.

• At the same time, there were calls in Congress from republicans to ban all research using stem cells.

• In the end, none of the proposed bans made much headway, but the restriction on funding is still in place.

Stem Cell Research, continued

• The libertarian view is that government should not be involved in funding research at all:– In part because this funding inevitably gets politicized,

as in this case.• But given the government does fund research, it

should leave the allocations to scientists rather than politicians;

• The Bush actions were shameless catering to the pro-life lobby.

• As an aside, stem cell research has done well with private funding.

Iraq and the War on Terror

• The U.S. invasion of Iraq represented a huge government intervention, and one that involved enormous use of force.

• These two facts make it immediately suspect in the eyes of Libertarians.

• There could be an exception to these “rules of thumb” if there had been a compelling “self-defense” argument, but there was not.

Social Security

• The Bush administration made a major push for the introduction of private accounts.

• As discussed, the right view of these accounts is that they have no effect on solvency.– The public more or less figured this out.

• The administration’s effort to introduce private accounts therefore cost it credibility;

• And they distracted from real changes, such as a higher retirement age.

Bottom Line on Specific Bush Policies

• It is hard to give Bush high marks on many traditional republican / conservative themes;

• And it is almost impossible to give him high marks on any libertarian theme:– One partial exception is cutting taxes; – Another is immigration.

• Thus, libertarians should be under no illusions that Bush is “OK” from a libertarian perspective.

Clinton

• Trade

• Welfare Reform

• Assault weapons ban

• Health Care

• Foreign Policy

• Monica Lewinsky

Trade

• In 1993, Congress adopted and President Clinton signed the North American Free Trade Agreement, which dramatically reduced trade barriers between the US, Canada, and Mexico.

• There are reasons for some degree of caution about regional free-trade zones;– They can be trade diverting rather than trade-creating.

• And NAFTA has a lot of stupid stuff in it.• Still, overall, this was a significant positive on the

trade front.

Welfare Reform

• In 1996, Clinton and the Republican Congress agreed to “end welfare as we know it.”

• There was lots of outrage over the changes, and lots of claims that this was an incredibly important reform.

• The reality is somewhat more nuanced.

Welfare Reform, continued

• One main change was to convert welfare from a federal entitlement into a set of block grants to states:– This by itself does not change the amounts;– But the Act limited the years of welfare receipt to 5,

implying some degree of reduction.

• In addition, the reform gave states far more leeway to design welfare as they saw fit:– For example, the imposition of work requirements in

order to receive benefits.

Welfare Reform, continued

• The greater flexibility for states is something libertarians should like.

• But the program is still in many ways a federal program.– Funding from the Feds; – The 5 year maximum.

• And there’s a reasonable argument against time limits, work requirements:– If you want to help poor people, help them.– Those who need welfare cannot earn a lot and may well need

help for a long period.

• So, welfare perform can be thought of as moving the welfare system in the right direction, but weakly.

Assault Weapons Ban

• In 1994 Congress passed and Clinton signed a bill that, among other things, banned the manufacture and import of so-called “assault weapons.”– This meant semi-automatic weapons that had

certain features, such as flash suppressors, bayonet mounts, or collapsing pistol grips.

– The law did not outlaw possession of pre-existing assault weapons.

Assault Weapons Ban, continued

• This law was textbook Clintonian feel-good spin and hypocrisy:– There is no relation between lethality and the

gun features that defined assault weapons;– Pre-existing assault weapons remained;– It was trivial for manufacturers to remove the

cosmetic assault weapon features of the banned guns so as to make them legal, and most of them did so.

Assault Weapons Ban

• Thus, the law claimed to get dangerous weapons off the street; it did nothing of the kind.

• There is no evidence the law had any effect on violence or other crime:– The decline in violence of the 1990s clearly

pre-dates the ban and Clinton’s presidency.

• The law expired in 2004, with no apparent adverse effects.

Health Care

• In 1993 Clinton appointed a task force to design a better health care system:– Hillary Rodham Clinton headed the task force.

• This group announced a plan later that year:– The centerpiece was a mandate that all employers

provide health insurance to their employees, relying on tightly regulated HMOs for the actual health care.

• The proposal was incredibly complicated;– It would have mandated substantial additional

spending on health care, with much of the burden falling on small businesses.

Health Care, continued

• The proposal received an unenthusiastic response, even from many democrats.

• Within months, it was clear the plan was going nowhere fast, and it never got a serious hearing in Congress (which was controlled by the Democrats at the time).

• Thus, what Clinton “did” was nothing;– What he proposed was awful, at least from a

libertarian perspective.

Foreign Policy: Bosnia

• In the early 1990s, Yugoslavia broke apart into several pieces:– Croatia, Slovenia, Bosnia, Serbia, …

• Serbia had ambitions to control Bosnia, which had many ethnic Serbs:– In particular, Serbia aimed to drive out Bosnian

Muslims.• There was an invasion, war, and brutal ethnic

cleansing.• There was also a UN arms embargo on the

whole region.

