President Clinton's Speech at Concord's Economic Patriot's Dinner

Peter G. Peterson: Good evening and welcome.  It is my pleasure to introduce our guest of honor tonight, President William J. Clinton.  It would not be incorrect to say that, of course, he needs no introduction, but I would want him to not object because I'm going to focus, Mr. President, on your fiscal and economic record, which is really quite extraordinary in many ways. 

Let me refresh you on what this President confronted when he took office.  He had a fragile, at best, economic outlook, to put it gently.  He faced a deficit in fiscal year 1993 of $250 million, or nearly five percent of the Gross Domestic Product [GDP].  The Congressional Budget Office had estimated that at the end of an eight-year term, the deficit would equal $2.4 trillion.  And in the final fiscal year in office, it was projected he would be confronting a $450 billion dollar deficit.  These are obviously some numbing and melancholy numbers.

            What were the results of the President's fiscal record?  The answer was stunning.  The budget showed improvement in every year of the Clinton Administration.  He had three straight years of actual surpluses, totaling $236 billion.  Federal debt held by the public dropped from 49 percent of the GDP in 1993 to 35 percent in the year 2000.  Total federal spending as a percentage of the GDP fell from 22 percent to 18.4 percent, the lowest level of spending since 1961.  At the same time, revenues rose from 17½ percent to 20.9 percent of GDP, the highest level since 1944 -- thanks to bipartisan budget agreements, including spending caps and pay-as-you-go rules, which sadly have been eliminated during recent years.

            What are the economic accomplishments?  They contradicted the claims of the supply-siders that as a result of the Clinton 1993 deficit reduction, the economy would stall, deficits would rise and jobs would be lost.  In fact, what happened?  The economy experienced the longest period of continuous expansion, averaging an annual rate of growth of three and a half percent.  Unemployment fell from seven to four percent, while 20 million new jobs were created.  Inflation and interest rates fell.  Productivity growth surged.  Poverty rates went down and income went up in all groups.  According to your partner and our esteemed Vice Chairman of the Concord Coalition, Bob Rubin, you said to your advisors, “I know it won't be easy, but I was elected to deal with the economy, and this is what we have to do to get the economy back on track.” 

            More broadly, Mr. President, you showed a commodity that is in generally short supply, political courage.  You were also warned by your advisors that implementing your deficit reduction strategy would require sacrificing some of your campaign promises, such as middle class tax cuts and domestic spending increases.  You told Bob Rubin, “If I'm going to be heard on anything else, I first have to show a balanced budget.” 

Mr. President, perhaps the most significant impact or aspect of your fiscal policy is that your program disproved the notion that deficits don't matter, or that deficit reduction is bad for the economy.  You and your advisors made a crucial decision at the outset that deficit reduction would be good for the economy.

            One more reason we're particularly grateful to you, because of you and our guests that are here, this dinner will raise a record amount of nearly $1 million.  Mr. President, for all these reasons and more, you are a most worthy recipient of The Concord Coalition Economic Patriot Award.  President Clinton.


            President Clinton:  Thank you very much, ladies and gentlemen.  I want to begin by thanking Pete Peterson for those kind remarks.  I want to thank the other leaders of The Concord Coalition.  I saw Warren Rudman and Bob Kerrey earlier.  I know Bob Rubin's on his way, if he's not here.  We were at the Common Cause meeting a few moments ago.  And I thank him and all the other board members of The Concord Coalition, especially Tim Penny and Charlie Stenholm because they were among those in the Congress who were pushing hardest for deficit reduction.

            I'd also like to take a moment, if I might, to salute the memory of the late Paul Tsongas, who was one of the founders of the Concord Coalition and who was, along with Bob Kerrey and me, in that remarkable Democratic primary in 1992 and who was a loud and clear voice for the imperative of deficit reduction.  I'm especially indebted to Bob Kerrey because before he became an academic he was a senator, and if he had voted the other way on my economic plan, you'd be honoring someone else tonight.  That is assuming we'd still be able to afford dinner here.  I very much admire The Concord Coalition and the bipartisan character of it. 

I have had a fascinating life.  I went home to Arkansas a couple weeks ago and I was having dinner with my 90-year old stepfather.  He invited a doctor to come have dinner with us, who was my late mother's favorite partner to work with in surgery.  He's 84 now.  He and his brother were active in Republican politics going back to the time before I was born.  I was talking to this guy, who is a great friend of mine.  And I said, “You know, I just read Charlie Peters' fascinating book on the 1940 Republican Convention and how the nomination of Wendell Wilkie as a committed internationalist enabled President Roosevelt to proceed with the draft and the lend-lease program, and basically enabled America to try to do its part to win World War II and save the whole cause of freedom in Europe.”

