A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism

Nelson Lichtenstein and Judith Stein. A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism. Princeton: Princeton University Press, 2023. 525 pp. $39.95 (hardback), ISBN 978-0691245508.

Reviewed for EH.Net by James K. Galbraith, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin.

This splendid book is an unconventional collaboration. Judith Stein, Distinguished Professor of History at the City University of New York, began to write the history of Clintonism before her passing in 2017. Nelson Lichtenstein, Research Professor of History at the University of California, Santa Barbara, picked up the notes, drafts and archives, and has now finished the job.

A Fabulous Failure is an intellectual history expressed in politics. It chronicles how the Clinton years were for Democrats what Reagan’s had been for Republicans: a grand showcase of competing plans, roped together by an impresario. The authors’ signal achievement lies in tracing ideas, particularly those developed by the party’s progressive wing, from their origins at MIT, Berkeley, Princeton, and Harvard’s Kennedy School to their demise at the White House and on Capitol Hill.

The book is organized as parallel chronologies, each covering a major economic or social policy debate (and debacle) of Clinton’s presidency: health, trade (with Japan, Mexico, and China), industrial relations, “reinventing government,” welfare, international debt crises (Mexico, 1995, and Asia, 1997), and the final paroxysm of banking deregulation in 1999 and 2000. Apart from trade, crucial foreign policy issues are not covered. The mishandling of Russia rates just a few pages; NATO, Bosnia, Croatia, Serbia, and Kosovo do not appear in the index; the bombing of the Chinese embassy in Belgrade is mentioned but written off as a “mistake.” (There is no good reason to believe this.)

This reviewer haunts these pages like Banquo’s Ghost. Though some years younger than most of Clinton’s top advisers, my career in American public policy was over by 1992. Still, in the previous decades it had intersected with most of the players described here, going back to Clinton himself at the McGovern headquarters in Washington in 1971. In the 1980s at the Joint Economic Committee I had organized hearings and sponsored studies, collaborated or competed with fellow staffers, and (then and later) written many articles for the small journals where Democratic progressives made their mark, notably Working Papers Magazine and The American Prospect. A Fabulous Failure is, to me, a story of acquaintances, old colleagues, and friends.

Their mood, reflected in some harsh blurbs, is of dreams betrayed. Michael Kazin writes of “a dubious agenda of neoliberalism.” Robert Kuttner writes of “ideological seduction and political corruption”. The bitterness is personal. Much is directed at Clinton; some at the economists (Larry Summers), the political entrepreneurs (Al From, Dick Morris), and the Wall Streeters (Robert Rubin) who ended up on the winning side in the Clinton policy wars. Among the losers, Labor Secretary Robert Reich stands out, especially as he was an old “Friend of Bill” and hoped for more clout than he would enjoy.

What did Clinton’s progressives want? They were not radicals. Broadly, their faith was in institutional reform, economic democracy, business-labor codetermination, and managed trade. Their inspirations were Swedish social democracy, French health care, Italian decentralized manufacturing, and the tamer parts of the New Deal/World War II mobilization legacy, not including price control or strict subordination of the Federal Reserve. Their goal was to revive American industry while strengthening labor, to foster investments in science and technology, to expand the welfare state, especially health insurance. Their tools were—largely—argument, exhortation, and negotiation.

Without excusing Clinton, Rubin or Summers, a fair-minded observer should ask, how realistic and reasonable were the ideas (and campaign slogans) of such people as Reich, Kuttner, Derek Shearer, and Laura Tyson? Many had spent the Reagan-Bush years in academic incubators; some (for instance Ira Magaziner, who ran the Clinton health care effort) had been in consulting; Kuttner was (and remained) a magazine editor. Their beau ideal was often the “thirty glorious years,” 1945-1975, of the postwar epoch in the United States and Europe. They were not working in politics or the unions in the early 1980s and, I fear, their understanding of the irreversible industrial destruction wrought by Reagan and Federal Reserve Chairman Paul Volcker’s disinflationary policy was often superficial. Monetary and budget economics did not much interest them. Japan was the main threat they perceived. China was a mystery to them, its potential neither known nor noted. Russia played no role on their stage except as a broken model, that of “Soviet central planning”. In retrospect, arguably, the leading progressives of the early 1990s were already behind their times—even though the conventional thinkers who bested them were their intellectual inferiors in many respects.

The progressives thus ceded macroeconomic and financial control to the other wing of the Clinton coalition—to budget balancers like Leon Panetta, to mainstream economists, to Robert Rubin and his money men, and to Alan Greenspan at the Federal Reserve. This, along with the complexities of institutional (and international) compromise in areas like health, industrial relations, and trade, doomed their projects. Nor were the progressives always on the ball. As Lichtenstein and Stein observe, Clinton’s greatest domestic policy misdeed—the deregulation of finance—encountered only slight opposition from his progressive wing at the time. Clinton himself, rather like Reagan but with even fewer fixed principles, was mainly interested in his own political success. Top American politicians rarely survive otherwise, as the progressives who were charmed by him eventually learned.