Bosnia, continued

• The UN arms embargo made no sense:– Serbia was already well armed, so the

embargo meant the Bosnian Muslims could not defend themselves.

• There were also UN troops present that were supposed to keep the peace:– They stood by as massacres occurred

because there was no consensus in the UN about how much to intervene.

Bosnia

• The US and Clinton deserve huge blame for tolerating the arms embargo.

• At the same time, US pressure supported by Clinton eventually got NATO to bomb the Bosnians, which stopped the killing.

• So, Clinton hardly gets a gold star for this episode:– But this was perhaps a case where, given the

embargo, US intervention to help others actually seems to have done some good.

Monica Lewinsky

• Many libertarians disliked Clinton intensely, so the were tempted to view the Lewinsky scandal as an opportunity to “get Clinton.”

• Libertarians should have been cautious, however, since one key component of the scandal was a lawsuit based on sexual harassment law, which libertarians oppose.

• And while anyone could have found Clinton’s relationship with Lewinsky “inappropriate,” Libertarians should presumably have found the idea of impeachment over a private “dalliance” rather uninspiring.

Monica Lewinsky, continued

• The more defensible position for Libertarians (and others) who wanted to criticize Clinton over this episode should have been that, whether one likes a particular law or not, one is supposed to obey it.

• In particular, everyone is supposed to tell the truth under oath;

• And everyone is supposed to avoid telling others to lie under oath (Lewinsky’s filing of a false affidavit).

Monica Lewinsky, continued

• Thus, the right basis for criticizing Clinton over this episode was his dishonesty once caught, not the underlying peccadillo.

• And the hypocrisy in relation to the sexual harassment issues was stunning:– Had a republican done the same thing, the

democrats defending Clinton’s acts as “private affairs between him and Hillary” would have been screaming bloody murder.

Bottom Line on Specific Clinton Policies

• Clinton proposed lots of things Libertarians oppose;– And some of these became policy.

• Clinton also did a few non-trivial things that actually go in the libertarian direction.

• Many Clinton actions (e.g., anti-hate crime legislation) were stupid, but they actually did very little.

• Overall, policy did not change much in the anti-libertarian direction under Clinton.

Was Clinton Really More Libertarian Than Bush?

• Maybe not.• So far, we have left out a key variable:

– The composition of Congress.

• What matters for the policies adopted under a particular president is not just the views of that president but also whether Congress is of the same party.

• If yes, then the president is likely to get a lot of what he wants; otherwise, there’s a significant potential for gridlock.

Gridlock

• Policymakers, policy wonks, and the media routinely bemoan gridlock as bad.

• To libertarians, however, gridlock is about as good as it gets.

• Naturally, libertarians would like to see radical change, in the direction of less government.

• But that is not likely to happen soon.• So, the next best thing from the libertarian

perspective is for policy to “do no new harm.”

Gridlock, continued

• For many policies, “no change” means gradual reductions in the size of government.

• For example, holding expenditure constant in real, per capita terms means it shrinks relative to GDP, and this implies a smaller impact on the economy over time.

• Further, if there are few new regulations or programs, the private sector becomes efficient at complying with and/or avoiding these without much effort, so any distortions become less important over time.

Gridlock, continued

• In some instances, of course, “no change” might mean holding a rate of growth constant rather than holding a level constant.– In this case, population and income growth might not

shrink the importance as quickly, or at all.

• And there are many instances where only repeal can fundamentally improve the functioning of government or prevent it from growing bigger.

• But, overall, libertarians can be fairly happy with gridlock. Certainly beats the likely alternative.

Gridlock and Democrats versus Republicans

• The right Libertarian view of Bush versus Clinton, therefore, is plausibly that Bush came out worse mainly because he had a Republican Congress:– Had there been a Democratic Congress for

more of Clinton’s presidency, we would probably have seen an explosion of bad governments programs, as occurred under LBJ and FDR.

Libertarians for Hillary!

• That is why, in all seriousness, libertarians should hope that a democrat, and Hillary in particular, gets elected president in `08.

• Congress will likely shift back to Republican control if a Democrat is elected President:

• And Hillary in particular is such a polarizing force that more people will vote republican, and Republicans might actually start acting like Republicans:– They hate her so much, they will tend to support the opposite of

anything she endorses, regardless of what that might be.

• And for libertarians, that is a good outcome.

How Do I Vote?

• For president, I vote for A libertarian:– My wife, by writing her name in on the ballot.

• And I vote for my father for vice-president.• Given we’re in Massachusetts, it makes no

difference in any case;• But if I lived in a state where my vote

might make a difference, I would always vote in the direction most likely to produce divided government.

Conclusions

• There is no obvious reason libertarians should prefer republicans over democrats, or vice versa:– They’re both unmitigated disasters when they

get power without constraints

• The Clinton years were better than the Bush years so far, but that is probably not due to Clinton versus Bush;

• Gridlock is the key.