This fellow, Martin Eisley, smiled at me and he said, “Yeah, I remember that convention.  I was a page.”  Sixty-five years ago.  And so we got to talking, and I said, “You know, Martin, when I was a boy, Republicans believed in a balanced budget and they believed that other things being equal, the government should operate first at the state and local level.  And then if it couldn't be done there, then the federal government ought to do it.  But that basically we had a lot in common, so when I was coming up, the difference in the Democrats and Republicans was, we Democrats were a little more eager to say the federal government had to do it.  And we were willing to spend a little more money even if we had to tax a little more.” 

But there was a remarkable kind of consensus for fiscal responsibility, and the Republicans actually led the way on the environment, beginning with Teddy Roosevelt.  And we had in the debates, maybe because the Cold War made us all sober and more mature, but the debates, no matter how hot they seemed to be, were, by and large, more informed by evidence and argument than just simple attacks.  And lots of things happened from the late 1960's to the present day to bring us to this moment.  But there was a complete air of unreality, I thought, in Washington about economic matters and other things for a long time. 

I don't know if Bob's here yet, but I speak all over the world now.  And always people come up to me and say, “What great new idea did you and Rubin bring to economic policy- making?  Surely there was some stunning insight.”  I said, “Oh, there was.”  “Well, what was it?”  And I always smile and say, “Arithmetic.”  You know I was born in Arkansas, went to public schools.  You know, I had very simple notions.  I still thought after I entered the District of Columbia that two and two was four.  Not three or five.  And it sounds silly, but everything flowed from that. 

And in the transition period, I remember Pete Peterson was right that we did have to make a deliberate decision to shelve the middle class tax cut and to increase investment domestically less than we wanted.  And if we'd shelved the tax cut for low-income working people and gotten rid of the gas tax, as Charlie begged me to do, we might not have lost the Congress in 1994.  But we had to pull back on things. 

We took two huge gambles that violated traditional economics to that point.  One was that the country was so weighed down by debt, both personal and government debts, that if we followed a disciplined budget strategy and contracted the deficit, which conventionally would have a contractionary effect on the economy, that it would be more than offset by the expansion of private investment and we'd actually get economic growth.  The other, conversely, was that we would shoot for the lowest possible unemployment as long as we pursued a free trade and open borders policy, because we thought that -- plus getting the deficit down -- would fine-tune inflation enough for us to be able to take unemployment lower, without inflation, than most people thought. 

But, you remember, Bob, we even had some of our liberal Democratic economists say, “If you let unemployment get much below six percent, you're going to have an unmanageable situation with inflation.”  And I said, “I don't believe that.  Look at all the increased productivity of American workers and businesses from all the restructuring in the 1980's, and we have open borders, which means we'll keep inflation down.  If we have budgetary discipline, I think we can do this.”  Both of them were big gambles, and as Pete said, both of them worked.  And for that I am grateful.

            I would also like to acknowledge that this was not a particularly pretty process.  Mark Twain said two things people should never see being made are sausage and laws.  And it was pretty ugly for us to thread this needle to get the votes necessary to pass the '93 budget, and we succeeded by a vote in each House.  Al Gore used to say, “Whenever I vote, we win.”  Because it was in effect a one-party budget, the only such major piece of legislation, I believe in the history of Congress, ever to pass only with votes from one party. 

We were quite vulnerable to the fact that by 1994 people hadn't felt things getting better and it's one of the reasons that we lost the Congress.  But it's hard to say it wasn't good for America.  By the time 1997 rolled around, we had a bipartisan balanced budget with a lot of majority Republican votes in both Houses, which was actually a more liberal document than the Democrats-only budget in '93 because we had money.  And so we passed a children's health insurance program that was the biggest expansion of Medicaid since its establishment, and added millions of kids to the rolls of health insurance.  We were later able to have a targeted tax cut for middle-income families with children, but I want to acknowledge sort of the political realities. 

I know there's nothing more insufferable than a person that doesn't have to submit himself to the discipline of voters anymore pontificating to those who do.  And truth is, a lot of members of Congress took a bullet in 1994 for doing what they did, and it's one of the reasons I got re-elected with a fairly easy campaign in 1996.  And so now it's easy for me to say, well, the Congress shouldn't do this, that or the other thing.  And truth be told, there were times when I was President and making decisions when I was insufficiently disciplined to suit Pete or Warren or Bob Kerrey or even Bob Rubin.  Politics is a messy business.

