It's the New Economy, Stupid


SAN FRANCISCO–Back in the days before he became a one-man wild-animal act, James Carville said something very smart. Pinpointing the issue that would win his client, Bill Clinton, the 1992 presidential election, the campaign strategist coined the phrase, "It's the economy, stupid."

It still is—only more so.

The U.S. economy is completing its 93rd straight month of growth—the longest peacetime expansion in U.S. history. Next week, we will enter the 17th year of a boom interrupted by a mild, nine-month recession—a completely unprecedented stretch of prosperity.

Unlike periods of growth in the past, this one is benefiting nearly everyone, bestowing remarkable gifts on this nation, including a budget balanced by a tidal wave of tax revenues. It's the New Economy, stupid, and it is changing politics forever.

For one thing, it will probably keep Clinton in office, despite his perjury. It is the main reason, writes William Schneider in the National Journal, for the nearly unprecedented gains in the November elections by Democrats.

They have captured the votes of what Schneider calls "the New Rich," people—concentrated here in California, which is becoming a solidly Democratic state—who "just a few years ago, were victims of the middle-class squeeze" but who, "under President Clinton, have begun to feel secure and even prosperous."

Clinton has benefited from the "Being There" phenomenon. Because he's president, he gets the credit for the economy even though there is little that even he can claim to have done to promote the growth we have been seen since 1992.

At least he has erected no serious roadblocks—no big tax increases, new federal programs, regulatory regimes. And he has let Robert Rubin and Alan Greenspan do their work.

Today the GOP is hunkered down in pessimism, snarling at what it sees as moral decline and skeptical of the future. It's done its best to deserve the scorn of California and the rest of dynamic America.

The irony is that the groundwork for the economy we enjoy today was laid in the Reagan administration, with tax cuts, domestic spending restraint and tight monetary policies.

The rest of the work—most of it, really—came from the private sector, including the renovation of fat, corpocratic firms that were scared to death when Michael Milken (now ensconced in Santa Monica) and his cohorts figured out ways to acquire them and make them work better.

At the same time, the computer revolution budded and started to bloom with the Internet. "Despite its infancy," writes Brian Wesbury of Griffin, Kubik, Stephens & Thompson Inc., a Chicago consulting firm, "the computer is changing every industry on the face of the earth. In the only sector that statisticians can measure effectively—durable goods—the U.S. economy is already experiencing record-breaking productivity growth and falling prices."

Productivity growth—making more with the same amount of workers and capital—has been rising at an average of 6 percent annually since 1992, compared with just 3 percent during the past eight recoveries.

The experts still don't get it. Even in 1998—a year in which the world's second-largest economy, Japan's, is mired in recession, Russia has defaulted, Germany and France have double-digit unemployment, and deflationary winds are blowing through Asia—the U.S. economy has grown at a 3.5 percent rate, with unemployment at just 4.4 percent and inflation 1.5 percent.

It's getting stronger. Last week, the government announced personal income had risen 6.1 percent, and we continue to generate 2 million additional jobs a year. And these are good jobs. Says a new report from the Employment Policy Foundation, "The highest-paying third [of jobs] accounted for 60 percent of employment growth between 1993 and 1997."

Especially heartening is the breadth of this recovery. Between 1979 and 1993, the real wages of low-income workers actually fell 15 percent. But the Council of Economic Advisers reported this month that since 1996, real wages for workers in the bottom tenth of earners have risen 6 percent. "At the same time," writes the CEA, "unemployment rates among the least skilled have plummeted."

Why? The Clinton administration cites the earned income tax credit and the minimum wage increase. More likely, low earners are simply benefiting from the phenomenon that John F. Kennedy recognized: A rising tide lifts all boats.

For how long? Certainly, the business cycle hasn't been repealed. We'll have a recession one of these days. But in the long run, Americans will prosper as long as we allow our trust in what Virginia Postrel in her brilliant new book, "The Future and Its Enemies," calls dynamism—freewheeling, even playful, change—overcome our fear of the future.

In this new era, says an excellent report by the Progressive Policy Institute, a Democratic think tank, "risk, uncertainty, and constant change are the rule."

Exactly, and, in the end, this is why Bill Clinton deserves credit for the New Economy, stupid. He has not stood in the way. That's a lot to ask of any politician.