The day the red ink started to vanish

Bill Clinton was sitting in a rocking chair on the White House Truman balcony, looking out at the Washington Monument and having coffee with a man he believed could make or break his presidency.

It was Aug. 6, 1993. Impeachment, Kosovo, the surplus, welfare reform - all were still in the future. Mr. Clinton's controversial plan to cut the deficit was the issue of the day.

The package was Clinton's first big legislative effort, and its fate was hanging in the balance. It had barely passed the House; the Senate vote was far from certain.

As a candidate, Clinton had vowed to focus like a laser on the economy. Right now, he was beaming that bright energy on his balcony guest, Democratic Sen. Bob Kerrey of Nebraska.

The independent-minded Senator Kerrey, a Medal of Honor winner and millionaire businessman, had said over and over that the plan relied too much on tax hikes and not enough on spending cuts. He had

eye to eye: The president came to agree with Federal Reserve Chairman Alan Greenspan that cutting the deficit was key to putting the US economy on solid footing.

resisted everything from appeals to party loyalty to promises of a commission chairmanship. In a phone call that turned into a red-faced shouting match, Clinton had bellowed at Kerrey that his "no" vote would bring down the presidency.

This time, however, Clinton tried a different approach. Deference.

He shared Kerrey's concerns and dreams, Clinton said. Admittedly, the plan was not ideal, but it was much harder to get things done in Washington then he had expected.

The president got what he wanted. Kerrey switched to "yes," bringing the Senate to a 50-50 tie. Vice President Al Gore tipped the outcome in favor of the administration. Just minutes after 11 p.m., an exhausted Clinton proclaimed: "Tonight, we have laid the foundation for the renewal of America."

Whoever laid the foundation, the renewal of the American economy during the boom years of the 1990s will undoubtedly go down in history as one of the defining characteristics of Bill Clinton's time in office.

The past eight years have seen the longest US economic expansion in history. Times have been so good they almost defy attempts at description. The economy has been roaring like a locomotive, soaring like a space shuttle, pouring out wealth as fast as water flows through the spillways of the Grand Coulee Dam.

Since 1992, the US has created more than 22 million new jobs. It has experienced the lowest unemployment in 30 years, the lowest inflation since the 1960s, and the highest home-ownership rate ever.

When Clinton took office, many in Washington believed that deficits had become a permanent feature of the national budget. Now the surplus - and predictions of future surpluses - grow by the month.

How much of this, if any, was Clinton's doing? That's a question economists and historians will be arguing for years.

The 1993 economic package certainly helped. But President George Bush pushed through a deficit-reduction plan of about the same size in 1990. More broadly, the deregulation and freer trade of previous decades forced flabby American businesses to work up abs and pecs of steel. Technology created a new economy altogether - the Internet barely existed in 1992. And, of course, Federal Reserve Chairman Alan Greenspan worked the levers of the nation's monetary policy with cool precision.

Clinton's critics say that, at best, the president did no economic harm. But that is never a foregone conclusion for any administration, and in the annals of history, the words "Clinton" and "prosperity" will likely be forever linked.

"Without question, Clinton, whether justifiably or not, will certainly get credit for presiding over a period of general peace and exceptional prosperity," says presidential historian Robert Dallek.

It's easy to forget that, as a candidate, Bill Clinton did not talk like someone whose economic policies would, in the end, be so un-Democratic. On the campaign trail, he would mention balancing the budget in passing, but he emphasized economic stimulus - a tax cut for the middle class, plus a more traditional Democratic jobs package.

But at some point prior to Inauguration Day, Clinton became convinced that taming the federal deficit was a key to putting America's economy on solid footing. He came to agree with a key interest-rate argument of Mr. Greenspan, whom he'd greeted at the governor's mansion in Little Rock, Ark., soon after his election. According to the Fed chief, lower deficits meant less government borrowing, which in turn meant more available capital for private borrowers, lower interest rates, lower mortgage payments, lower credit-card bills, more jobs - pretty much better everything.

The deficit, Clinton kept repeating in his first months in the White House, is "like a bone in the throat." If you don't get rid of it first, you can't do anything later.

Deficit-cutting became Clinton's first-year priority - and he aimed to slash it by about $500 billion over five years. To get there, he dropped the promised middle-class tax cut and put off major spending, angering liberal Democrats. He alienated Republicans by increasing taxes on the wealthy.

In the end, not one Republican voted for it. Democrats provided their president with his margin of victory only after much prodding and grumbling.

Did it work? Cynthia Latta, an economist at Standard & Poor's DRI, says the plan marked the start of fiscal discipline in the Clinton White House. It sent a critical signal to Wall Street that Clinton was serious about taming the deficit beast.

The markets responded with lower long-term interest rates - the ones that affect business and consumer loans - and this helped free capital for investing in the new, high-tech economy.

Politically, the passage of the plan affected the White House in two ways - one of them unintended.

On the one hand, the package took the sting out of Republican charges that Clinton was an old-fashioned liberal, a Tip O'Neill with a Southern accent. To some extent, it moved the new chief executive's whole party to the right.

