This week marks the longest economic expansion in this country’s history, a cornucopia of delights for most, though hardly all, Americans. So why the anxious edge to the era of good feeling? Because it hasn’t reached the poorest of the poor–or fully rekindled the values of service. And because of the basic laws of gravity. Night follows day; down follows up. For all the talk of the “new economy” it’s hard to find anyone who honestly believes the business cycle has been repealed. It’s as if the country has not fully absorbed its good fortune. From the boardroom table to the kitchen table, the questions are the same: Can the “Goldilocks economy” (not too hot, not too cold) last? Can government help keep it going? Is this the “long boom” or merely more pride before the fall?
The president has a huge personal investment in the new economy continuing to hum along. His strategy for ensuring that it does so is rooted in shrewd, stealthy politics. Burned on his big ideas, Clinton opts for incremental changes that don’t make fat, juicy targets for his many adversaries. Increasingly, he structures his proposals not as spending programs but as targeted tax credits that cost the Treasury money but come without new bureaucracies or the stigma of big government. Some, like eliminating the tax penalty on married couples, are Republican ideas that will almost certainly pass; others, like bond issues for rebuilding schools, are a tougher sell, but will make excellent Democratic campaign issues if rejected by the GOP Congress.
For the men in both parties who want Clinton’s job, the threshold challenge is the same as the president’s. Education, health care, tax cuts and every other campaign initiative depends on protecting the economic status quo. And voters will be hard-eyed. Prosperity is their predicate. The choice may eventually come down to who is least likely to screw it up.
That would be President Alan Greenspan, of course. The Federal Reserve chairman, expected this week to raise interest rates to forestall what he sees as the threat of inflation, is widely credited with the country’s economic good health. Others argue that technological efficiencies and new global markets deserve the credit. Politicians get the blame when things go sour, so they deserve at least some of the applause when things go sweet.
How much credit should go to Clinton, how much to the GOP and how much to the new economy itself is a question that few voters consciously ponder. But it underlies the whole campaign. The major candidates agree on many economic fundamentals: free trade, low inflation and (for now) tax-free Internet commerce. Yet they have varying approaches to the surplus, taxes and debt. Those differences may sound dull next to their respective views of, say, gays in the military or abortion. But even in good times, pocketbook issues swing elections.
Ask Al Gore. His stump speech burbles with optimism about “virtuous circles” replacing “vicious cycles” and the price of information replacing the price of oil as the most important factor in the economy. But prosperity is also a weapon Gore intends to wield relentlessly. An hour before heading to Capitol Hill for the State of the Union Message last week, the vice president, dining with NEWSWEEK editors, previewed his line of attack on Republicans:
“You would think that after their policies failed so miserably, quadrupled the debt, produced the worst recession since the 1930s [in the early 1980s], after Democrats’ policies enacted without a single Republican vote have produced the longest and strongest economic expansion in the 211-year history of the American Republic–you would think they would be a little reluctant to suggest abandoning this policy and going back to their policy. But noooooo.”
Gov. George W. Bush will no doubt take exception to this historical analysis. In a recent interview with NEWSWEEK, he credits the boom not to Clinton’s tax-raising economic package of 1993, which advanced deficit reduction (and reassured the bond market), but to Ronald Reagan’s tax cuts of 10 years earlier. “The tax cuts of the ’80s are what is the basis for the venture capitalists fueling much of the ’90s,” Bush says, endorsing supply-side economics and leaving his father’s 1990 budget deal (which also raised taxes) out of his history. Bush would sustain the boom with large new tax cuts, which he views as “insurance against recession.”
Sen. John McCain’s tax cut is only about half the size of Bush’s, and less tilted toward both the rich and the poor. McCain’s basic approach to protecting prosperity is to “relieve future generations of the burden” of the national debt. McCain says voters raised the issue repeatedly at the more than 100 town meetings he held in New Hampshire. Last week he announced that any new surpluses would go toward debt reduction. The existing surpluses he devotes largely to Social Security. Bush says there’s enough money for both huge tax cuts and bolstering entitlement programs.
