6. Heroes and Villains of the Globalization Era: Booming Economy: Jobs, Deficit Reduction, and a Balanced Budget

My Name is Lloyd Bentsen: Secretary of the Treasury

I spent much of my life believing that government ought to be judged not merely by what it promises, but by whether it produces results. I was a Texan, a businessman, a congressman, a senator, a vice-presidential candidate, and finally Secretary of the Treasury. I came from a generation that experienced depression, world war, economic expansion, and enormous political change. Through it all, I developed a fairly simple conviction: economic strength gives a nation choices, while uncontrolled debt eventually takes choices away.

A Texas Beginning

I was born in Mission, Texas, in 1921 and grew up in the Rio Grande Valley. My family was involved in business and agriculture, and I learned early that money did not appear simply because somebody wanted to spend it. Businesses had to make payroll, families had to balance expenses, and investments carried risks. I attended the University of Texas and earned my law degree, but before I could settle comfortably into civilian life, the world was at war.

Flying into War

During World War II, I served in the Army Air Forces and flew combat missions as a B-24 pilot in Europe. I eventually became a squadron commander. War has a way of stripping complicated questions down to essentials: prepare carefully, understand the risks, trust capable people, and make decisions when decisions have to be made. I was awarded the Distinguished Flying Cross, but what mattered most was returning home with a much clearer understanding of responsibility and leadership.

Businessman and Congressman

After the war, I entered politics and was elected to the United States House of Representatives in 1948, when I was only twenty-seven years old. After three terms, I left Congress and returned to Texas business. That experience mattered. I spent years in the private sector before returning to Washington, and I never forgot that government policies eventually reach somebody's factory, farm, office, paycheck, or family budget.

Returning to Washington

In 1970, Texans elected me to the United States Senate. I would remain there for more than twenty years. I became deeply involved in tax, trade, finance, and economic policy and eventually chaired the Senate Finance Committee. I was a Democrat, but I came from the more business-oriented tradition of Texas politics. I believed markets could generate extraordinary prosperity, while government had responsibilities that markets alone could not fulfill. The difficult part was finding the proper balance.

The Campaign America Remembered

In 1988, Governor Michael Dukakis selected me as his Democratic running mate against George H. W. Bush and Dan Quayle. During our vice-presidential debate, Senator Quayle compared his congressional experience to John F. Kennedy's. I answered with the line that followed me for the rest of my life: "Senator, you're no Jack Kennedy." The audience reacted immediately. It was a memorable political moment, but we lost the election. I returned to the Senate and went back to work.

Taking Charge at Treasury

In 1993, President Bill Clinton asked me to become Secretary of the Treasury. America faced large federal deficits, and the new administration believed reducing them was important to the country's long-term economic strength. I helped advocate the administration's economic program, including the 1993 deficit-reduction legislation. It included spending reductions and tax increases, particularly affecting higher-income Americans. The measure was controversial, passed Congress by the narrowest of margins, and Republicans strongly argued that its tax increases could weaken economic growth.

Betting on Fiscal Discipline

Our argument was different. We believed persistent large deficits absorbed national savings, increased the government's borrowing needs, and threatened America's long-term ability to invest and grow. Deficit reduction was not glamorous. It required telling Americans that government could not indefinitely promise benefits, cut every tax, increase every program, and simply borrow the difference. I believed fiscal credibility mattered—to businesses, investors, financial markets, and ultimately working families.

America Begins with a $290 Billion Deficit: Clinton Inherited - Told by Bentsen

When I became Secretary of the Treasury in January 1993, President Bill Clinton and I inherited a government that had just recorded a fiscal-year deficit of about $290 billion, equal to roughly 4.7 percent of the nation's economy. But we also inherited a political argument over what that number meant and how to attack it. Democrats and Republicans agreed that persistent deficits were dangerous. We strongly disagreed over the medicine.

How Did We Get to $290 Billion?

The deficit was not the creation of one president or one decision. During the 1980s, federal revenues, defense expenditures, entitlement programs, interest on the national debt, and other spending all shaped the government's finances. President George H. W. Bush and a Democratic-controlled Congress had already enacted a major deficit-reduction agreement in 1990. Then the 1990–1991 recession weakened revenues and increased pressure on parts of the budget. By fiscal 1992, the deficit stood at approximately $290.2 billion. America had emerged from recession, but the recovery had initially been sluggish, particularly in employment.

The Republican Argument: Washington Spends Too Much

My Republican colleagues looked at that $290 billion and reached a different conclusion about its cause. They argued that Washington's fundamental problem was excessive spending, not insufficient taxation. In early 1993, Senate Republicans proposed an alternative they said could reduce projected deficits by roughly $460 billion over five years without raising taxes. Their argument was straightforward: reduce federal expenditures, restrain entitlement growth, encourage private investment, and allow a growing economy to generate additional revenue. Republicans warned that large tax increases could take money away from businesses and consumers just as the recovery was gaining strength.

Our Argument: Spending Cuts Alone Would Not Be Enough

President Clinton and I agreed that spending had to be restrained, but we did not believe the numbers could responsibly be balanced through politically achievable spending reductions alone. We wanted a combination of expenditure restraint and additional revenue, with the largest income-tax increases concentrated on higher earners. We also believed credible deficit reduction could reduce the federal government's enormous demand for borrowed money and improve the environment for private investment. That was an important difference between us and the Republicans: both sides wanted economic growth and lower deficits, but we disagreed sharply over whether higher taxes should be part of the solution.

The Economy Complicated Everything

There was another fact I would insist students remember: Clinton did not inherit an economy that was still officially in recession. The recession had ended in March 1991. America was already recovering when we arrived. Yet the recovery had been weaker than expected in important respects, and unemployment remained elevated. GAO later found that economic growth during fiscal 1993 was slower than originally forecast and unemployment higher than anticipated. So our challenge was unusually delicate. We wanted to reduce federal borrowing without knocking a recovering economy backward.

Even the Deficit Forecasts Could Be Wrong

Washington also discovered how unreliable budget forecasts could be. Officials had originally projected a fiscal 1993 deficit approaching $350 billion. The actual deficit came in at about $255 billion—roughly $95 billion below that initial estimate. A major reason was unexpectedly lower federal spending associated with deposit insurance, along with lower interest rates and other changes. That taught an important lesson: presidents and members of Congress can influence the budget, but economic conditions, interest rates, financial markets, and unexpected events can move billions of dollars without asking Washington's permission.

Two Competing Visions

By the spring of 1993, the battle lines were unmistakable. Republicans were saying: cut spending, restrain entitlements, avoid major tax increases, and let private-sector growth help close the deficit. One Republican argument on the Senate floor explicitly called the deficit "public enemy No. 1" while insisting it should be attacked through spending cuts rather than higher taxes. We answered: restrain spending, increase selected revenues, reduce federal borrowing, and create a more credible long-term fiscal position. Both sides claimed their approach would produce stronger economic growth.