Clinton "gave the Democrats the fiscal-responsibility mantle that, frankly, they just didn't have going into this administration," says Leon Panetta, Clinton's former chief of staff.

On the other hand, the pain of tax hikes that came with cutting the deficit, coupled with the fiasco of Clinton's 1994 attempt to revamp the healthcare system, helped the GOP capture the House and Senate in the '94 midterm elections.

For Clinton, however, the GOP victory would turn out to have an economic silver lining. The balanced-budget pledge in the Republicans' "Contract with America" upped the ante on fiscal responsibility. Clinton responded with a similar pledge, which eventually led to the historic balanced-budget deal of May 1997.

To a certain extent, the balanced-budget pact was an agreement between politicians to allow the sun to rise in the east. Swelling tax receipts from a tech-driven economy brought Uncle Sam's books into balance long before the deal's 2002 target date.

But it was that first-year achievement - including that pivotal moment on the Truman balcony - that helped to pave the way for future fiscal achievement. No less an authority than the Fed's Greenspan has credited the deficit-reduction dynamic created by Clinton's policies as a key to later prosperity.

As David Gergen, former adviser to Clinton and three Republican presidents, wrote in his book on presidential leadership, congressional approval of Clinton's 1993 economic plan "was the most important legislative achievement of his presidency."

* * * The call from Beijing finally came while Clinton was taking a shower in his hotel room in Ankara, Turkey, at the beginning of a European tour.

Aides pulled the president out and handed him the phone. On the other end of the line, US Trade Representative Charlene Barshefsky and national economic adviser Gene Sperling had good news. After years of tortured negotiations - and a final few days in which it seemed everything would fall apart - a massive trade deal with China had finally come together.

The pact promised to give US firms much greater access to the Chinese market, while Beijing would gain entry into the developed world's most prestigious trading club. Clinton had turned down a similar deal months earlier, believing the domestic political situation wasn't right. But he had soon regretted it, and now, in typical Clinton-administration fashion, a roller-coaster ride of optimism and despair had come out the way he wanted in the end.

Ironically, Ms. Barshefsky and Mr. Sperling were calling from the only place they could find privacy - a restroom.

The China deal - what aides would later call "bathroom-to-bathroom diplomacy - became a hallmark of Clinton's legacy as a free trader. More-open trade and an embrace of globalization were at the core of both the economic and foreign policy of the nation's first baby-boom president.

Just as he ignored his party's traditional beliefs on deficit-cutting, Clinton had pushed past many Democrats and won passage of the North America Free Trade Agreement in his first year. The largest global trade deal in history, the World Trade Organization, followed in his second year. In his third, he skirted Congress and bailed out the plummeting Mexican peso - a move that former Congressional Budget Office Director Robert Reischauer describes as Clinton's second most important financial decision (after deficit-cutting).

From Jordan to Vietnam to Africa, the Clinton White House closed more than 300 trade deals, some of them - like the historic pact with China - with the extra aim of democratizing a nation. Clinton "understood that the US should ride the globalization wave. He seized it, and he rode it," says Patrick Cronin of the US Institute of Peace.

But if this president grasped the importance of the global economy, he didn't always focus on it with the same intensity he did domestic issues. His move to get Congress to grant him "fast-track" trade-negotiating authority, for instance, was a belated push that ultimately failed. And the global trade talks in Seattle in 1999 collapsed in part because Clinton underestimated labor and environmental forces who oppose an unbridled quest for freer trade.

Others note that Clinton's march toward international economic engagement is simply a continuation of a US approach that goes back 50 years and more, to the Marshall Plan that rebuilt war-ravaged Germany. The nation's trade deficit has exploded in the Clinton years, critics add. And in embracing trade with China, Clinton is engaging in just the sort of dealing with dictators that he criticized his predecessor for, more than eight years ago.

While most Americans have reveled in this time of largess, signs of trouble beneath the surface of prosperity raise doubts about even this Clinton legacy. Will Clinton's economic imprint wash away with the next recession, about which the incoming Bush administration is already warning?

"The economy is a shaky reed to lean on for a substantial legacy," says Mr. Dallek, the historian.

Economic cycles come and go, but the same can't be said of major legislative achievements, which have helped boost other presidents to prominence in history books.

Think of recent presidents who governed during good times, says Dallek. There was Dwight Eisenhower, in the 1950s, and Lyndon Johnson, in the 1960s. Yet Ike is remembered for a truce in Korea, the cold war, and even America's interstate highways. Johnson is remembered for civil rights and Vietnam. These issues, argues Dallek, are far more lasting than the memory of good times.

Timing may help Clinton's reputation. One reason Bush officials have begun to sound economic warnings is because they do not want the next recession, if imminent, to be seen as their fault.

If the next business downturn holds off for some time, and then takes hold at a later point during "Bush II," Clinton's economic fortunes will, at the very least, look better by comparison.

Should Clinton be sandwiched between two Bush recessions, the historian chuckles, his reputation "will shoot to the moon.