Republican congressmen have recently attacked Federal Reserve Chairwoman Janet Yellen for having raised the issue of income inequality in a recent speech. For this, she was attacked for "pushing a liberal agenda." Never mind that she made no policy recommendations but, like many Americans, merely questioned whether the increasing disparity between a handful of wealthiest Americans and everyone else is compatible with American values.
Many citizens see the increasing disparity of income and wealth as unfair, even as most economists add that it impedes more rapid economic recovery from the Great Recession. In this regard, Ms. Yellen was well within her territory to raise this issue.
Those politicians who criticize Ms. Yellen for intruding into the political arena, however slightly, should review some history.
Let's go back to 1993 and the weak economy and budget deficits that newly-elected President Bill Clinton had inherited from the elder Bush administration. The "Omnibus Budget Reconciliation Act of 1993," unofficially referred to as the "Deficit Reduction Act of 1993" was passed by the 103rd U.S. Congress - just barely. The bill passed the House with no Republicans voting for it, and passed the Senate only with Vice President Gore breaking the tie, a vote of 51 to 50.
The bill slightly raised several categories of taxes, including income taxes for approximately the top 1.2 percent of taxpayers. Upon Clinton signing the bill in August 1993, Congressional Republicans, talk show radio personalities, and other Clinton opponents, predicted total economic disaster.
Instead of economic collapse, the economy prospered. Between passage of the bill and the end of Clinton's term, unemployment fell from 6.8 percent to 3.9 percent. Industrial production rose by about 5.6 percent per year compared to 3.2 percent per year before passage. Personal income rose another 2 percent per year. The Dow rose 26.7 percent per year, from 3,651 to 10,788 (ya, we know - Democrats are supposed to be bad news for investors.).
Okay, so the economy soared after Clinton's budget bill. Success has a thousand fathers, and failure is an orphan. Naturally, the Clinton administration claims, and surely deserves, some credit. After all, if the economy would have tanked, the Clinton administration would have taken the blame. In fact, the most any administration can do is create the overall conditions under which the broader economy can flourish.
So, point one: The Clinton administration did its part to create conditions under which the economy could, and did, flourish. It was not all peaches and cream in that gains in productivity were not broadly shared. But no conservative critic of the Clinton administration ever raised this as an issue.
Point two: Critics in and out of Congress were not about to give the Clinton administration any credit whatsoever. Conservative columnist George Will insists that the president was "just lucky," presiding over the rise of the "dotcom" era.
Libertarian Cato Institute spokesmen cite "other factors," including welfare reform, farm subsidy reform, and passage of the North American Free Trade Agreement (NAFTA).
And - there is another major player in the macro economy - the Fed, then chaired by Alan Greenspan. Why should conservative critics of the administration give President Clinton any credit while the economy was doing well when Wall Street darling Alan Greenspan chaired the Fed?
The Fed executes monetary policy basically by making money easier to borrow during hard times and harder to borrow during easy times. In current parlance, "doves" tend to accept modest inflation and favor lower interest rates as a means to spur the economy. Monetary "hawks" tend to see inflation as the greater problem and will lean toward higher interest rates.
Mr. Greenspan was considered as more of a hawk, seeing inflation as a grave threat. He became more or less of a folk hero, with his deliberately opaque language. As the economy boomed, he became known as "the maestro," the genius presiding over a booming economy. He reticently accepted credit for the prospering economy, never ceding that manipulation of short-term interest rates during an administration with proper fiscal policy made his job infinitely easier.
Consistent with being a "hawk" regarding inflation, Mr. Greenspan railed against deficit spending and its potential inflationary effect on the economy.
So with eight years of the Clinton administration, instead of the economy tanking, as predicted by Republicans, the economy prospered. And guess what - annual federal deficits not only decreased, but government surpluses were accruing.
Think of it - government surpluses, the first since 1969, and under a Democratic administration and a Democratic congress. There was even talk, premature as it was, of not just shrinking, but actually paying off the total federal public debt.
The maestro who spent his career railing against deficit spending should have been elated.
He wasn't - he changed his tune. Paying off the federal debt would deprive the Fed of its primary means of implementing monetary policy, namely through "open market operations," the purchase and sale of government bonds.
Year 2000 - enter newly-elected President George W. Bush, inheriting from the Clinton administration rare federal budget surpluses.
Gone were references to passing on to our children the "horrible burden" of the federal debt. It was suddenly, "this is your money, and we're going to give it back to you, right now," in the form of income tax cuts, of course.
The maestro felt no compunctions in shilling for the Bush tax cuts. In fairness, he probably would not have recommended cuts as large as the Bush tax cuts, and would have made them conditional upon resurgence of deficits.
Conspicuously absent were any Republican complaints about the Fed chair wading into political waters. But as long as the Fed chair was singing the Republican tune, it was okay.
So, Fed Chair Greenspan taking a political stance was fine back in year 2000, but not for current Fed Chair Ms. Yellen, to even raise a relevant issue.
