President Bill Clinton presided over one of the most robust economies in American history. And while some of his success may have been a result of timing and some luck, his leadership his ability to create a consensus, in particular surely had a role and has some people waxing nostalgic over Clintonomics. (Clinton has a new book on the economy, Back to Work, coming out Nov. 8.) Fortune managing editor Andy Serwer met to discuss current economic events with the 42nd President, who was in the midst of his annual Clinton Global Initiative extravaganza in New York City. Edited excerpts:
How to fix the economy and create jobs
First, Congress and President Obama can adopt strategies designed to unleash the massive amount of capital that is accumulated but not being invested. There's some $2.2 trillion in cash in American banks that is not committed to loans. A couple hundred billion has to be held back for bad mortgages, but there's about $2 trillion that could be used in cash reserves for up to $20 trillion in loans. So, in theory, that would take the world out of recession. And U.S. corporations have about $2 trillion more that they have decided not to invest.
The second thing is to accelerate the resolution of the home mortgage crisis, which would make businesses more eager to borrow, expand and consumers more willing to spend. These kinds of financial crises typically take about five years to get over. What we're really trying to do is beat the historical trend by getting over it more quickly. We can't do that unless we do on a larger scale what we did in the S&L crisis, which is to flush the debt quicker.
The third category includes things that will strengthen our position today and tomorrow. We need to bring back manufacturing. We need to focus on exports. We need to focus on green technologies. There are dozens of things we could do that would create jobs.
Mortgage relief
I cannot emphasize the boost I think it would give the economy if we had a system that said to people whose homes are worth less than the mortgages that you can write down your mortgages to the value of your home if you can make the payment. Or you can extend the mortgage out and lower the interest rate. I don't think we ought to keep dumping these houses on the market when it's so depressed. Can we get the votes to do it? I don't know. When the Tea Party started, they seemed to object to the bailout of the big banks, claiming they were being protected from their own mistakes. That was true, but irrelevant. If a financial collapse had happened, we would have all paid. Now a lot of people argue that you shouldn't rewrite these mortgages because people never should have taken them out in the first place. There's a big problem with that thinking. The market is so depressed that it's hurting everyone else.
Tax reform
The only fair thing to do is a version of what we did with individual tax reform back in the '80s. We need to broaden the tax base by cutting down on deductions and credits and lower rates. I think Congress will do that within a year. I would also like to see money repatriated now for free, with no taxes. We're the only rich country in the world that still imposes taxes on corporations on money they earn overseas. I think they ought to bring it back for nothing if they put people to work with it. And if they want to spend it on compensation or stock buybacks or dividends, let them pay the long-term capital gains rate.
"The Buffett Rule" (The rich pay more)
If we had to raise revenues, it's fair to ask those of us in high-income groups, who got the primary benefit of growth over the last decade. More than 40% of the income growth went to the top 1% of us. That's a stunning statistic. The lion's share of the tax cuts in the last decade, under President Bush's tax cuts, benefited us. The problem is, no matter how much tax we pay, it won't get the budget in balance. I don't mind paying more. But how much is not nearly as important as our having both an aggressive effort to restore growth today and a 10-year plan.