And yet, as Lichtenstein and Stein acknowledge, not everything failed. There were successes—some sustainable, others not—among the debacles. Thanks to Greenspan, who held his fire after 1995, Clinton presided over a long boom, reaching full employment without inflation by the late 1990s. Growth was fueled by investments in new technologies, not the refurbishing of old ones. AFDC was abolished, but the Earned Income Tax Credit, together with abundant jobs, drove poverty down. Health care reform failed, but eventually Medicaid expansion (alongside CHIP, for children) became the go-to form of single-payer coverage for, presently, about ninety million Americans. Part of the resentment progressives now express may, perhaps, be put down to the fact that the successes (such as they were) did not flow from their ideas. Some, indeed, defied their predictions.

Lichtenstein and Stein flash forward occasionally, for example to the Great Financial Crisis of 2008—Clinton’s direct legacy—and to Obama’s Affordable Care Act, the resurrection of his first failure. They pass over Bush’s wars and the entrenchment of the Rubin coterie under Obama with at most a few words. But they do note that under Biden, elements of the 1990s industrial agenda have at last broken through. In 2020, Trump and Covid busted budget orthodoxies, incidentally validating Modern Monetary Theory. In 2021 and 2022, infrastructure, renewable energy, and advanced manufacturing got attention and funding. Inflation—briefly resurgent—seems to be abating without a bust, leaving mainstream economists mystified and the Federal Reserve apparently irrelevant, except to the money markets. Kuttner, among others, sees these developments as a kind of vindication.

I fear my old friend’s optimism is misplaced. Biden’s boom (even more than Clinton’s) rests on a fragile foundation. It depends on fracked fossil fuels, possibly already in decline, and on renewable forms of energy that may soon run up against resource and engineering limits. His chip policy presumes an industrial competence that disappeared at least two decades back. His government, long ago outsourced to private contractors, lacks the technical ability to run the policies that his advisers believe necessary. These days, the American government mostly writes checks.

Most of all, Biden’s policy of taking on China and Russia at once—a policy inflamed by moralizing—rests on a vast underestimate of the weight and power of these two countries. Clinton arrived at the dawn of the unipolar age, which placed him under the obligation to manage American power wisely and with restraint. This, notably in Russia, Yugoslavia, and with respect to NATO in Eastern Europe, he failed to do. This reviewer began to visit Russia back then and heard directly the bitter reaction to the looting and chaos of those “liberal” times. Russia has since recovered its social balance, its economy, and its military power. Clinton’s China policy, moreover, was based on a fantasy of Western cultural superiority—“engage with them and they’ll become like us.” I also advised in China in the 1990s and knew then that the Chinese were not going to take that bait. They didn’t, and today, China’s economy is larger than ours and hardly less advanced.

After Clinton, George W. Bush launched America into brutal invasions, demolishing America’s reputation worldwide. Obama aggravated relations with Russia, and Trump broke with China. Today, as Biden pursues simultaneous conflict with Russia and China, the US is squeezed out of the Middle East by the Saudi-Iran rapprochement. Meanwhile “social-democratic” Europe, long a hollow fiction under the neoliberal EU, is crumbling under sanctions and energy sabotage, aimed at Russia but wreaking havoc, especially, on Germany. Though the hegemony of the dollar and Treasury bond has not disappeared, its days may be numbered. Yes, the US economy is holding up, for now. There is no basis for confidence in the long term.

Today, we are very far from the thirty glorious years. We are also long past the peak of US primacy and free maneuver in the world. Perhaps, indeed, the progressives of the Clinton era had already missed their moment, now thirty years ago, when they were offered a fleeting chance to play at power. Yet their influence remains; their perspectives, preconceptions, commitments, and judgments still largely dominate what passes for progressive thought in America today. At the core of their worldview, the United States and the Western European countries are the good ones—the democratic and economic beacons of their youth, imperfect but fixable, given political goodwill and institutional reforms. This leaves the serious matters to financiers, information tycoons, foreign policy ideologues, and the Joint Chiefs of Staff.

It will not end well.

James K. Galbraith holds the Lloyd M. Bentsen, Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin. He was Executive Director of the Joint Economic Committee in the 1980s, Chief Technical Adviser for Macroeconomic Reform to the State Planning Commission of the People’s Republic of China in the 1990s, adviser to the Finance Ministry of Greece in 2015, and recently elected to the Russian Academy of Sciences.

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