But that was then - and this is now.
- John Waelti of Monroe is a retired professor of economics and can be reached at jjwaelti1@tds.net. His column appears each Friday.
Many citizens see the increasing disparity of income and wealth as unfair, even as most economists add that it impedes more rapid economic recovery from the Great Recession. In this regard, Ms. Yellen was well within her territory to raise this issue.
Those politicians who criticize Ms. Yellen for intruding into the political arena, however slightly, should review some history.
Let's go back to 1993 and the weak economy and budget deficits that newly-elected President Bill Clinton had inherited from the elder Bush administration. The "Omnibus Budget Reconciliation Act of 1993," unofficially referred to as the "Deficit Reduction Act of 1993" was passed by the 103rd U.S. Congress - just barely. The bill passed the House with no Republicans voting for it, and passed the Senate only with Vice President Gore breaking the tie, a vote of 51 to 50.
The bill slightly raised several categories of taxes, including income taxes for approximately the top 1.2 percent of taxpayers. Upon Clinton signing the bill in August 1993, Congressional Republicans, talk show radio personalities, and other Clinton opponents, predicted total economic disaster.
Instead of economic collapse, the economy prospered. Between passage of the bill and the end of Clinton's term, unemployment fell from 6.8 percent to 3.9 percent. Industrial production rose by about 5.6 percent per year compared to 3.2 percent per year before passage. Personal income rose another 2 percent per year. The Dow rose 26.7 percent per year, from 3,651 to 10,788 (ya, we know - Democrats are supposed to be bad news for investors.).
Okay, so the economy soared after Clinton's budget bill. Success has a thousand fathers, and failure is an orphan. Naturally, the Clinton administration claims, and surely deserves, some credit. After all, if the economy would have tanked, the Clinton administration would have taken the blame. In fact, the most any administration can do is create the overall conditions under which the broader economy can flourish.
So, point one: The Clinton administration did its part to create conditions under which the economy could, and did, flourish. It was not all peaches and cream in that gains in productivity were not broadly shared. But no conservative critic of the Clinton administration ever raised this as an issue.
Point two: Critics in and out of Congress were not about to give the Clinton administration any credit whatsoever. Conservative columnist George Will insists that the president was "just lucky," presiding over the rise of the "dotcom" era.
Libertarian Cato Institute spokesmen cite "other factors," including welfare reform, farm subsidy reform, and passage of the North American Free Trade Agreement (NAFTA).
And - there is another major player in the macro economy - the Fed, then chaired by Alan Greenspan. Why should conservative critics of the administration give President Clinton any credit while the economy was doing well when Wall Street darling Alan Greenspan chaired the Fed?
The Fed executes monetary policy basically by making money easier to borrow during hard times and harder to borrow during easy times. In current parlance, "doves" tend to accept modest inflation and favor lower interest rates as a means to spur the economy. Monetary "hawks" tend to see inflation as the greater problem and will lean toward higher interest rates.
Mr. Greenspan was considered as more of a hawk, seeing inflation as a grave threat. He became more or less of a folk hero, with his deliberately opaque language. As the economy boomed, he became known as "the maestro," the genius presiding over a booming economy. He reticently accepted credit for the prospering economy, never ceding that manipulation of short-term interest rates during an administration with proper fiscal policy made his job infinitely easier.
Consistent with being a "hawk" regarding inflation, Mr. Greenspan railed against deficit spending and its potential inflationary effect on the economy.
So with eight years of the Clinton administration, instead of the economy tanking, as predicted by Republicans, the economy prospered. And guess what - annual federal deficits not only decreased, but government surpluses were accruing.
Think of it - government surpluses, the first since 1969, and under a Democratic administration and a Democratic congress. There was even talk, premature as it was, of not just shrinking, but actually paying off the total federal public debt.
The maestro who spent his career railing against deficit spending should have been elated.
He wasn't - he changed his tune. Paying off the federal debt would deprive the Fed of its primary means of implementing monetary policy, namely through "open market operations," the purchase and sale of government bonds.
Year 2000 - enter newly-elected President George W. Bush, inheriting from the Clinton administration rare federal budget surpluses.
Gone were references to passing on to our children the "horrible burden" of the federal debt. It was suddenly, "this is your money, and we're going to give it back to you, right now," in the form of income tax cuts, of course.
The maestro felt no compunctions in shilling for the Bush tax cuts. In fairness, he probably would not have recommended cuts as large as the Bush tax cuts, and would have made them conditional upon resurgence of deficits.
Conspicuously absent were any Republican complaints about the Fed chair wading into political waters. But as long as the Fed chair was singing the Republican tune, it was okay.
So, Fed Chair Greenspan taking a political stance was fine back in year 2000, but not for current Fed Chair Ms. Yellen, to even raise a relevant issue.
But that was then - and this is now.
- John Waelti of Monroe is a retired professor of economics and can be reached at jjwaelti1@tds.net. His column appears each Friday.
