Bill Clinton, the 42nd President of the United States, spoke with TIME’s Rick Stengel about his new book, Back to Work, and how to fix the economy. Excerpts from that conversation follow.
Why did you write this book?
I thought maybe it would be helpful just to have both an explanation of what’s happened over the last 30 years and what I believe we need to do now.
How did you write it?
I just sat down and wrote it. I literally saved hundreds of newspaper articles, blog sites, you know, op-ed pieces, magazine articles, marks in books. I’ve been doing this, and I didn’t do it with any intent to write a book. I just kind of collected all this stuff because it helped me to understand what was going on.
So what has happened to the economy and the U.S. over the past 30 years?
First of all, we face more and more intense competition from around the world, and at the same time we have adopted—except in the eight years I served and the first two years President Obama was serving—this antigovernment philosophy, which has mostly, as I point out, been an antitax and an antiregulation philosophy, so that we have dramatically increased the national debt and our reliance on other countries to fund it. Now we are facing the retirement of the baby boomers and once again a dramatic increase in health care cost. So we have to figure out a way to put the country in the future business. We have to get ahold of the long-term debt problem, and we have to revitalize the private sector. And you can’t do it with an antigovernment strategy. You have to have a smart government and a strong economy. That’s basically the argument of the book.
(VIDEO: Bill Clinton’s Economic Advice)
What is it that Democrats don’t understand about how to make the economy work again, and what is it that Republicans don’t understand?
Republicans believe that if you cut taxes, especially for upper-income people, that’s always going to work: no matter what it does to the deficit, no matter what it does to our investment in the future, it’s always the answer to every economic problem. Now with the Democrats, they’re going to be reluctant to make changes in the big programs that retirees depend on—Social Security and Medicare and Medicaid. What the Democrats have to understand is, if they want to preserve a health care program for people who need it and the benefits of Medicare, we have to be willing to change the delivery system. We’re spending too much money on the way we finance health care, the overhead and the way we pay for it. The Republicans can’t be completely allergic to taxes. The Democrats can’t be completely allergic to changes in health care delivery. And both of them have got to look for specific opportunities to save money in a way that doesn’t hurt anything.
You were talking a lot about health care expenditure. What hasn’t been done?
We need a massive national focus now on improving delivery systems in a way that maintains quality and cuts costs. We know that it can be done, but we don’t have any systematic way of doing it. And to me, this is something ready-made for people to work on across party lines. But to say, “Well, if you just repeal the health care bill, everything will be hunky-dory,” that’s not true. If you repeal the health care bill, you’ll get more of what you got in 2009. Health care insurance premiums will go through the roof. Employers will have to stop offering their employees health care coverage, or they’ll keep the health care coverage and their employees won’t get a raise for five years. And meanwhile, America will become less and less and less competitive. So this is not an ideological problem. This is a management problem.
Well, the banks have about $2.2 trillion in cash uncommitted to loans. And they need to hold somewhere between $160 billion and $200 billion of that because they have their own mortgages that are still uncertain. But they could loan in theory, at conservative ratios of 10-to-1, $20 trillion. Obviously, if that happened, the recession would be over in 15 seconds. Pepperdine, a conservative university, did a study showing that 40% of the small businesses said they would expand their operations and hire more people if they could get credit, and they can’t get credit. We’ve got to clean these bank books up. Once that happens, it will dramatically boost confidence. Right now, everybody’s frozen in place. And by far the biggest thing we could do is to have a more aggressive move on the home-mortgage problem. All the various players are reluctant to do it, but we need to do it.
What will make banks start spending cash?
You’ve got a lot of cash being held overseas. The last time it was brought back, President Bush made a good-faith effort to get it reinvested in the economy in 2005, and he let corporations bring it back at a tax rate of 5.25%. So what I think we should do now is say, You bring this money back while we’re debating the corporate tax reform for free if you can prove you increase net employment. For everybody you increase net employment on, you get that much credit for free. If you want to spend it on whatever you want, pay the long-term capital gains rate, 15%.
(VIDEO: Bill Clinton Reflects on Steve Jobs)
Are corporate taxes too high?
I’d like to see the President offer the Congress an opportunity to work on a bipartisan basis on a reform of the corporate tax laws. Essentially, our tax rates are very high, but our tax take is the average or a little below the average of Europe. The rate is 35%; the take is 23%. And clearly what we need to do is to restrict a lot of the credits and deductions and lower the rate, because you got a lot of big corporations that are paying under 20%, less than the average American’s paying.
What can a President really do about the economy?
There are lots of things you can do. And in this case, the President can do quite a bit just with his regulatory authorities, as he’s been doing in the last few weeks, but he could do a lot more if the Congress would work with him to dislodge this mortgage problem and to reform the corporate tax laws. You know, what you have to do is look at the pressure points of the economy and say, What could I do here that would generate real economic activity?
It seems almost impossible to get Congress to approve anything in any kind of bipartisan way. Does that mean the President has to do as much as he can on his own?
Yes. If he can’t get Congress to act, he’s got to do everything he can by Executive Order. I understand why he’s frustrated, because a lot of these proposals that he’s made are ideas that were first proposed by Republicans, who are all of a sudden now against them and seem to be against them just because [Democrats are] for them. But he ought to keep fighting for his ideas in Congress. No one knows for sure when we’ll reach that tipping point and we’ll really be out of this thing and going again. These kinds of financial/housing crises, if you go back hundreds of years, tend to take five to 10 years to get over. And what we’re trying to do is to beat that timetable. That’s all we’re trying to do.
How can Obama get re-elected with an unemployment rate hovering around 9%?
I think the President will be able to rely on the fact that he has tried to come up with a serious and very comprehensive plan. And if people don’t feel it yet, then [they will]. The question is, Will they behave the way voters typically behave in these circumstances? Or will they understand that this was a different sort of recession and then evaluate the competing candidates, depending on whom the Republicans nominate, in terms of whether their ideas are more or less likely to get us out of the fix we’re in? You know, I think people are pretty smart once they understand the deal. And that’s one of the reasons—you’ve read the book, so you know—that I wrote this: to give people kind of a short handbook, which would at least offer some explanation about the various elements of the economic crisis and some perspective on why these things take a long time to get over and how we can speed it up.
Speaking of policies, you balanced the budget and cut the size of the government. How come you’re not a hero of the Tea Party?
I thought I should’ve been their favorite politician. I think because I didn’t do it according to the ideology. I raised taxes and cut spending. I did it with a mix of policies that also left us money to invest in our future and in our quality of life. I think that’s really important. There are some things that the government has to do because the private sector does not have the capacity to advance the public interest in that way.