Bill Bradley’s approach to what he calls “stewardship” of the prosperity is to avoid big tax breaks beyond those he would offer for health-insurance premiums. His $65 billion-a-year plan for universal access to health care represents the most ambitious effort to capitalize on the good times with major social legislation. Bradley argues that Gore is just “nibbling around the edges” and that Americans should “fix the roof while the sun is shining.”
Fix the roof? When the sun is shining, most people would prefer to buy a new car. (or sit lazily in the backyard). Bradley’s problem is that the mood of the country does not seem receptive to big social crusades. Boat rockers might capsize the ship, and no one wants that. The outsiders–Bradley and McCain–can tap some chords along the way, but they may be more fundamentally out of tune. Markets change. Good times stop rolling. But for now, anyway, the status quo enjoys something it has lacked for many years–status.
A BOOM LIKE NO OTHER IN HISTORY
This week the U.S. economy enters its 107th month of expansion–the longest recession-free period in the country’s history. Despite the impressive numbers, there is growing concern that the Federal Reserve will impose a series of interest-rate increases to slow the economy. An overview of the boom:
GETTING JOBS AND GETTING RICH
With jobs abounding and rich investment returns the norm, Americans are accumulating impressive wealth.
Unemployment rate (graph, graphic omitted)
48% of U.S. households owned stock in 1999. Just four years earlier, that number was 41 percent, and 10 years earlier, 32 percent.
20 million jobs were added to employers’ payrolls between January 1993 and November 1999
S&P 500 Index (graph, graphic omitted)
BUYING MORE AND MORE THINGS
The extra money has been burning holes in Americans’ pockets. To remedy the problem, they’ve increased their spending.
Personal Consumption (graph, graphic omitted)
68% increase in personal income from the beginning to the end of the 1990s has fueled the increase in consumption
34% increase in the housing price index between 1990 and 1999 kept real estate a good investment
Housing Starts (graph, graphic omitted)
RETAIL SALES, BY STORE TYPES, 1990-1998
(graphic omitted)
GDP OVER THE CENTURY
The U.S. has not experienced a recession–at least two quarters of negative GDP growth in a row–since the early 1990s. A long view of the GDP: (graphic omitted)
Sources: OFHEO, Investment Company Institute, BEA, U.S. Census Bureau, Tradeline/IDD Info. Serv., Economagic, Bureau of Labor Statistics
A Big Surplus of Ambitious Promises
All the major campaign platforms are predicated on prosperity. How the leading candidates differ:
Investing in health: Bradley would avoid new tax cuts and use the budget surplus to establish universal health-insurance coverage–a $65 billion-a-year proposal that may be the most ambitious idea for new social legislation in the campaign.
Fiscal discipline: Gore says good times are the right time to shore up Social Security and Medicare. He also says any tax cut should be in the range of $250 billion to $300 billion and that it is crucial to “maintain fiscal discipline.”
Supply side revisited: Bush wants to cut taxes by $483 billion over five years, a return to the supply-side notions of the Reagan years. He also wants to simplify the federal tax code and lower marginal tax rates to 10, 15, 25 and 33 percent.
What surplus? Skeptical about the rosy economic forecasts, McCain wants a tax cut about half the size of Bush’s. He also says we should devote much of the current surplus to Social Security and use future surpluses to reduce the national debt.
Photo: (no caption) Bradley, Gore, Bush, McCain
WHO GETS THE CREDIT?
What’s economics without competing theories? Here are some differing views on what drove the huge expansion:
Alan Greenspan: The Fed chairman has become a celebrity, and deservedly so. He’s worked to tame inflation and calibrated interest rates to help weather storms like the Asian crisis. Take a bow, Al. Now get back to work. This economy may be overheating.
The New Economy: Corporate America is a lot more efficient, for a host of reasons. New technology, for one. The tight labor market has forced companies to be more productive, as have impatient shareholders and global competition.
The Presidents: Clinton, Reagan and Bush deserve some credit as well. They focused on deficit reduction, deregulated such industries as financial services and pushed for freer trade with foreign governments.
Photo: The Legacy; Clinton’s plan to preserve the new economy depends on stealth politics and only incremental reforms
Photo: Bradley, Gore, Bush, McCain
