Hd — Economic Myths The political strategists from the ’92 Clinton/Gore campaign really did have it right. It’s not Saddam Hussein or Monica Lewinsky or ozone scares or welfare cuts or AIDS or test scores or even violent crime that make the world go round. It’s the economy stupid or otherwise. And by the economy, we don’t refer to the annual ritual way overblown by the media of a president sending to Congress several hundred pages of budget proposals (much of which will be ruthlessly torn apart out of political, not economic, considerations). What we mean is the everyday world of commerce the world of production deadlines, competitive pressures, transportation delays and pricing considerations. When tracing the successes of the U.S. economy in the ’90s, this is the world that counts. The only thing more outrageous than President Clinton taking credit during his State of the Union address for balancing the budget was seeing the ovation he received from both sides of the aisle. Never mind that the $9.5 billion budget surplus everyone is talking about for 1999 masks huge deficits in the government’s various operating accounts. Never mind that the economic projections do not account for a likely downturn in the business cycle over the next two or three years a fall that could see those surpluses eaten up very quickly. Never mind any of that what’s really important, in Washington’s view anyway, is saying that you have balanced the federal budget well before anyone had expected you to. It’s makes for very good politics. Reality, of course, is a bit different. The dramatic drops in the budget deficit are, first and foremost, a reflection of a robust economy unimpeded by fiscal policy. Economic growth, low unemployment, and little, if any, inflation have combined to generate a $200 billion increase in personal income-tax receipts and a $150 billion increase in corporate-tax receipts. That’s above the projections back in 1993, when spending cuts and tax increases were supposed to make a dent in the then-exploding federal deficit. Another unheralded factor: significantly lower interest rates, which resulted in the feds shelling out $30 billion less in interest expenses than expected four years ago. And lower interest rates helped Washington in the private sector too, because they led to greater investment, expanded growth and consequently, higher tax receipts. And don’t forget Wall Street. Several recent studies point to the additional tax revenues resulting from the sharp run-up in stocks. Measuring a precise cause and effect can be tricky (the effect of capital gains on overall tax revenues is not all that compelling, for example), but it’s hard to imagine that federal coffers would be as full as they are today were it not for the robust stock market. To be fair, a few key Washington players steered the economic engines in the right direction. We refer to Federal Reserve Board Chairman Alan Greenspan, who has kept inflation and thus interest rates in check for most of the ’90s; and to the Republican Congressional leadership, whose insistent chants about smaller, more efficient government touched a popular chord and spurred Clinton to readjust his free-spending approach. But this was never a Washington-led recovery. It was orchestrated mostly on Main Street and, State of the Union messages notwithstanding, let us not forget it.