Party like it’s 1999: Obama’s budget borrows from Clinton’s playbook

Barack Obama’s recent budget pursues the goals of full employment and fiscal balance, objectives that were heavily emphasised under Bill Clinton’s leadership. AAP

Is it 2013 or 1999? Barack Obama’s evolution into a more successful Bill Clinton may be complete with the issuance of his recent budget.

On the one hand, Obama’s budget cuts entitlement spending by adopting a lower method of measuring inflation, resulting in an anticipated reduction in Social Security cost-of-living adjustments from 1.7% to 1.4%. And yet Obama’s budget also holds out the possibility of new spending to promote pre-school education, to revive the manufacturing base, and to reduce student loan debt burdens.

By straddling these priorities, this document is very much in tune with the “Third Way” moderate liberalism of the 1990s, emphasising the long-term pursuit of fiscal balance and middle-term investments to promote education and infrastructure development.

How did this approach emerge? In 1993, President Bill Clinton faced a United States divided between a Republican party viewed by many as uncaring in the face of “downsizing” and a Democratic Party seen as prone to a “tax-and-spend” ideology tied to labour and other interest groups. Clinton’s political genius was to redefine the Democrats as the party of the middle class, delivering targeted tax benefits to enable families to invest in education and self-improvement.

The intellectual foundations for this approach were provided by an old friend from his Oxford days, Robert Reich. In his early-1990s tome The Work of Nations, Reich argued that in the 21st century “there will no longer be national economies”. Instead, given revolutions in communications and transportation technologies, “all that will remain rooted within national borders are the people who comprise a nation” and so “each nation’s primary assets will be its citizens’ skills and insights”. From this vantage point, Reich argued “the real economic challenge” facing states going forward would be “to increase the potential value of what its citizens can add to the global economy, by enhancing their skills and capacities”.

From the perspective of 2013, it is worth highlighting here what Reich was not arguing. His was not a Keynesian view, with government running budget deficits to act as a “consumer of last resort”. In the early 1990s – barely a decade out from the Great Stagflation of the 1970s – such an approach would have been seen as profligate, and a political non-starter. Instead, Reich was in his own way advancing a “supply-side argument”, emphasising the need for the state to promote investment, and so productivity and output.

Over the 1990s, Clinton’s playbook would be adopted by “Third Way” social democrats worldwide, most famously his ideological soulmate, British Prime Minister Tony Blair. They also produced results: by the end of the decade, the US would return to budget surplus, full employment, and move in the direction of greater income (though not wealth) equality. To be sure, progressives would remain wary, advocating a more unqualified activism and questioning in particular the Clinton-era stress on deregulation. In 2008, Barack Obama himself would sound such criticisms in campaigning against Hillary Clinton for the Democratic nomination, suggesting that Ronald Reagan had been a transformative candidate, implicitly leaving Clinton as a lukewarm difference-splitter. (It should be noted that Clinton himself, in the aftermath of the global financial crisis, would admit that financial deregulation had been taken too far.)

In this light, while Obama’s first term was marked by a full-throated Keynesianism, his pivot back to the Third Way approach has incited a progressive backlash. To be sure, Obama is not without defences: For example, while progressive critics have decried cuts to social security, they underrate the extent to which he has included provisions to reduce the impact on poorer recipients. Progressives also under-rate Obama’s de facto tax increases for the wealthy, as he has limited expensive tax deductions – raising over $500 billion in revenues, a number that evokes Clinton’s own 1993 tax increase.

Nevertheless, in terms of the ideas that shape policy debate, progressive frustration is explicable – they wanted a Roosevelt and may be seeing a reversion to an ostensibly more moderate Clinton. The big question they may want to ask themselves is whether the Clinton “Third Way playbook” was such a bad one? Fiscal balance, full employment, and falling poverty rates look pretty good from the perspective of today – it might not be a bad idea to “party like it’s 1999”.