Understanding the economic boom
By W. James Antle III
Americas record-shattering prosperity recently acquired a new statistical distinction: The economy has grown for 107 months straight, the longest period of consecutive monthly expansion in our history. Nor does the economy show any signs of abating with the passing of this milestone.
Al Gore may very well win the election in November in large part because of this economy. But does he deserve the credit he so readily claims on the stump? As vice-president, Gore was a point man on economic policy and cast the tie-breaking Senate vote for Bill Clintons huge 1993 tax increase. Conventional wisdom holds that Gore was thus present at creation with respect to our current growth and remains its best-qualified steward.
Yet this notion is fanciful to say the least. The economy has been expanding continously since March 1991, before Bill Clinton even formally declared his candidacy much less began implementing his budget schemes with Gore. Secondly, as the National Bureau of Economic Research has demonstrated, the actual turnaround in our economy took place 18 years ago. Unemployment and inflation have generally trended downard and the economy has grown since then.
Consider that in 1982, the unemployment rate stood at 10.8 percent and the economy had been enduring interest rates and inflation above 10 percent as well. Real family income actually declined in the last years of the 1970s. From 1967 to 1982, inflation-adjusted GDP growth totaled just 16.2 percent and the Dow Jones Industrial average fell 70 percent annually. Every single one of those trends has since been stunningly reversed. Between 1983 and 1990, our GDP grew by the size of the entire West German economy, real per capita compensation increased 18 percent, inflation eased and interest rates fell. With the exception of a brief 1 percent contraction during the 1990-91 recession, the economy has continued on this path since then. The Dow rocketed from 800 in 1982 to 11,000 in 2000.
It was President Ronald Reagan who cut marginal income tax rates, revitalized the mililtary (thus giving us the Cold War victory that yielded the peace dividend) and deregulated the sectors of the economy driving this expansion: financial services, technology, transportation and energy. He began the trend, observed by those who have followed, of working with the Federal Reserve to restrain monetary growth and contain inflation. His successors eroded his deregulation and marginal rate cuts but did not reverse them. Dallas Federal Reserve economist Michael Cox illustrates the impact of these policies by calculating that the economy has been in recession only 6 of the past 200 months. In the past 18 years, the economy has grown 97 percent of the time in glaring contrast to the historical trend of decline one-third of the time.
It should further be noted that while the economy grew 4 percent annually from 1983 to 1989, it grew only 2.4 percent annually during Clintons first term. Growth did not exceed 4 percent annually again until after congressional Republicans balanced the budget and pushed through a capital-gains tax cut. It should suprise no one that in a 1998 survey, three times as many businessmen and financial experts credited Reagan with the expansion as Clinton.
Truthfully, the credit belongs to the American people. The cold, impersonal numbers which comprise the GDP are the product of Americans hard work, of breathtaking technological innovation, and the creative genius of countless entrepreneurs. In the words of Helen Keller, The world is moved along not by the mighty shoves of its heroes, but by the aggregate of the tiny pushes of each honest worker.
But when public policy frees these honest workers to achieve and create wealth, there is an astonishing potential for growth and higher living standards. Over the past 18 years that is exactly what we have seen, reflected in $3 trillion in added output, 41 million new jobs, 100 million Americans owning stock and $30 trillion in added net worth for US households.
As economists Lawrence Kudlow and Stephen Moore recently noted in the Washington Times, this new Investor Class turns Karl Marx on his head: The workers increasingly now do own the means of production, yet this is a direct result of free-market capitalism.
Conservatives must not allow Gore to obscure the role government restraint has played in permitting this phenomenal expansion. The tax policies he has advocated have been offset by huge international tax cuts in the form of free-trade agreements and continued disinflation. Kudlow and Moore point out that monetary restraint by the Federal Reserve has produced a sort of tax cut effect itself, as has reduced government borrowing. Yet movement back in the direction of taxing, spending, borrowing, regulating and inflating will jeapordize the economys vitality.
The moral imperative of freedom has always been clear. Conservatives must be equally clear in emphasizing the role freedom plays in improving material conditions. That way, we can insure a better standard of living for all in the 21st century.
James Antle is a former researcher for the Rhema Group, an Ohio-based political consulting firm. Comments may be e-mailed to Jimantle@aol.com
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