In a couple of comments to this post, EconoSpeak reader wellbasicly at first questioned whether the 1993 return to fiscal sanity actually promoted long-term growth and then posed this question:
for instance it is incontrovertible that interest rates did not go down
Our graph shows that interest rates moved up and down during the 1992 to 2000 period but it also shows that the interest rate was 5.24% when Clinton was leaving office as compared to 6.77% when Bush41 was leaving. So to the simple question posed, the answer is yes. Now matters like cause and effect are a little more difficult.
Much of the ups and downs likely relate to Federal Reserve’s actions and their view of how the macroeconomy was stacking up with respect to full employment. For example, the FED was allowing interest rates to fall during 1992 as the economy was weak. Why the FED slammed on the monetary brakes in 1994 was beyond me because the recovery had yet to get us anywhere near full employment.
But mercifully, the FED did allow interest rates to basically fall during the next four years even as economic growth was quite strong. I suspect the return to fiscal sanity convinced the FED that we could encourage more investment demand as at least the government was trying to boost national savings for a change.
Alas, the experiment with fiscal sanity and more national savings departed the White House along with the Clinton economic team. Then again, this decade started off with an insufficiency of aggregate demand that was stubborn to reverse itself for several years.