October 16, 1996: The US economy was in its sixth consecutive year of expansion. Only 5.2 percent of the labor force was unemployed, at that time nearly as low a rate as at any point since before the OPEC cartel raised oil prices in 1973. Inflation during the previous twelve months had been just 3.0 percent. Profits earned by American corporations had risen 75 percent since 1992. The Dow Jones index closed that day at 6,020; stock prices had doubled since 1992. Staring straight into the camera, with a television audience of over 100 million for his second live debate with President Clinton, Senator Bob Dole announced, “We have the worst economy in a century.”
George W. Bush is unlikely to repeat Mr. Dole’s mistake. America’s business expansion is now in its tenth year. Unemployment is 4.1 percent. Overall consumer inflation edged up to 3.5 percent during the past year, but the reason for the increase since 1996 was higher world oil prices, not domestic inflation. “Core inflation,” excluding prices of food and energy, has been just 2.4 percent. Corporate profits have risen another 33 percent since 1996. On September 15, the Dow Jones closed at 10,927. Running against prosperity is a losing strategy.
The obvious question is who gets the credit for this success. Should it be Mr. Clinton, whose 1993 budget package raised taxes despite critics’ warnings that doing so would wreck the expansion (and against the opposition of literally every Republican vote in the US Senate)? Or congressional Republicans, who fought to hold down spending on most government programs outside the Defense Department? Or Alan Greenspan, who had the insight and courage to allow the expansion to use resources to an extent that most mainstream economists had persistently warned would create new inflation?
But most elections are not about looking back. The economic issues confronting American voters this year turn on questions about how we should use this remarkable prosperity now that we have it.
The easiest way to understand the extraordinary opportunities that the combination of today’s prosperity and today’s policies presents is to take a one-question economics quiz: When the government runs a budget deficit year after year, it accumulates debt; conversely, when the government runs a budget surplus year after year, it accumulates…what?
If the answer seems hard to find, the reason is that there is no answer. The situation in which the US government now finds itself is sufficiently unusual that we do not even have a generally accepted vocabulary with which to discuss it. For the first time since 1969, the government is now taking in from taxes and other revenue sources more than it spends. But in contrast to 1969, when the surplus was tiny, today it is large. According to advance estimates from the Congressional Budget Office, the surplus for the fiscal year 2000 (which ended on September 30) was probably $232 billion, or 2.4 percent of …