Single paragraph explanation of the financial crisis by Prof Mark Blyth

[dreamnightwind]

34. Wow, had never seen that

“The Lewinsky scandal had a powerful, if usually overlooked, impact on the substance of Clinton’s last two years in office as well. When I asked the President what he might have accomplished absent the scandal, he said that he wasn’t sure. When pressed, Clinton acknowledged that he might have been able to reform the Social Security and Medicare systems if the Republicans -and the media-hadn’t been provided with an alternative form of diversion in 1998 and 1999. In fact, Clinton was poised, at the moment he delivered his “Save Social Security First” challenge in the 1998 State of the Union message, to do something few presidents ever had: to end his second term with a valedictory surge of significant accomplishments. He had tamed the Republican Congress. There were huge budget surpluses to play with. “Both parties were behind the curve on the big issues,” said Bruce Reed, Clinton’s domestic policy advisor. “We could have added a private-investment option on to Social Security benefits.”

So a CATO-affiliated Chilean reform to add a private-investment option to Social Security was all good to go, with the blessings of our Democratic president who was all set to use the new budget surplus to move to such a system.

Many of us thought at the time what a shame it was that the Lewinsky scandal derailed Clinton's agenda. Now that we see more of the details of what that agenda was, we were extremely fortunate to dodge this bullet.

It looks like the version Clinton would have give us was even worse than the Chilean model:

The transition was a complex proposal, but we were able to do it. We kept part of the payroll tax in the pay-as-you-go system in order to finance the elderly benefits. We used the budget surplus as the president is suggesting in this country. And finally, we cut all corporate welfare. We told the private companies that they do not need government money. That money should be used to finance the national retirement system.

We told the private companies that they do not need government money. That money should be used to finance the national retirement system.

So, the reform was not about savings or about macroeconomic equilibrium. It was about workers’ dignity, workers’ freedom, workers’ choice, and workers’ empowerment. I believe this can be done in America.

Anyone think the U.S. would have funded it by ending corporate welfare? Hell no, they were going to use the budget surplus and keep the corporate welfare.

The Chilean system's architect has a long lunch with Joe Klein, who is working on the "Primary Colors" Clinton campaign story and has primary presidential access, and who publishes a Newsweek story on the plan in Newsweek, getting Bill all hot and bothered to touch the third rail with his third way policy pen, private retirement accounts rather than progressive reforms such as raising or eliminating the payroll tax cap. The Chilean author had apparently been working on this with our old friend Pete Peterson.

Clinton sacrificed “an enduring legacy when he had an affair with Lewinsky, the young White House intern. Liberal Democrats were opposed to his pension changes, so to get their support to avoid impeachment, Clinton postponed the package of reforms.” (James Daw, The Toronto Star, September 22, 2002).

So the Lewinsky affair saved us from this plan, since Clinton couldn't pistol-whip his own liberal Democrats when he desperately needed their support to remain in office during the impeachment.

History takes some bizarre turns and twists. In this case, we have much to be thankful for, we were quite fortunate.

Thanks Octafish, very informative and illuminating.

This is exactly the kind of reforms the corporatists in our party have been triangulating against us to implement, and the kind of policy efforts that inform my political choices going forward. We need a highly educated and informed electorate to sniff this stuff out and its advocates before they get into office. The stench of third-way economics is all over our party's establishment.