Tag Archives: clinton

The Economy of the ’90s

In this current election cycle there has been much discussion of the “good old days” of the 1990’s economy when Bill Clinton was President. I am going to make a few comments on that time – but let nothing I say imply that the artificial affluence of the time was directly attributable to Clinton, we had a Republican Congress.

 Many good things happened –  welfare reform, a balancing of the budget, etc. But there were many bad things that we are paying for now. Wall Street lost its head in the rush to finance anything with the name dot com, money was poured into ridiculous projects, deregulation was taken to extremes.

 A personal note, back in the early ’80s I was a partner in a small technology firm. We were good, but we had no real plan for being a business. When my partners discovered that an old friend and college classmate of mine was a major financier of start-ups (Bill had brought out Apple and Genentech) they asked me to call him. Bill returned my call, and asked for our financials. My answer was “we have none, this is a courtesy call for my partners, I’ll be back to you if we accomplish something”. Ten or fifteen years later some damned fool would have looked at our incipient work (designing control systems for the electrostatic precipitators of power plants on micro computers) and said “Wow, where do you want me to send the millions”.

 Tax revenues were up in the ’90s, but that was based on an artificial economy. A bill passed by the Congress (Republican) and signed by President Clinton – heavily lobbied for – allowed such wonderful things as Enron, in the name of making the delivery of energy more efficient. Not a bad idea in principle, but badly thought out in practice. The villains of the era, as we found out later, were Enron and Worldcom and Tyco – but they each were different. In the case of Tyco the controlling owner, despite the public nature of the company, stripped the company. Enron and Worldcom were led by salesmen and true believers – I think their CEOs honestly believed that they were doing the right thing. But that doesn’t change the fact that they were wrong. Bernie Ebbers may or may not have known that his company was “cooking the books” to show a profit (and therefore paying taxes on that “profit”). Ken Lay may or may not have known of the side dealings of Fastow and others. But that doesn’t absolve them of the responsibility for their companies.

 It was an era of trading, the production of profit by artificial means. Too many young MBAs with no sense of history. The basic cause of the crash of 1929 was the pyramiding of holding companies – profits made by the increase in asset value due to the increase in the stock prices of the underlying companies – and those increases purely from speculation compounding itself rather than by actual profit through production. We saw it again in the ’90s. A great economy, just like the ’20s. We were lucky enough this time to get out of it without a major, and long term, depression.

 Good times based on a structure of balsa wood. I remember people laughing a bit about Warren Buffet’s Berkshire Hathaway going down in value in about 2000. I don’t think they are laughing now.

Another personal comment, I was long retired at the turn of the century – and was gradually moving my stock portfolio into solid bonds. I hadn’t been tempted by the “dot com bubble” as I knew it was just a bubble. I never thought I was vulnerable as most of my portfolio was in sound communications stocks, producers rather than entrepreneurs. I was wrong, the manipulations of Worldcom, the glut of computer systems purchased for dot coms that never had any business, and other such things redounded through the market. AT&T tried to keep up with Worldcom, and went from 35 to 3 in a brief time – others the same way. 

The point I am trying to make is that the economy can provide for all, when it borrows from the future. The Clinton era prosperity was just that, as was the twenties of Coolidge. Hoover came in at the tail end of the artificial boom, and got all the blame. Roosevelt’s policies probably prolonged the depression, although the economist’s view there have to be colored by the natural disaster that followed the market crash. Although one can’t compare an intentional attack (like 9/11) to a natural one (the dust bowl) there is a certain parallel  – the crash of an artificial economy followed by an unpredictable disaster.

 I’ll not get into details as to the failure of FDRs policies, nor will I fault him for them. WWII brought us out of the depression, not the WPA or the CCC – but the ideas of Keynes were still in academic journals at the time of FDR. Hoover might have had the right approach to the problem, but we will never know. A different time and a different form of government and capitalism.

 Suffice to say that an economy can provide profits, which themselves provide tax revenue, without necessarily increasing real production. Personal incomes can be high, again increasing tax revenues, but if they aren’t “earned” they are ephemeral. Donald Trump made objection to Rosie O’Donnell saying he went bankrupt, and he was right. But as an entrepreneur he did set up some things where his investors went broke.

 One has to separate the “pitchman” from the businessman. The producer for the ecomony from the entrepreneur out for himself. I am privileged to know a number of the former, friends and classmates from college. I won’t mention names, but I’m proud that I can’t name one who has made himself rich by making others poor – each of my friends who has made inordinate amounts of money has done so without hurting others, and in fact by helping them through building real enterprise.

 Ken Lay, Ross Perot, Bernie Ebbers, Koslowski (sp?) – all pitchmen. Perot ran his campaign on less government, but his fortune came from sweetheart deals with the Texas schoolboards for his data processing services (which weren’t very good, I was a computer salesman at IBM at the same time he was – his success came from lobbying).  

Enough for this. Capitalism, as conducted by public companys, is a system of allocating resources to the best use. It is corrupted, as it was in the twenties and the nineties, when it is working for advantage with government. I could rewrite the Communist Manifesto (Marx and Engels) to describe a popular ownership of capital through the publically owned corporation – they wrote of a time of individual capitalism when the owner had a finite lifetime.