Now We Had to Choose

That is what made 1993 so consequential. The argument was not between one party that cared about deficits and another that did not. It was an argument over how to reduce them. Republicans feared our tax increases would weaken investment and job creation; we feared that refusing additional revenue would leave Washington with deficits that spending reductions alone could not realistically eliminate. Neither side possessed a crystal ball. Congress would soon have to choose between competing economic strategies, and the final decision would come down to one of the closest budget votes in American history. Then the economy itself would begin telling us which predictions held up—and which did not.

Deficit-Reduction Gamble: Taxes, Spending Restraint, and a Plan - Told by Bentsen

When President Clinton took office, we faced a choice that sounds simpler today than it felt in Washington at the time. The previous fiscal year had ended with a federal deficit of roughly $290 billion. We could hope economic growth alone would eventually solve the problem, or we could ask Congress to make politically painful changes in taxes and spending. We chose the second course. I was Secretary of the Treasury, and part of my job was convincing Congress, financial markets, businesses, and the American people that reducing the deficit could strengthen rather than suffocate the economic recovery.

A Plan Built Around Deficit Reduction

The legislation that emerged became the Omnibus Budget Reconciliation Act of 1993. According to the Senate Budget Committee's historical account, the final measure was estimated to produce approximately $496 billion of deficit reduction over five years, including about $241 billion from increased revenues and $255 billion from spending reductions and debt-service savings. The administration believed that reducing expected federal borrowing could contribute to lower long-term interest rates, encourage private investment, and improve confidence in America's fiscal direction. It was a substantial gamble because some of the medicine was politically unpopular.

Who Was Asked to Pay More?

Taxes were the most controversial part. The law raised the top individual income-tax rates, with the largest income-tax increases concentrated on high-income taxpayers. It also increased the taxable portion of Social Security benefits for some higher-income recipients and raised the corporate income-tax rate for corporations with sufficiently high taxable income. But the legislation was not simply a collection of tax increases: among other provisions, it expanded the Earned Income Tax Credit for lower-income working families. Republicans strongly objected to the overall tax increases, arguing that taking additional money from individuals and businesses threatened investment, employment, and economic growth.

Spending Was Part of the Equation

The other half of the argument is sometimes forgotten. Our plan also pursued spending restraint. The Senate Budget Committee's history notes that spending reductions came substantially through defense reductions, limits on appropriated spending, and slower growth in Medicare payments to doctors and hospitals. Some defense reductions also reflected the dramatic change already underway after the Cold War. The objective was not simply to collect more revenue and continue business as usual. We were attempting to narrow the enormous gap between what Washington collected and what it spent.

Republicans Said We Had It Backward

Our Republican colleagues offered a fundamentally different economic diagnosis. They generally wanted more of the deficit reduction to come through lower federal spending and warned that higher marginal tax rates could discourage work, saving, entrepreneurship, and investment. Those objections deserve to be understood because nobody in 1993 knew with certainty what would happen next. Economic policy is made looking through the windshield, not the rearview mirror. We believed deficit reduction would strengthen the conditions for investment; our opponents feared the tax increases would weaken the very economy needed to reduce the deficit.

A Vote Balanced on a Knife's Edge

I had spent enough years in the Senate to recognize a close vote, but this was extraordinary. The final conference report passed the House on August 5 by just 218–216. Not a single House Republican voted for it, while 41 Democrats opposed it. The following day, the Senate split 50–50. Vice President Al Gore entered the chamber and cast the tie-breaking vote, producing a 51–50 result. President Clinton signed the measure on August 10. One vote in the Senate stood between the administration's economic program and defeat.

Now Came the Real Test

Passing a law did not prove that we were right. That would depend upon what happened afterward. Would higher taxes slow the recovery as our opponents predicted? Would deficit reduction contribute to lower borrowing needs and stronger investment as we expected? Would businesses keep hiring? Would government spending remain restrained? Those questions could not be answered on the night of the Senate vote. We had made our case and taken the gamble. Now the American economy would begin supplying the evidence—and over the next several years, the federal deficit would fall dramatically while the economic expansion continued.

Deficits Fall While the Expansion Continues - Told by Lloyd Bentsen

After the bruising battle over President Clinton's 1993 economic program, there was only one meaningful question left: what would actually happen? Republicans had warned that higher taxes could damage investment, hiring, and economic growth. We argued that reducing Washington's enormous borrowing needs, combined with spending restraint and a growing private economy, could improve the country's fiscal position without ending the expansion. Neither side could settle that argument with another speech. The American economy was about to put our competing predictions to the test.

The Deficit Starts Moving Down

The numbers began changing quickly. The federal deficit had reached about $290 billion in fiscal 1992. It declined to roughly $255 billion in 1993, $203 billion in 1994, and $164 billion in 1995. That meant the annual deficit had fallen by approximately $126 billion in only three years. The 1993 law contributed to the continuing decline, but I would not tell you it deserves all the credit. The deficit had already begun falling before most provisions of our legislation could take effect, and improving economic conditions increased tax receipts while reducing some recession-related pressures on spending. Fiscal history is rarely the work of one law.

The Economy Refuses to Collapse

The most important development was what did not happen: the economic expansion did not end. Real GDP increased 2.7 percent in 1993, accelerated to 4.0 percent in 1994, and continued growing in 1995, although at a slower pace. Those figures mattered because critics of our 1993 program had warned that its tax increases could seriously weaken the recovery. Their concern was economically understandable—taxes can affect incentives and investment—but the broad contraction some feared did not occur.

Americans Go Back to Work

Even more striking was what was happening in the labor market. The employment expansion that began in early 1993 would ultimately become the longest recorded expansion in the Bureau of Labor Statistics' payroll series up to that point, lasting 96 months and adding 22.7 million jobs by its end. During my own tenure at Treasury, more than five million jobs were created, according to the Treasury Department's historical account. For families, that was more important than any Washington budget table. A falling deficit might impress a Treasury secretary; a new paycheck mattered at the kitchen table.

1995 Brings a Warning

There was no guarantee that every year would accelerate. Economic growth slowed during 1995, and job creation weakened considerably after a strong first quarter. The Bureau of Labor Statistics later described employment growth that year as much slower than during the previous two years, although the labor market continued expanding. That was an important reminder. Economic expansions breathe—they accelerate and slow—and Washington should be very careful about claiming that every favorable movement proves its policies worked or every slowdown proves they failed.

Who Deserved the Credit?

This became one of the great political arguments of the decade. President Clinton and Democrats pointed toward the 1993 deficit-reduction program. Republicans emphasized private enterprise and argued that economic growth would have been stronger with lower taxes; after taking Congress in 1995, they also pressed for additional spending restraint. The Federal Reserve influenced interest rates and credit conditions. Businesses invested, consumers spent, technology advanced, and the economy had already begun recovering from the 1990–1991 recession before Clinton entered office. All of those facts belong in the story.

The Direction Had Changed

By 1995, however, something unmistakable had happened. America was no longer watching annual deficits climb toward $300 billion. The deficit had fallen to about $164 billion while the economy remained in expansion. We were still borrowing an enormous amount of money, and nobody at Treasury should have declared victory. But the trajectory had changed. When I left the Treasury Department at the end of 1994, I could not know where that road would ultimately lead. Within a few years, however, Americans would witness something Washington had not achieved in decades: the disappearance of the annual unified federal deficit altogether.

