Booming economy can't be attributed to a single source

OK, all the Republicans and Democrats may be seated. It seems during this presidential election, everyone wants credit.

Indeed, whoever grabs the trophy can certainly curry favor with voters, especially by offering a believable plan for extending the bountiful times. But those who seek the prize may find it elusive.

"If you want someone to take a bow, the American people collectively should get to take it," said David Wyss, an economist with Standard & Poor's DRI in Lexington, Mass.

In other words, there is a lot of credit to go around. The sources of the economic expansion are many, according to the experts. Business restructuring and investment, less regulation, changes in tax policy, international trade agreements and an explosion in technology-related productivity improvements are all at work. And as this year's political debate would suggest, balancing the budget may have been among the most important factors in spurring economic growth.

"The mounting national debt had become a symbol for an economy that had broken down," said Stephen Moore, president of the Club for Growth, a conservative political action committee. "Reaching this national goal of balancing the budget is a big thing. It is a symbol that we could get our finances in order."

Standing outside the political fray is the individual who may deserve more credit than any other.

"If there was one person, it would be Alan Greenspan," said Mr. Wyss, referring to the Federal Reserve chairman.

Envy of the world

We have come a long way. During the 1980s, economic experts pumped out books about the decline of industrial America. Pundits regularly suggested the United States needed to look to Japan and Germany as models for how an economy should work.

Now, the technology-driven U.S. economy is again the envy of the world. With the exception of the eight-month recession in 1990-91, the economy has been going gangbusters for nearly two decades – a period that has spanned three presidents and two political parties.

Much of the election-year debate focuses on who was most responsible for eliminating the federal deficit. That also serves as a jumping-off point for arguing about whether to plow the mounting government surplus into bolstering Social Security, paying down the national debt or cutting taxes.

Democrats claim a large share of the budget-balancing credit, noting that they approved President Clinton's 1993 deficit-reduction act without a single Republican vote. The package relied equally on spending cuts and tax increases, which made the plan unacceptable to GOP lawmakers.

Mr. Clinton's advisers paint a picture of how their plan reassured financial markets, allowing interest rates to drop. As the deficit began to fall, a virtuous cycle of lower interest rates and higher growth took over.

Wait a minute, Republicans say.

They contend Mr. Clinton's tax increases hurt the economy. Growth did not really begin to accelerate again, they say, until the GOP won a congressional majority in the 1994 elections.

Their control of Capitol Hill led to a nasty budget fight that resulted in two government shutdowns. But in the end, they note that they and Mr. Clinton agreed on a balanced-budget plan in 1997 that also included $95 billion in tax cuts.

Many players

Historians and economists will argue for decades about who is right. However that argument is resolved, many analysts agree that eliminating deficit spending did stimulate the economy in a large way. Government now is a smaller part of the economy. In 1992, government spending represented 22 percent of total output, compared with about 19 percent today.

The roots of many of these trends run deep, though. Mr. Moore, who is also an economist at the libertarian Cato Institute, noted that Mr. Clinton brought liberalized trade agreements to fruition, even though negotiations started under other presidents. The president bucked fellow Democrats to sign a welfare reform bill and cut the capital gains tax, Mr. Moore added.

Some analysts say former President George Bush helped set the balanced-budget stage by dropping his no-new-taxes pledge in 1990.

Former President Ronald Reagan pushed tax cuts that remain controversial in some quarters, but they freed enormous sums of capital to be invested, paving the way for the 1980s and '90s booms. Mr. Reagan is also credited with creating a deregulatory climate that reduced the role of government regulators – even though the first step of setting the airlines free came during Jimmy Carter's presidency in 1978.

Clearly, there were more players than one president or political party. And now, in this political season, it would seem a good time to ask: How do we keep it going?

Both presidential candidates have ideas. So does Mr. Greenspan, the man both Democrats and Republicans hold in high esteem. He is concerned that a rush to cut taxes or increase spending would threaten the economy and would like to see the surplus used to pay down the national debt.

"I'm hopeful ... we will allow most of this still-rising surplus to act in the manner which it is acting," he said last month on Capitol Hill.

Staff writer Robert Dodge reports on national economic issues from the Washington Bureau of The Dallas Morning News.