 Having said that, we're supposed to at least keep the indulgence of the moment within some reasonable bounds.  And one of the reasons that this got done, as Pete said, is not just that in '93 we raised the gas tax and then raised taxes on upper income people -- we restrained spending.  We also adopted the budget caps and the pay-as-you-go rules.  And we were able over eight years to make some significant changes in some of the entitlement programs, which took the life of the Medicare trust fund from expiring in 1999 to 2027, I think, was the estimate when we left office, and added a few years to Social Security.  But I know there were politics always intervening. 

I remember Bill Archer -- the former Chairman of the House Ways and Means Committee, a man I liked very much -- and I were very close to getting an agreement on a Social Security reform package we would send to Congress.  And Newt Gingrich and Dick Gephardt came to see us together and told us it would die aborning and to leave it alone.  They had no intention of dealing with Social Security before the 2000 election. I thought, well, the good thing about this effort is I finally found something that Gingrich and Gephardt will agree on. 

So, I don't come here to pontificate so much to those who now hold the offices that I and others no longer occupy.  But we did have evidence, you know.  Even in politics, evidence is supposed to count for something.  So, we knew this strategy worked.  So, the current administration took office after a brilliant campaign in 2000 -- and I think the best political slogan I ever heard, better than anyone I ever came up with, was that compassionate conservative, which to swing voters said, “Give it to me and I'll give you the same results with a bigger tax cut and a smaller government.” 

I thought, well that sounded like a good deal.  I'm going to get out of office and make money.  Maybe I should vote for that.  It was a brilliant thing. 

Except that's not what happened.  What happened was the pay-as-go rules were abandoned.  The budget caps were abandoned.  Spending restraint was abandoned.  And we started having big tax cuts every year. 

So, we went back to supply side economics with a vengeance.  Now we have growth in our economy, but the job growth has been quite modest.  After wages were stagnant for almost 25 years at the beginning of 1973, they finally began to grow again in our second term and they're stagnant or declining now.  Poverty is growing, exploding.  The number of people without health is insurance going up. 

And we're sticking with this strategy.  I think it's largely a matter of ideology.  I think it's more ideology even than personal greed.  I just think it's ideology.  And the problem with economics is arithmetic does not bend well to ideology.  Better to bring your values and let them be bent by arithmetic.  That's basically what Pete was saying when I gave up on the middle class tax cut and the spending.  I still wanted to double education spending.  I still wanted to cut taxes for middle class.  I wanted to do everything I said I did.  But I felt that I had to be bent, shaped, by my policies, by the fundamental economic realities. 

Now, to be fair, the governing economic theory in Washington today -- and they point to the growth of the economy and the apparent lack of impact of these vast deficits on interest rates, as validation of a whole new theory -- is, if the economy is globalized, then saving and debt will always be in balance.  Deficits and surplus, this is around the world, will always be in balance.  And national deficits don't matter anymore. 

And when you hear the people who believe this talk, they really act like we, one of the wealthiest countries in the world, are doing a hell of a favor to the Chinese and the Japanese and the Saudis and the Koreans and the British and all those other people who loan us money every day by taking a little of that money off their hands.  They've got to recirculate it.  And we're doing them a big favor taking it.  And besides that, they've got to have access to our markets to buy their exports, to buy the foreign oil.  We, with four percent of the world's population, approximately 20 percent of the world's GDP buy, at least when I was president,  every year we bought between 35 and 40 percent of China's exports.  So, they say they can't possibly afford to let our currency collapse or have our interest rates escalate and drive us into recession because otherwise, you know, we couldn't buy their stuff.  So, we can make them finance our tax cuts and our conflicts in Iraq and Afghanistan and our new drug benefit and this vast increase in spending in homeland security. 

It's a seriously argued point that if the economy is globalized, particular national deficits don't matter.  And I guess, you know, you could say we've been doing people a favor ‘cause there have been times in the last two or three years when we have sopped up in our deficits about 80 percent of the world's net new savings on an annual basis. 

Now, there is an answer to that, but I do think it's important to credit the people who don't agree with us.  They no longer make the Laffer Curve argument.  The Laffer curve argument, which really was a “laugher,” was that, eventually if we just cut taxes low enough to the point where we abolish them all together, we'll have surpluses.  You remember that. 