My Name is Alan Krueger: Labor Economist

I spent my career asking a deceptively simple question: what does the evidence actually tell us? Economics can seem like a world of equations, charts, interest rates, and government statistics, but behind every number is a person—a worker searching for a job, a student deciding whether college is worthwhile, or a family trying to make ends meet. I became an economist because I wanted to understand those choices and determine which policies actually improved people's opportunities.

Growing Up and Discovering Economics

I was born in Livingston, New Jersey, in 1960. I attended Cornell University and later earned my Ph.D. in economics from Harvard. I became fascinated with labor economics because employment sits at the intersection of economics and everyday life. Why do some workers earn more than others? Does additional education raise earnings? What happens when the minimum wage increases? These were questions that could be investigated rather than merely argued about.

Let the Evidence Speak

At Princeton University, where I spent most of my academic career, I became part of a movement in economics that increasingly relied on real-world evidence and what economists call "natural experiments." Instead of beginning with the assumption that economic theory had already given us the answer, my colleagues and I looked for situations in which the real world allowed competing ideas to be tested. Economics, I believed, should behave more like an empirical science: develop a hypothesis, find credible evidence, and be willing to change your conclusion when the evidence points somewhere unexpected.

A Famous Minimum-Wage Question

One of my best-known studies was conducted with economist David Card. We examined fast-food restaurants in New Jersey and Pennsylvania after New Jersey increased its minimum wage in 1992. Conventional economic reasoning suggested that raising the minimum wage should reduce employment. Yet our study did not find the predicted employment decline among the restaurants we examined. The findings generated enormous debate, criticism, additional research, and replication attempts. That was healthy. Good economics should survive challenges rather than avoid them.

Taking Economics to Washington

In 1994, I went to Washington to serve as chief economist at the U.S. Department of Labor. It was an extraordinary period to study employment. The American economy was expanding, businesses were hiring, and unemployment was moving downward. My job was not simply to celebrate good statistics. We needed to understand what was happening beneath them—who was finding work, what wages were doing, how education affected opportunity, and whether economic growth was reaching workers throughout the country.

Watching the Great Jobs Expansion

The 1990s became one of the longest economic expansions in American history. Millions of jobs were created, unemployment eventually fell below 4 percent, and economists watched something particularly interesting happen: unemployment could fall much farther than many had expected without producing the explosive inflation some economic models had predicted. Productivity growth, technological change, global competition, Federal Reserve policy, and other forces were transforming the economy. For an economist, it was a reminder that models are useful tools, not laws of nature.

Returning to Public Service

I later returned to Washington under President Barack Obama, first as Assistant Secretary of the Treasury for Economic Policy and then as chairman of the Council of Economic Advisers from 2011 to 2013. The circumstances were very different from the booming 1990s. America was recovering from the Great Recession, and millions of people had experienced unemployment, lost income, or financial insecurity. Once again, labor statistics represented much more than numbers on a page. They represented lives.

Economics Beyond Paychecks

My research eventually ranged far beyond traditional employment questions. I studied education, inequality, terrorism, occupational licensing, happiness, the opioid crisis, and even the economics of the music industry. I was particularly interested in how economic changes affected people who were struggling to participate in the labor force. Economics was most useful, in my view, when it helped us understand human behavior rather than reducing human beings to equations.

America Goes Back to Work: Millions of New Jobs - Told by Alan Krueger

If you had handed me only the unemployment statistics in early 1993, I would have seen an economy recovering from recession but still leaving millions of Americans searching for work. The annual unemployment rate had been 7.5 percent in 1992 and remained 6.9 percent in 1993. By 1996, however, it had fallen to 5.4 percent, while the number of employed Americans measured by the household survey had risen from about 120 million in 1993 to nearly 127 million in 1996. As a labor economist, those numbers fascinated me. As someone who served as chief economist at the Department of Labor in 1994–95, I knew they represented something more important than statistics: millions of people going to work.

A Recovery Finally Reaches the Job Market

The recession had officially ended in 1991, but employment recovery had initially been frustratingly slow. By 1993 that began changing decisively. Payroll employment stood at about 109.8 million in January 1993 and exceeded 112 million by the end of the year. Then came 1994, when employers added jobs at a particularly rapid pace; payroll employment climbed from roughly 112.6 million in January to more than 116.1 million in December. Month after month, the data arriving in Washington showed businesses expanding their workforces.

Watching the Numbers from the Labor Department

I arrived at the Department of Labor as chief economist during the 1994–95 academic year, taking leave from Princeton. This put me unusually close to an extraordinary labor-market experiment unfolding across an entire country. In April 1993, unemployment had stood at 7.1 percent. By December 1994 it had fallen to 5.5 percent. That decline was important because economists do not merely ask whether GDP is rising. We ask whether economic expansion is creating employment, whether workers are participating, what is happening to wages, and which groups are benefiting.

Where Were the Jobs Coming From?

This was not simply an old-fashioned factory boom. America's economy was changing. Service-producing industries were becoming increasingly important, with employment expanding across areas such as business services, health services, retail, finance, and other parts of the service economy. Construction and other industries also participated in the expansion. Meanwhile, computers and information technology were spreading through American workplaces. The Internet revolution had not yet reached its later frenzy, but the foundations of a more technology-intensive economy were becoming increasingly visible.

1995 Tests the Expansion

Economic growth does not move upward in a straight line, and 1995 demonstrated that clearly. Payroll job growth slowed substantially, and May even recorded a small monthly decline in employment. Yet the expansion survived. By December 1995 payroll employment had reached roughly 118.3 million, compared with about 116.5 million that January. The lesson was useful: one disappointing employment report does not establish a trend. Economists have to resist the temptation to turn every month's number into a grand theory.

The Hiring Accelerates Again

Then 1996 brought another strong run of employment gains. Payroll employment increased from approximately 118.3 million in January to nearly 121 million by November. Some individual months were remarkable: February alone showed an increase of more than 400,000 payroll jobs in today's revised historical series. Meanwhile, annual unemployment averaged 5.4 percent in 1996, down substantially from the 7.5 percent recorded four years earlier. America was not merely producing more goods and services. Employers were demanding more workers.

Who Gets the Credit?

Washington naturally wanted to claim the good news. President Clinton emphasized his economic program and deficit reduction. Republicans argued that private enterprise—not government—was creating the jobs and later emphasized the effects of the Republican Congress's policies. The Federal Reserve was influencing credit and interest rates throughout the period. Businesses were investing, consumers were spending, technological innovation was accelerating, and the economy had already begun recovering before Clinton became president. An economist should be very suspicious whenever somebody explains millions of employment decisions with one cause.

The Beginning of Something Much Bigger

By the end of 1996, we could see that America's labor market had undergone a substantial transformation, but we did not yet know how far it would go. Unemployment would continue falling—to below 4 percent briefly by 2000—and the economic expansion would continue for several more years. For me, that raised one of the most interesting economic questions of the decade. How could employers keep adding workers and unemployment keep falling without producing the surge in inflation many economists expected? The answer would force economists to reconsider some of their assumptions about just how strong the American labor market could become.

