Former President Bill Clinton joined Inc. for an hour-long chat on entrepreneurs, the economy, and why he feels sorry for the GOP.
Someone points out Bill Clinton in the front row of the ballroom at the Hyatt Regency hotel in New Orleans, where Inc’s Growco conference is under way. I duck under the velvet rope and lean over the man’s shoulder, my arm on the back of his chair.
“Are you Bill Clinton?” He is. “I’m supposed to interview you in a couple minutes. Are you ready?”
He goes white, while the women sitting at his table laugh and urge him to get up on stage. “Go on and get up there, Bill,” one says and turning to me, adds, “You know he loves to talk.” Bill Clinton, meanwhile, looks at me as if he’d rather stand on a burning ship in the Persian Gulf than on the Inc. conference dais. “I really don’t think these people came to hear me,” he says.
What? Oh, don’t be silly. Not that Bill Clinton.
That Bill Clinton—the 42nd President of the United States—is standing behind the stage with his press guy and a couple secret service men. The one I'm talking to at the moment—Bill Clinton of Virginia, entrepreneur and U.S. Navy Chief Petty Officer—happens to be attending the conference as a member of Inc.’s military entrepreneur mentoring program.
When the former President and I come on stage a few minutes later, I introduce him to his namesake in the audience. Bill Clinton (the Presidential one) pretends to be surprised at the coincidence, then thanks CPO Clinton for his service and jokes, “Why don’t you come on up here and help answer the questions for me?” CPO Clinton declines, which is just as well. As he will prove over the next hour and a quarter, President Clinton needs no help with the questions.
In an interview that covers politics, economics, history and entrepreneurship, Clinton's grasp of the issues is encyclopedic, and unlike some Presidents of recent memory, he speaks in complete sentences and paragraphs. The only thing that surprised me, perhaps because I still think of him as the young Wonk-in-Chief of 20 years ago, is his appearance. Compared to that memory, he is gaunt—frail, even. His hand trembles slightly as he holds the mic.
But no, he needed no help at all with the questions. Here are a few.
Clinton responds by citing the now-famous research by Kenneth Rogoff and Carmen Reinhart that recessions created by financial crises take longer to recover from than ordinary recessions—five to 10 years, instead of one or two. The main reason is the overhang of debt, Clinton explains: Consumers are reluctant to spend because they have to devote so much of their cash flow to mortgages that in 25% of cases are higher than the value of their homes. Banks, in turn, are reluctant to lend, especially to small businesses, partly because they have so many dubious mortgages on their books.
To get consumers out from under burdensome mortgages and get banks lending again, Clinton said, government should work with banks to write down mortgages to the value of the house or have the term extended at a low interest rate, either of which would lower the homeowner’s monthly payment. “How much would it help your business,” he asked the audience, “if people had an extra $900 or even $300 a month to spend?”
In return for the reduction in payments, any homeowner who later sold the house for more than the value of the reduced mortgage would have to share the profit with the bank. The terms could be written so that the bank could convert some of its equity in the home to debt as good times returned.
In focusing on the housing as the key to recovery, Clinton echoes a refrain among economists including Fed Chairman Ben Bernanke and financial crisis historian Kenneth Rogoff. The later warns that convention stimulus can't work: The economy can’t truly recover without some transfer of wealth from to debtors from creditors. This can happen overtly through programs like mortgage forgiveness, or covertly, through inflation. Clinton acknowledged the political difficulties of making debt forgiveness an official policy, but concluded, “It’s going to be very hard to return to full employment unless we solve the mortgage crisis.”
Clinton noted that he actually raised the corporate tax rates when he was President, but it didn’t matter then because other countries’ tax rates were still high. Now competing nations have lowered tax rates and the U.S. needs to get back in the hunt.
The average top bracket in Europe is now 23%, compared with 35% in the U.S., and Clinton favors lowering that (as does President Obama). "I would reset the rate to the middle of the pack of our chief competitors"—say, around 25%—which would make the U.S. a competitive place to locate a global business without crippling our corporate tax revenues. If the rate were lowered but loopholes eliminated, the government would still take in the same amount of revenue. That matters at a time when the country is running trillion dollar deficits.
“Although this doesn’t matter to you so much,” he said to the audience. “Since a lot of you are taxed as Sub-Chapter S corporations, you avoid all this by being taxed at personal income tax rates.” Told you he was a wonk.
“I actually think it’s getting better,” Clinton led off. “Congress did pass the payroll tax cut with a bi-partisan vote.” And the day after the interview, the House passed the JOBS Act, designed to increase small businesses’ access to capital, by a next-to-unanimous bipartisan vote.
Clinton admitted, however, that the relations between Republicans and Democrats in Congress were the worst he’d seen since, well, since he was in office. In both 1994 and 2010, American voters brought in Republican majorities who then felt that they the political capital to pursue radically conservative agendas, only to find out they’re wrong.
“American voters like divided government,” Clinton explained. “I don’t agree, but Americans seem to feel the government works best when the White House and the Congress are run by different parties.“ But Clinton is convinced that most American voters did not intend to greenlight a radical anti-govenrment agenda and were appalled by the near default on U.S. debt and the downgrading of U.S. Treasuries.
A similar misconception happened in 1994, when Republicans assumed that Americans wanted to see their Contract With America—“I liked to call it Contract On America," Clinton joked—and were stunned by the voter outrage that occurred when they shut down the government in a budget dispute.
“I feel sorry for Republicans,” he said. “They don't know what hit them. They came into office are did just what they said they were going to do, and now their approval rating is 9%.” The outcome, he predicted, will be an Obama victory in November, a secure Democratic majority in the Senate and a narrowed GOP majority in the House.
The U.S. has a young and growing workforce, which will give the U.S. an advantage in growth potential and productivity in the decades ahead. “Our workforce is already younger than Europe’s,” he said, “and if China continues with its one-child policy, within a couple decades we’ll have a younger workforce than China.” The U.S. is also the most entrepreneurial nation on earth, which will continue to make the U.S. a launching pad for innovation.
Clinton listed a number of times that the U.S. has been prematurely written off. George Washington was derided as an incompetent “with a bad set of false teeth besides;” Lincoln was called a “baboon” by a newspaper in Illinois, his home state, as he left to go to the White House; and more recently, we were told that America would be buried by Japan’s highly productive export economy. “People have been betting against the U.S. for 200 years now,” he says, “and they’ve never been right.”
But Clinton said he is worried by the persistence of the anti-government movement, surfaced in the Contract with America of his first administration and carried on by the Tea Party today. Their policies, he believes, will delay recover and worsen the growing income and opportunity inequality in America. “No one,” he said, “can take away the future from us. But we can take it away from ourselves.”