Foroohar is an assistant managing editor at TIME and the magazine’s economics columnist. She’s the author of Makers and Takers: The Rise of Finance and the Fall of American Business.
During a campaign stop in Kentucky on May 15, presumptive Democratic presidential nominee Hillary Clinton said her husband, Bill, would be in charge of “economic revitalization” were she to win the election.
This is a terrible idea and, possibly, the most tone-deaf suggestion Clinton has made during the current campaign.
Bill Clinton’s economic legacy is not a net positive to Hillary politically. Sure, economic growth was relatively strong in the 1990s. But what kind of growth was it? I’d argue it was growth of the short-term, saccharine variety, fueled by a brief tech productivity boom (now ended) and a stock-market bubble which corrected much of the asset wealth created during that period. This period was also the point at which wages began flattening not just for poor Americans but for nearly everybody. The high-tide of the late-1990s did lift a lot of boats, but plenty of wreckage was left in its wake as soon as it was sucked back to sea.
That’s in part because many on President Clinton’s team bought into notions of trickle-down economics Republicans before them had. The history of deregulation and economic policy shifts under his tenure contributed in many ways to some of the problems that we face in the financial markets today. (For more on these, read TIME’s current cover story on saving capitalism, adapted from my book, Makers and Takers: The Rise of Finance and the Fall of American Business.)
Many now acknowledge that derivatives deregulation under Clinton was, in retrospect, unwise. But a less well understood legacy of his economic policy is the pressure for companies to make short- rather than long-term decisions.
A little bit of history: Robert Rubin, who served as both Treasury Secretary and head of the National Economic Council, and Larry Summers, the deputy who succeeded him at Treasury, favored allowing greater corporate compensation in stock as well as tax breaks for the rich. There were a few, like Joseph Stiglitz, the former head of the President’s Council of Economic Advisers, who were concerned about income inequality. That’s one reason back in the early ’90s, in response to the growing debate about the divide between CEO pay and what the majority of American workers took home, legislation was introduced that would limit the tax-deductible portion of CEO compensation to $1 million. To get around that cap, Rubin and others wanted an exemption for “performance-based” pay, which on Wall Street and in corporate America was typically awarded in options. The loophole camp prevailed.
Stiglitz now views this as one of the most problematic legacies of Clinton’s tenure. The tax code, which was relaxed to favor corporate debt over equity, only perverted incentives further. “The whole stock-options boom caused so many incentives for bad behavior of all kinds, and for making each [corporation] look better than it was. It’s all directly responsible for what I’d term ‘creative accounting,’ which has had such a devastating effect on our economy,” he says.
The Clintons surely recognize how much America’s economic ailments have changed since the 1990s. But it is important for Hillary to spell out exactly which parts of Bill’s legacy were valuable—and which she’d discard. As any number of surveys, including some by the Clintons’ own pollsters, show, a lot of voters don’t really want to go back to the 1990s. They’d rather see more fundamental change. Candidate Clinton needs to grapple with this fact, or risk losing the economic debate to a populist opponent.