Low Inflation, Falling Unemployment, and the Economic Puzzle - Told by Krueger

When I served as chief economist at the Department of Labor, I watched something unfold that economists found increasingly difficult to explain. Americans were finding jobs, unemployment was falling, and yet inflation remained remarkably restrained. Economic textbooks gave us good reasons to expect that an increasingly tight labor market would eventually push wages and prices upward faster. But by the middle of the 1990s, the economy seemed determined to challenge some of our assumptions.

The Old Economic Warning

Economists had long studied the relationship between unemployment and inflation. When unemployment becomes very low, employers generally compete harder for scarce workers, wages can rise more rapidly, and businesses may increase prices to cover higher costs. Economists often discussed a "natural rate" of unemployment—or NAIRU—below which inflation might begin accelerating. In the mid-1990s, many policymakers thought that threshold was somewhere around 6 percent. If unemployment fell substantially below it, inflation was expected to become a serious danger. Federal Reserve officials later recalled that this was a widely held view at the time.

Then the Numbers Broke the Pattern

Unemployment kept falling anyway. The annual rate declined from 6.1 percent in 1994 to 5.6 percent in 1995 and 5.4 percent in 1996. By August 1996, unemployment had reached 5.1 percent. Yet the feared inflationary breakout did not arrive. That presented economists with a fascinating problem: perhaps the economy could sustain lower unemployment than our models had suggested. When evidence contradicts your expectations, you do not get to discard the evidence. You have to reconsider the expectations.

The Federal Reserve Hits the Brakes

The Federal Reserve was not simply standing aside. Under Chairman Alan Greenspan, the Fed had begun raising short-term interest rates in February 1994 because officials worried that rapid economic growth could eventually produce inflation. Over the course of roughly a year, monetary policy tightened substantially. The intention was essentially preventive: slow demand enough to keep inflation from gaining momentum without pushing the economy into recession. That is a difficult maneuver. Tighten too little and inflation can accelerate; tighten too much and businesses may stop hiring.

Was Technology Changing the Rules?

By 1995 and 1996, another possibility was attracting attention. Computers were spreading rapidly through American businesses. Telecommunications were improving. Companies were reorganizing production and managing inventories differently. What if workers were becoming more productive faster than our statistics initially showed? If each hour of work produced more goods and services, businesses could increase wages and output without necessarily raising prices as rapidly. Federal Reserve researchers later concluded that productivity was indeed being underestimated during the mid-1990s.

Greenspan Takes an Unusual Risk

This placed Alan Greenspan at the center of an extraordinary monetary-policy debate. By mid-1996, unemployment had fallen below what many officials believed was sustainable, and some policymakers favored another interest-rate increase to prevent inflation. Greenspan suspected that productivity growth was accelerating and that the economy might therefore be capable of growing faster without overheating. He persuaded his colleagues to wait for clearer evidence rather than automatically tightening policy simply because unemployment had crossed an estimated threshold. Later Federal Reserve assessments concluded that he had correctly identified an increase in the economy's potential growth.

There Was No Single Explanation

Technology alone cannot explain everything. Federal Reserve policy mattered. International competition placed pressure on some American companies to control costs. Changes in labor markets and business organization mattered. Earlier deficit reduction may also have contributed to favorable financial conditions, while relatively subdued price pressures gave the Federal Reserve more room to maneuver. Economists still debate the relative importance of these forces. That is precisely why this period is so useful to study: economies are systems containing millions of decisions, not machines controlled by a single lever.

The Puzzle Was About to Become Bigger

By the end of 1996, unemployment stood at 5.4 percent, and the economy was still expanding. If you had told economists that unemployment would eventually fall to around 4 percent while inflation remained relatively subdued, many would have been skeptical. Yet that was where America was headed. The lesson I would take from those years is not that economic theory failed. It is that economic theories must continually confront evidence. The American economy was changing—and the data were beginning to tell us before we completely understood why.

My Name is Daniel Patrick Moynihan: Senator and Scholar

I spent much of my life insisting that government must begin with facts, even when the facts make everyone uncomfortable. I was a professor, diplomat, presidential adviser, United States senator from New York, and chairman and ranking member of the Senate Finance Committee. I was a Democrat, certainly, but I worked for presidents of both parties and occasionally irritated nearly everyone. That did not especially trouble me. Public policy is too important to be reduced to slogans.

Growing Up in New York

I was born in Tulsa, Oklahoma, in 1927, but New York became my home. My childhood was not one of privilege. After my father left the family, my mother struggled to support us, and I worked various jobs while growing up. I later served in the United States Navy and attended Tufts University, eventually earning a doctorate. Those experiences helped shape my lifelong interest in poverty, families, work, education, and the institutions that hold communities together.

Studying America's Social Problems

I entered government during the Kennedy and Johnson administrations and worked on labor and social policy. In 1965, I wrote a controversial government report examining poverty and instability among Black families, particularly the consequences of unemployment and family breakdown. The report generated fierce criticism, including disputes over its framing and conclusions. Yet the controversy reinforced something I already believed: difficult social problems do not disappear merely because discussing them becomes politically uncomfortable.

Working Across Party Lines

My career did not fit comfortably into partisan categories. After serving Democratic administrations, I joined Richard Nixon's administration as an adviser on domestic policy. I supported ideas such as a guaranteed minimum income for poor families, believing government should help provide economic security while preserving incentives for work. Later, President Gerald Ford appointed me ambassador to the United Nations. I defended American democratic institutions forcefully, particularly against authoritarian governments that used the United Nations as a political arena.

From Diplomacy to the Senate

New Yorkers elected me to the United States Senate in 1976. I would serve four terms, from 1977 until 2001. The Senate suited my temperament rather well. It was a place where history, economics, law, and politics collided daily—and where a determined senator could ask inconvenient questions. I became deeply involved with taxes, Social Security, welfare, trade, health programs, and federal finances.

The Finance Committee

I eventually became chairman of the Senate Finance Committee in 1993 and later served as its ranking Democrat when Republicans took control of the Senate. The committee dealt with an astonishing portion of the federal government's responsibilities. Taxes financed the government; Social Security affected nearly every working family; Medicare and Medicaid involved enormous commitments; and trade policy connected American workers to an increasingly global economy. A change of only a few words in legislation could move billions of dollars.

The Battle Over the Budget

The 1990s brought an increasingly fierce argument over deficits and the proper size of government. I supported fiscal responsibility, but I also believed balancing a ledger was not the only measure of responsible government. A budget is an expression of priorities. Congress could reduce a number on a spreadsheet while transferring costs somewhere else—to states, hospitals, families, or future generations. The serious question was not simply whether Washington spent less, but what consequences followed from spending less.

The Road Toward Balance

By 1997, President Clinton and the Republican-controlled Congress had moved from confrontation toward negotiation. Senator William Roth chaired the Finance Committee, and I served as ranking member. The resulting budget agreement combined spending changes with tax legislation while aiming toward a balanced federal budget. I disagreed with Republicans on important questions, but divided government sometimes produced compromises precisely because neither side possessed enough power to dictate every term.

Surpluses—and a Warning

In 1998, the federal government recorded its first unified budget surplus since 1969, and larger surpluses followed. That was an extraordinary reversal from the enormous deficits Americans had grown accustomed to. Yet I remained particularly concerned about Social Security. A unified federal surplus included Social Security's excess revenues, and I argued that policymakers should distinguish those funds from the rest of the budget rather than pretending every surplus dollar represented freely available money.