So, they know that dog doesn't hunt and that one's not run out of the kennel anymore.  The new argument is that they do not matter.  It's a very different argument and needs to be met straight on.

            Here are my answers. Number one, the last time we tried this in 1981, it didn't matter for a decade.  We had the stimulative effect and we had everyone needing access to our markets, and we had a powerful private sector that was productive and restructuring, just as we do today, and we didn't have to pay for this for a decade.  But if we had not adopted that economic theory, I doubt seriously that I would have been elected president in 1992.  And you ask Warren Rudman what the economy was like in New Hampshire, from the late 1980's all the way through 1992. 

So, really, they don't know that we're not going to have to pay a price for this.  It's just that we get a longer lag time for misbehavior financially than anybody else does.  If you really believe this doesn't matter, ask yourself how long Brazil or Mexico would last if they had our fiscal policy -- about a nanosecond.  Maybe over a weekend.  So, I don't think there's any evidence yet to support that.  The fact that we've run this string out five years doesn't prove anything.  We made it a decade before.

            Secondly, I think we have to ask ourselves if it's really good for the world and for our long-term economic prospects if we, a rich country, take 80 percent of the net new savings of the world, which could be invested in developing countries and new technologies and bringing the world together.  Half the world's living on less than two dollars a day.  Our friends, our free market democrats in Latin America, are worried about the rise in popularity of Hugo Chavez, who now has got expensive oil he can give away and lots of cash that he can throw around.  And he's talking to people who've been left out and left behind in this global economic revolution.  If I were giving a speech to those Bolivian miners that don't want to sell that natural gas down there, I could give you one hell of a speech about the greed of America taking 80 percent of the world's savings every year and leaving us behind. 

            Thirdly, there is no example in human history where a country that consistently ran deficits and continued to aggregate its national debt did not over the long run lower the living standards of the next generation.  And I think we all have to ask ourselves this. 

People ask me all the time why since I darned near died last year I still get around and do all this stuff I do.  And it's really I don't have anything better to do.  I don't play golf well enough to go on the senior tour.  And I don't play saxophone well enough to do that.  I'm too much of a Calvinist to quit, but I believe that the longer we live, the more our obligations to the future grow.  But we are acting like the longer we live, the more our obligations to the future shrink.  And it's a very grievous risk we're running.

            Now, I was pleased to see The Concord Coalition recommend that now that the Congress that created this massive deficit and growth in the debt has finally discovered the debt they created in Katrina, which I think actually was the wrong place to find it.  Because we've never not held people harmless as much as we could in good conscience from natural disasters.  And that's really more like a one-time expense.  It won't do anything to the national debt like what all these ongoing expenses in Iraq and Afghanistan and homeland security and the drug benefit and the tax cuts will.  They're all recurring expenses. 

But, having done that, I agree with your suggestion that we get rid of the highway demonstration projects, 200 of them.  One costs over $200 million, and it's going out to build a bridge in Alaska that about 40 people will go back and forth across.  And you call for trimming the Medicare drug benefit, which I agree with.  I thought that bill costs too much money to help no more people than it did and was not as well designed as it could have been.  And you call for at least putting the tax cuts on a pay-go basis.  I'd go further.  I think we ought to just stop it.  We just need to stop it and repeal those cuts that went to people in very high-income groups.  But anyway, you made a good suggestion. 

But the main thing you have to do is take on this intellectual argument.  It's not the Laffer Curve.  You won that fight.  The new argument is that national deficits don't matter in a global economy.  And we need a reasoned argument that shows that that cannot be true. 

I also think, while you normally talk about arithmetic, I'd like to talk about something else.  Let's talk about what really happens.  The other night, Goldman Sachs sponsored a little dinner for the governing boards of the IMF and the World Bank down in Washington.  They were meeting and they asked me to come by, and I had a little conversation with Sir Peter Gallagher, who was the attorney general of Ireland when I was president, and now heads the BP board and Europe's Goldman Sachs board.  And the head of the Chinese Central Bank was sitting right there where you are, and all these other central bankers, big bankers from Japan and all. 

And I said, “First of all, most Americans don't know how this works.  Basically every day our government goes hat in hand to this fellow who's got all this money in a country with a 50 percent savings rate, but a per capita income that's still just a smidgen of ours, and we borrow money from him to cover my tax cut, Iraq, Afghanistan, the drug benefit, the increases in homeland security.  And we say, would you loan us money to pay for what we want and we'll pay you back at interest.”  That's what we're doing. 