From Budget Battles to Budget Negotiations - Told by Daniel Patrick Moynihan

By 1995, Washington had arrived at a curious point: Republicans and Democrats increasingly agreed that the federal budget should eventually be balanced, yet we disagreed profoundly about how to accomplish it. Republicans had captured both houses of Congress in the 1994 elections and proposed balancing the budget by fiscal year 2002 through substantial reductions in projected federal spending while also providing tax cuts. President Clinton accepted the goal of balance but rejected much of their method. I had moved from chairman to ranking Democrat on the Senate Finance Committee, which placed me directly inside arguments involving Medicare, Medicaid, welfare, taxes, and the enormous arithmetic of the federal government.

The Republicans Put Their Plan on the Table

The new Republican congressional majority moved quickly. Its fiscal 1996 budget called for reaching balance within seven years while reducing taxes and making much larger reductions in projected spending, including Medicare, Medicaid, welfare, and domestic discretionary programs. Republicans argued that Washington had grown too large and that balancing the budget required changing the trajectory of federal programs, not simply collecting more taxes. Democrats countered that some of the proposed reductions went too far, particularly in health care and programs affecting lower-income Americans. The destination—balance—was becoming less controversial than the road we would take to reach it.

Washington Comes to a Halt

The disagreement became a confrontation in late 1995. President Clinton vetoed the Republican reconciliation legislation on December 6, objecting particularly to changes involving Medicare, Medicaid, education, and other domestic priorities. Disputes over appropriations also produced two federal government shutdowns, including the lengthy shutdown that stretched from December 1995 into January 1996. Federal employees were furloughed, agencies curtailed services, and Americans watched a budget disagreement become something tangible. Clinton publicly called for Republicans to return to negotiations while maintaining that balance should be achieved without abandoning his administration's priorities.

Something Important Had Changed

Beneath all the political theater, however, an important consensus was emerging. Both sides were now publicly committed to balancing the federal budget. Clinton eventually offered his own seven-year path to balance, although his proposed savings differed substantially from the Republican plan, especially concerning Medicare, Medicaid, discretionary spending, and taxes. That mattered. Once both parties accepted roughly the same destination and timetable, negotiation became possible. We were no longer arguing primarily over whether to balance the budget; we were bargaining over whose taxes would change, which programs would be restrained, and which priorities would survive.

The Economy Changes the Arithmetic

There was another participant in these negotiations that never sat at the conference table: the American economy. Employment was rising, unemployment was falling, and federal revenues were improving while the deficit continued shrinking. Better economic performance made the arithmetic easier. Politicians like to imagine that legislation controls history, but sometimes history improves the negotiating environment. By 1997, the deficit had fallen dramatically from its 1992 level, giving both parties more room to construct an agreement than they had possessed during the confrontations of 1995.

After the Election, the Tone Changes

Clinton won reelection in November 1996, but Republicans retained control of both houses of Congress. Neither side was going away. In his February 1997 State of the Union address, Clinton called on the new Congress to finish balancing the budget and explicitly urged Democrats and Republicans to work together. The political reality was straightforward: a Democratic president could veto Republican legislation, while a Republican Congress could prevent the president from enacting his program alone. Divided government could produce continued paralysis—or force compromise.

May 1997: The Breakthrough

On May 2, the White House and Republican congressional leaders announced a bipartisan framework intended to balance the budget by 2002. The agreement combined continued spending restraint with tax relief while preserving or modifying priorities involving Medicare, education, health care, and other programs. Neither side received everything it wanted. That is generally what an actual negotiation looks like. Republicans secured tax relief and significant spending restraint; Clinton preserved important domestic priorities and secured new investments in areas such as education and children's health coverage.

From Confrontation to Compromise

By July, negotiators had completed the details, and on August 5 President Clinton signed the Balanced Budget Act and the Taxpayer Relief Act of 1997, the two principal legislative pieces of the agreement. The contrast with 1995 was remarkable. Two years earlier, Washington had closed parts of the federal government while the president and Congress fought over competing budget plans. Now a Democratic president and Republican Congress had enacted a shared framework for reaching balance. I would not suggest that our philosophical differences disappeared; they most certainly did not. What changed was our recognition that neither side could govern alone. In the American system, sometimes the mathematics of a budget finally teaches politicians what the Constitution intended all along: sooner or later, you must negotiate.

My Name is William V. Roth Jr.: Chairman of the Senate Finance Committee

I spent more than three decades in Congress arguing that government should respect the people who earn the money it spends. I was a Republican senator from Delaware, chairman of the Senate Finance Committee, and a persistent advocate for lower taxes, greater personal savings, and tighter control over government spending. Washington has never suffered from a shortage of proposals for spending money. I believed someone also had to ask where that money came from and whether Americans were receiving value for it.

From Montana to Harvard

I was born in Great Falls, Montana, in 1921. I attended the University of Oregon, served in the United States Army during World War II, and later studied at Harvard Business School and Harvard Law School. My education in business, law, and government shaped the way I approached public policy. Economic decisions have consequences, and a government program should not be considered successful simply because Congress appropriated money for it.

Making Delaware Home

My career eventually brought me to Delaware, the state I would represent for decades. In 1966, Delaware voters elected me to the United States House of Representatives. Four years later, I won election to the Senate. I remained there from 1971 until 2001. Delaware may be a small state, but its importance in banking, corporations, and financial services meant that questions involving taxation and economic policy were never distant concerns.

Watching the Federal Government

One of my continuing concerns was government waste. I became closely associated with what became known as the "Roth Report," investigations intended to expose unnecessary federal spending and inefficient programs. I believed taxpayers deserved accountability. A dollar wasted by Washington was not an abstract accounting error. It was a dollar first earned by an American worker, family, or business.

The Kemp-Roth Tax Cut

During the 1970s, Congressman Jack Kemp and I began advocating a major reduction in individual income-tax rates. Our proposal became known as Kemp-Roth. We argued that high marginal tax rates could discourage work, investment, and entrepreneurship and that reducing them could strengthen incentives throughout the economy. Our ideas became influential during Ronald Reagan's presidency and helped shape the Economic Recovery Tax Act of 1981. Critics warned that large tax reductions without sufficient spending restraint could increase federal deficits—and deficits did, in fact, become a serious problem during the 1980s.

Taking the Finance Committee

After Republicans gained control of Congress in the 1994 elections, I became chairman of the Senate Finance Committee in 1995. This was one of the Senate's most consequential committees, with jurisdiction over taxes, trade, Social Security, Medicare, Medicaid, and other major programs. By then, the national debate had changed. Americans wanted economic growth, but there was also tremendous pressure to bring the federal budget under control.

The Balanced-Budget Era

President Bill Clinton and the Republican Congress fought bitterly over spending and the size of government, but eventually negotiation replaced confrontation. In 1997, Republicans and Democrats reached a major budget agreement designed to move the federal government toward balance. I participated from the Finance Committee side, where tax policy and entitlement programs were central to the negotiations. I believed balancing the budget and encouraging economic growth did not have to be competing objectives.

Giving Americans an Incentive to Save

The Taxpayer Relief Act of 1997 contained something that would permanently attach my name to American finance: the Roth IRA. Traditional retirement accounts generally offered a tax advantage when money went in, with taxes paid when qualifying funds were later withdrawn. The Roth IRA approached the problem differently. Workers contributed money after taxes, and qualified withdrawals could eventually be made tax-free. I wanted Americans—particularly younger workers—to have another reason to save, invest, and think decades ahead.

When the Budget Reached Surplus

By 1998, the federal government recorded its first unified budget surplus since 1969, and additional surpluses followed. Republicans pointed to spending restraint and the 1997 agreement. Democrats emphasized the 1993 deficit-reduction legislation and President Clinton's economic policies. The booming economy and rising federal revenues were also enormously important. I would tell students not to reduce that transformation to a single politician or piece of legislation. Washington contributed, but so did American workers, investors, entrepreneurs, businesses, technological innovation, and broader economic conditions.

What I Would Tell You

I left the Senate in 2001 after losing my bid for another term. Looking back, I can acknowledge that some policies I supported had consequences that deserved criticism, particularly when tax reductions were not matched by sufficient control of federal spending. No legislator gets every economic forecast or policy judgment right. But I remained convinced of something fundamental: government must remember whose money it is spending. My name is William V. Roth Jr., and if Americans still recognize my name because an account encourages them to save for their future, I consider that a worthwhile legacy.

Bipartisan Balanced Budget Agreement - Told by Roth

By 1997, Republicans had spent years arguing that Washington could not continue allowing federal spending to outrun federal revenues. We had captured Congress in 1994 promising smaller government, lower taxes, and a balanced budget. President Clinton had fought us bitterly over how to accomplish those goals. But after elections, vetoes, government shutdowns, and countless negotiations, something remarkable happened: a Republican Congress and a Democratic president finally agreed on a framework intended to balance the federal budget by 2002. Neither side surrendered its principles. We found enough common ground to make a deal.

What Republicans Had Been Fighting For

From our perspective, the change began when voters gave Republicans control of Congress in the 1994 elections. We believed the solution to Washington's fiscal problems could not depend primarily on repeatedly raising taxes. Federal spending had to be restrained, entitlement programs had to become more sustainable, and taxpayers should be allowed to keep more of what they earned. President Clinton disagreed with important parts of our program, particularly our proposed changes to Medicare, Medicaid, and domestic spending. Those disagreements helped produce the confrontations of 1995 and 1996. But they also forced both sides to confront the same arithmetic.

The Deficit Was Already Falling

Republicans could not reasonably claim that we alone had begun reducing the deficit. It had fallen substantially before we took control of Congress—from roughly $290 billion in fiscal 1992 to about $164 billion by fiscal 1995. President Clinton and congressional Democrats credited the 1993 deficit-reduction law and the strengthening economy for much of that progress. We Republicans emphasized spending restraint, private-sector growth, and the need to prevent government from consuming the benefits of that growth. By 1997, however, the important question was no longer who could claim the first portion of the decline. It was whether we could finish the job.

A Republican Congress Meets a Democratic President

President Clinton's reelection in 1996 settled an important political question. He would remain in the White House, but Republicans retained both houses of Congress. Neither side could simply impose its preferred budget. The Constitution had created precisely this sort of predicament: legislation required Congress, and legislation could face the president's veto. We could continue fighting—or negotiate. In May 1997, congressional Republicans and the Clinton administration announced a bipartisan agreement designed to reach a balanced budget by 2002.

Spending Restraint Was Central to Our Case

Republicans considered spending restraint essential to the agreement. The resulting Balanced Budget Act made significant changes affecting Medicare and other federal programs, and later congressional summaries described the agreement as reducing federal spending relative to previous projections while aiming for balance in 2002. As chairman of the Senate Finance Committee, I was particularly involved with programs under our jurisdiction. We believed Washington had to demonstrate that balancing the budget meant controlling expenditure growth rather than simply finding additional revenue whenever spending increased.

But We Insisted on Tax Relief, Too

Here was an important Republican principle: balancing the budget should not become an excuse to keep every additional dollar in Washington. The agreement allowed approximately $85 billion in net tax relief over five years and no more than $250 billion over ten years. The negotiated framework specifically contemplated a $500-per-child tax credit, capital-gains tax reductions, estate-tax relief, and expanded Individual Retirement Accounts. I later described our objective plainly: Republicans had pushed for tax relief within the context of a balanced budget. We wanted fiscal discipline and incentives for families to save and invest.

The Compromise Had Democratic Priorities

This was not a Republican budget imposed upon President Clinton. The administration protected or secured important priorities of its own, and Republicans accepted compromises we would not have chosen if we controlled the White House as well as Congress. Likewise, Clinton accepted tax relief and spending restraints that many Democrats would have designed differently. That is why calling it a bipartisan agreement matters. Republicans could legitimately claim major victories, but we could not honestly claim exclusive authorship.

The Agreement Becomes Law

Congress ultimately passed two major pieces of legislation: the Balanced Budget Act of 1997 and the Taxpayer Relief Act of 1997. The tax legislation included the child tax credit, reduced the maximum capital-gains rate, created new education tax benefits, and established the retirement account that would become known as the Roth IRA. I believed these measures complemented budget restraint by encouraging saving, investment, and greater financial independence. Looking back in 1999, I described the 1997 effort as pursuing tax relief specifically while maintaining the commitment to a balanced budget.

What Happened Next Surprised Even Washington

Here is where history becomes especially interesting. We were aiming to balance the budget by 2002. We got there much sooner. The economy performed better and federal revenues grew more rapidly than policymakers had anticipated. By fiscal 1998, the government recorded a unified budget surplus. I later acknowledged that when we constructed the 1997 agreement, Washington had underestimated how much revenue the expanding economy would generate. The agreement mattered, but so did economic growth, earlier deficit reduction, rising tax receipts, monetary conditions, and millions of decisions made outside Washington.

The Republican Lesson of 1997

From my Republican perspective, the lesson was that balancing the budget did not require abandoning tax relief. We believed government could restrain spending growth, reform programs, reduce taxes, encourage saving and investment, and still move toward fiscal balance. Democrats would emphasize different elements of the story, particularly the 1993 deficit-reduction law, and they had legitimate evidence supporting their argument. But 1997 demonstrated something important from our side as well: divided government could force both parties away from their preferred extremes and toward an agreement neither could have enacted alone. We had spent years fighting over the federal budget. At last, Republicans and Democrats had put their names on the same destination.

Tax Cuts, the Child Tax Credit, Capital Gains, and the Roth IRA - Told by Roth

In 1997, Republicans faced a question that went directly to our philosophy of government. The federal deficit was falling rapidly, the economy was expanding, and Washington was moving toward a balanced budget. Should every additional dollar remain in the federal government's hands? We said no. As chairman of the Senate Finance Committee, I wanted to combine fiscal discipline with tax relief for families, investors, and Americans willing to save for their own futures. President Clinton and congressional Democrats did not accept everything we proposed, but negotiations produced the Taxpayer Relief Act of 1997—one of the most significant tax laws of the decade.