Now, let me tell you what I think the ethical problem is, besides I think it's unethical for a rich country like ours to take up to 80 percent of the net savings of the world in a given year for our priorities.  Never in the history of America have we failed to pay for our own wars, at least insofar as we possibly could. 

Now, one of my daughter's best friends came from a wealthy family in New York, joined the Marine Corps as a young officer.  And there aren't many Jewish Democratic officers in the Marine Corps.  He just won the Bronze Star for his service in Iraq and I'm very proud of him.  I love this boy like he's my own. 

I lived for four years in college with an Irish Catholic conservative Republican whose dad was elected a judge on Long Island on a conservative ticket.  I'll never forget walking into my freshman dorm and seeing a Goldwater For President sticker on the door.  And I thought, damn, I left Arkansas to get away from all that and here I am in the middle of it.  I loved this guy like my own brother. 

He gets out of college.  He joins the Marine Corps in the Vietnam era.  He marries a beautiful Irish Catholic girl.  They have two beautiful Irish Catholic boys.  Her sister has a daughter who has cerebral palsy, was abandoned by her husband.  She had a terrible time, so my friend and his wife took this child and raised her as their daughter.  He's a commercial airline pilot.  Their idea of a vacation with these three kids was to go with their local Catholic church in southern California to Mexico to build houses for poor people.  A couple years ago he took a 20 or 25 percent pay cut as a commercial pilot to keep his airline from having to declare bankruptcy.  There are most weeks of the year I make more money in a week than this guy makes in a year. 

And these two boys – so the first son he joins the Marine Corps.  The second one had long hair and an earring in his ear, and I took him down to Camp LeJeune one day for Christmas and he fell in love with it.  Came back, cut his hair, took the earring out.  He joined the Marine Corps.  Both of them have now served our country in Iraq and Afghanistan.  And thank God both of them emerged alive.  But I will tell you again, I have loved this guy like a brother since we were 18.  He was everything that the Christian conservative ideological right says a human being ought to be.  A devout pro-life Catholic who served in Vietnam and his children served in the Marine Corps and he raised another child he didn't have to raise with cerebral palsy. 

            And I resent the fact that as an American I was deprived of the ability to support those boys that I knew from the time they were infants when they put their lives on the line for this country.  I resent the fact that they were over there risking their lives.  Their daddy was killing himself at a job where he had to take a pay cut to keep his company from going bankrupt. 

Our country was going through terrible times.  And what was I, citizen Clinton, asked to do?  Take my four tax cuts.  That is immoral.  It's not just bad economics.  That is terrible ethics and we will pay a grievous price, here in America and around the world if we continue to conduct ourselves in this fashion and we let all these working class kids go out there and put their lives on the line and the rest of us pontificate about how patriotic we are, but we do not have to pay one red cent to support them; we say could we please borrow money from the Chinese.


So, I want to urge you to keep up the fight.  I know how hard it is when you're in Congress, when you're in the White House.  It's much more popular to cut taxes and raise spending than the reverse.  I fully admit that there were times when I could have done more than I did.  But I know this, if you've got the right theory and you're moving in the right direction, this country will give us good results.  We've got 300 million people who believe in working and being productive and improving their education and investing in the future.  But we are only at the beginning of these challenges.  How are we going to convert to an alternative energy situation if we don't have any money to invest? 

Look what happened.  General Motors just announced they were laying off 25,000 people.  In America they're spending two billion – that's billion - dollars in new investment.  Not in China -- in Canada.  Why?  Because the health care costs are four percent of GDP less.  That's over $400 billion a year. 

How are we going to deal with these things if we have to spread the cost all across the society, so we can be globally competitive, if we're up to our ears in debt because we don't have any discipline in spending?  We don't have any discipline in tax cuts.  We don't have any notion of shared contribution to our country's future. 

You were important.  You made a difference to me.  You were my conscience sometimes when I wanted to lose it on these little things in '91, '92, '93 -- all the way through. 

But you are more needed now than ever before.  Begin by taking on their central new intellectual argument that in a global economy, a national deficit doesn't matter.  It's just an excuse for us to do what we want to do. 

I'm old enough now to know that most of the mistakes I made in my life happened either when I was too tired to think or when I thought crooked.  I made up an argument to do what I wanted to do that had nothing to do with the reason I put out there.  Every one of us who's lived long enough has made that mistake.  We've got to stop our country from going down that path any longer. 

Thank you and God bless you.