The Republican Argument: Balance the Budget and Cut Taxes

Republicans had spent years arguing that tax relief and deficit reduction did not have to be enemies. We wanted Washington to control spending while allowing taxpayers to keep more of their earnings. In January 1997, Senator Trent Lott and I introduced the American Family Tax Relief Act, which proposed a child tax credit, capital-gains relief, estate-tax changes, and expanded retirement savings opportunities. The final legislation was the product of negotiation rather than a purely Republican bill, but several of the principles we had championed survived.

A $500 Credit for Children

One of the most visible changes was the new Child Tax Credit. The law initially provided a credit of up to $400 per qualifying child for 1998, increasing to $500 beginning in 1999, subject to eligibility and income limitations. Republicans saw this as family tax relief: raising children was expensive, and reducing a family's federal income-tax liability left more resources under the family's control. When I looked back on the legislation in 1999, I emphasized the $500-per-child credit as one of the major pieces of tax relief enacted in 1997.

Cutting the Capital-Gains Rate

We also wanted to reduce taxes on long-term investment gains. The 1997 law generally reduced the maximum long-term capital-gains tax rate from 28 percent to 20 percent, with a 10 percent rate applying to qualifying gains for taxpayers in the 15-percent ordinary-income bracket. From the Republican perspective, this was about more than rewarding investors. We argued that lower capital-gains taxes could encourage people to sell appreciated assets, move capital toward new opportunities, and promote investment in businesses. Critics countered that capital-gains reductions disproportionately benefited higher-income households and reduced government revenue. That disagreement was real, but Republicans believed investment incentives could contribute to broader economic growth.

A Different Kind of Retirement Account

Then came the provision that would attach my name permanently to the tax code: the Roth IRA. Beginning in 1998, eligible Americans could contribute after-tax money to this new retirement account. There was no deduction for the contribution, but qualified withdrawals—including accumulated earnings—could later be received free of federal income tax. It reversed the usual tax arrangement of a traditional deductible IRA. Instead of receiving the principal tax advantage today, savers could receive it in retirement.

Why I Wanted Americans to Save

The principle behind the Roth IRA was personal responsibility and long-term saving. I worried that too many Americans were approaching retirement without sufficient private savings. Government could create an incentive, but individuals would make the decision to put money aside, invest it, and allow compounding to work over decades. Later, as Finance Committee chairman, I continued pushing to expand access to tax-favored retirement accounts because I regarded personal saving as an important part of financial independence.

This Was Still a Compromise

Republicans did not write the final legislation alone. President Clinton signed it, Democrats participated in the negotiations, and the final package also contained Democratic priorities, including education-related tax benefits. Nor did every economist agree with our arguments about tax cuts. Critics questioned whether capital-gains reductions would produce enough additional investment to justify their revenue cost and whether tax-favored savings accounts primarily benefited people who were already capable of saving. Those were legitimate policy disputes. Our Republican case was that a balanced budget should not become an excuse for Washington to retain unnecessarily high taxes.

The Economy Keeps Surging

What happened afterward naturally became part of the political argument. Economic growth remained strong, unemployment continued falling, and the federal budget moved into surplus in fiscal 1998. I argued that the 1997 tax reductions helped create incentives for investment and economic activity; in 1999, I specifically pointed to the capital-gains reduction and Roth IRA while discussing the strength of the economy. But no serious account should claim the 1997 tax law caused the entire boom. The expansion had begun years earlier, deficit reduction was already underway, technology investment was accelerating, Federal Reserve policy mattered, and millions of private decisions drove the economy.

More Than a Tax Cut

From my Republican point of view, that was the larger meaning of 1997. We were not arguing simply that taxes should be lower because lower numbers looked attractive. We believed families should control more of their earnings, investors should have incentives to put capital to work, and workers should be encouraged to build their own retirement savings. The Child Tax Credit, capital-gains reduction, and Roth IRA represented three different applications of the same idea: government could pursue fiscal discipline while leaving Americans with greater opportunity to decide what to do with their own money.

1998 — From Deficit to Surplus: The First Federal Budget Surplus Since 1969 - Told by William Roth and Lloyd Bentsen

Imagine the two of us sitting across a table with one extraordinary number between us: $70 billion. That was the federal government's unified budget surplus for fiscal year 1998. Six years earlier, the government had run a deficit of about $290 billion. Now Washington had reached its first surplus since 1969. We could agree that the turnaround was remarkable. What Senator Roth and I would debate was how America got there—and who deserved credit.

Republicans Changed Washington's Direction

William Roth: "Lloyd, Democrats should receive some credit because the deficit was already falling before Republicans captured Congress. But the voters changed Washington in 1994 for a reason. Republicans came to Congress promising to restrain the growth of government and balance the federal budget. We forced that objective to the center of national politics. We fought President Clinton over spending, endured the budget confrontations of 1995, and eventually negotiated the 1997 balanced-budget agreement. Republicans believed economic growth and spending restraint—not continually increasing taxes—offered the better long-term road to fiscal health."

Don't Forget What Happened Before 1995

Lloyd Bentsen: "Bill, there is one problem with starting the story in 1995: the deficit had already been falling for years. It dropped from about $290 billion in 1992 to $255 billion in 1993, $203 billion in 1994, and $164 billion in 1995. President Clinton's 1993 economic program raised revenue and restrained spending, even though Republicans unanimously opposed the final legislation. The administration took considerable political risk because we believed deficit reduction would improve America's fiscal position. The subsequent decline cannot simply be attributed to the Republican Congress." The 1993 law was controversial, but later government analyses identified it as an important part of the deficit-reduction effort.

But Congress Restrained Spending

William Roth: "And I would answer that revenue was only one side of the ledger. Republicans believed Washington also had to control expenditures. Federal spending did grow unusually slowly during these years. Treasury's final accounting for 1998 reported that federal outlays had increased at an average annual rate of only 3 percent from 1992 through 1998—less than half the average rate during the preceding twelve years. Republicans regarded that restraint as essential. A government cannot tax its way out of every fiscal problem while allowing expenditures to grow without limit."

Then Something Bigger Happened

Lloyd Bentsen: "On that point, Bill, we can agree: spending restraint mattered. But something else happened that neither party could manufacture inside the Capitol—the economy became exceptionally strong. Employment expanded, unemployment declined, corporate profits and household incomes helped strengthen the tax base, and federal receipts surged. Treasury reported that receipts grew at an average annual rate of 7.9 percent from 1992 through 1998, substantially faster than expenditures. When more Americans are working and businesses are prospering, Washington collects more revenue even without repeatedly raising tax rates."

The 1997 Deal Still Mattered

William Roth: "Certainly, but policy helped determine what Washington did with that prosperity. In 1997, a Republican Congress and President Clinton reached a bipartisan agreement intended to achieve balance by 2002. Republicans secured spending restraints and tax relief, while Clinton and congressional Democrats protected priorities important to them. Here is the extraordinary part: the economy and federal revenues performed so much better than Washington expected that balance arrived years ahead of the timetable. An earlier projection following the 1993 legislation had envisioned a roughly $200 billion deficit for 1998; instead, the government produced a $70 billion surplus. "

There Is Enough Credit to Go Around

Lloyd Bentsen: "Then perhaps the most accurate conclusion is less politically satisfying than either party would prefer. The 1993 deficit-reduction program mattered. Congressional spending restraint mattered. The bipartisan 1997 agreement mattered. Federal Reserve policy and relatively favorable inflation mattered. Most importantly, a powerful private economy generated jobs, incomes, profits, investment, and tax revenues. By 1998, Washington was collecting about $1.72 trillion while spending roughly $1.65 trillion. That is how the arithmetic finally crossed from red ink into black."

Now Comes the Republican Question

William Roth: "And once we crossed that line, Republicans immediately faced another question: what should Washington do with the surplus? I did not believe that reaching balance suddenly gave Congress permission to spend everything it collected. We had spent years telling taxpayers that government took too much and spent too much. The arrival of a surplus strengthened the Republican argument for protecting fiscal discipline while considering additional tax relief, debt reduction, and incentives for private saving and investment."

Remember How Quickly Fortunes Can Change

Lloyd Bentsen: "And I would offer the Treasury man's warning: do not confuse a few prosperous years with the permanent disappearance of fiscal risk. A surplus can vanish just as surely as a deficit can shrink. Economic growth changes. Wars happen. Recessions arrive. Congress changes taxes and spending. In 1998, however, Americans were entitled to recognize an extraordinary achievement. The government had moved from a $290 billion deficit in 1992 to a $70 billion surplus just six years later, and debt held by the public declined during fiscal 1998 for the first time in twenty-nine years. Republicans and Democrats would continue arguing over who deserved the credit. History gives us a more complicated answer: neither side did it alone."

Jobs, Surpluses, Productivity, and the 1990s Boom - Told by Roth and Krueger

By the closing years of the 1990s, America was witnessing a combination that would have seemed improbable only a decade earlier: very low unemployment, rapidly improving productivity, strong economic growth, and federal budget surpluses. Senator William Roth saw evidence that private enterprise, investment, fiscal restraint, and tax incentives were working. I, Alan Krueger, saw an extraordinary labor market that challenged economists' assumptions. Put us across a table together, and we would agree that something remarkable was happening—even if we would argue vigorously over why.

Look at What American Enterprise Accomplished

William Roth: "Alan, from my Republican perspective, the first people who deserve credit are not politicians. They are the Americans who worked, saved, invested, started businesses, took risks, and created jobs. By 1999, Washington was collecting far more revenue than we had anticipated when negotiating the 1997 budget agreement. I said at the time that we had miscalculated how much revenue this expanding economy would generate. (finance.senate.gov) Government did not manufacture that prosperity. The private economy created the wealth that produced those unexpectedly large tax receipts."

And Look at the Labor Market

Alan Krueger: "Senator, the employment numbers certainly support the description of an unusually strong economy. Unemployment averaged only 4.5 percent in 1998 and 4.2 percent in 1999 before falling to 4.0 percent in 2000. Those levels were extraordinary compared with what many economists had thought sustainable earlier in the decade. The most interesting development was that employers continued finding ways to expand production even as the labor market became increasingly tight. For economists, the question was no longer simply why unemployment was falling. It was why such low unemployment had not produced the accelerating inflation many models once predicted."

Productivity Was Changing the Equation

William Roth: "One answer was staring us in the face: Americans were producing more. Computers, telecommunications, improved management, new equipment, and private investment were transforming businesses. Productivity in the nonfarm business sector rose about 2.8 percent in 1998 and 3.0 percent in 1999 according to estimates published at the time. (bls.gov) Manufacturing showed particularly impressive gains. To Republicans like me, this strengthened the argument for policies that encouraged investment and allowed businesses and individuals to put capital to productive use."

Productivity Lets an Economy Do Something Remarkable

Alan Krueger: "That productivity growth is crucial. Imagine a worker who can produce substantially more during the same hour because of better technology, equipment, organization, or skills. A company can potentially pay that worker more without raising its prices by the same amount. Across millions of workers, that changes the economy's speed limit. The productivity acceleration of the later 1990s helped explain how output and employment could grow rapidly while inflation remained relatively contained. But I would hesitate to assign that technological transformation to any single tax bill, president, or Congress. Much of it came from innovations and investments developed over many years."

Then Washington Had to Decide What to Do With the Surplus

William Roth: "And here is where Republicans and the Clinton administration collided again. Once the government was running surpluses, I argued that Washington was not automatically entitled to spend the unexpected revenue. In 1999 I pushed substantial tax relief, arguing that after financing necessary government programs, part of the surplus should be returned to taxpayers and used to encourage retirement saving, education, health coverage, and investment. (finance.senate.gov) President Clinton disagreed with the size and structure of the Republican tax-cut proposals, emphasizing debt reduction and protecting Social Security and Medicare."

A Surplus Has More Than One Explanation

Alan Krueger: "That debate should not obscure how unusual the fiscal turnaround had been. The government moved from enormous deficits early in the decade into consecutive unified surpluses beginning in 1998. Republicans could point to spending restraint and the 1997 agreement. Clinton Democrats could point to the 1993 deficit-reduction legislation. Both could point to the booming economy. Rapidly rising employment, incomes, profits, and capital gains generated tremendous federal revenues. Economically, the surplus was not evidence that one side had discovered a magic formula. Several favorable forces were operating simultaneously."

Prosperity Strengthened the Republican Case

William Roth: "But I would still make the Republican argument. The experience demonstrated that government did not have to consume every benefit produced by economic expansion. We had supported capital-gains tax reductions, retirement savings incentives, the Roth IRA, and other forms of tax relief while pursuing a balanced budget. By 1999, I argued that the surplus largely reflected the work, investment, job creation, thrift, and risk-taking of Americans themselves. (finance.senate.gov) From our perspective, prosperity strengthened the case for allowing citizens to retain more of the wealth they created."

But Never Assume a Boom Lasts Forever

Alan Krueger: "And this is where the economist should spoil the celebration slightly. In 2000, unemployment averaged 4.0 percent, productivity was strong, and the federal government was enjoying another surplus. It was tempting to believe America had entered a permanently different economic age. Economists should know better. Business cycles do not announce their turning points in advance. Investment can overshoot, asset prices can become disconnected from fundamentals, and technologies that genuinely transform society can still attract speculative excess. The late 1990s boom was real—but that did not mean every stock price or business plan associated with it was sound."

An Extraordinary Moment

William Roth: "Then perhaps we can agree on this much: government policy played a role, but Washington did not create the boom by itself." Alan Krueger: "Absolutely. Workers, entrepreneurs, investors, technological innovation, Federal Reserve policy, international conditions, fiscal policy, and years of accumulated investment all belonged in the explanation." By 2000, America stood near the peak of an extraordinary expansion—jobs were plentiful, unemployment was around a three-decade low, productivity was accelerating, and Washington was recording large unified surpluses. Yet beneath that prosperity, another story was developing. Investors were pouring enormous sums into Internet companies, stock valuations were soaring, and enthusiasm for the digital future was becoming something more dangerous. That story belongs to the Dot-Com Boom—and the bust that followed.