The Budget Surplus
May 11, 1998

(A slightly revised version of this article appeared as "Many seek credit for federal budget surplus," in Business Forum, Green Bay Press-Gazette, May 16, 1998.)

It would have seemed fanciful a couple of years ago - the thought that the United States would enjoy a budget surplus in the near future. Yet, pleasantly enough, that's the situation the federal government finds itself in today.

This year, the government is likely to post a budget surplus of about $50 billion. For an economy that churns out goods and services worth over $7 trillion each year, that is not a very large amount, but its very presence, in an era where we had resigned ourselves to the prospect of gargantuan budget deficits, stands out as a striking development. Indeed, some might say, as a magnificent achievement.

Ah, but who gets the credit for this denouement?

Washington being what it is, there is no dearth of takers. First, there is President Clinton who points with pride to his deficit reduction initiatives. It is, he says, the cuts in spending of the last few years that have done the trick. How about the rise in taxes? Well, yes, they contributed too, but we needn't dwell on that now, do we? Okay, so Mr. Clinton gets a pat on the back.

Whoa there, cry the Republicans, what about us? We are the ones who made deficit reduction our rallying cry. Remember the Contract With America? Well, actually, we don't, but it doesn't matter. It was, say the Republicans, our insistence on fiscal pruden ce that brought the deficit down. Okay, so the Republicans get some of the credit.

Hey, wait a cotton-pickin' minute!, comes the next battle cry. It was me, says a clearly agitated Ross Perot, who forced the country to sit up and take notice of the huge debt that we were getting into. Remember the charts on television - remember, remem ber? If it wasn't for my looking under the hood, claims Ross modestly, the country would have gone to hell in a handbasket by now. Alright, so Mr. Perot deserves our gratitude.

Have we left anyone out? Pat Buchanan? Bob Dole? Leonardo DiCaprio?

Well, actually, there's the Federal Reserve and its Chair, Mr. Alan Greenspan. The Fed has done a remarkable job in negotiating the Scylla of inflation and Charybdis of unemployment. With a steady hand on the monetary controls, Mr. Greenspan has seen to it that inflation has remained quiescent during a sustained period of low unemployment. His judicious use of interest-rate policy has contributed in large measure to the robust economic growth of the last few years that has generated large increases in tax revenues, thereby eliminating the budget deficit.

Of course, Mr. Greenspan has had some help from certain quarters. First, the price of oil has remained fairly low, and that has kept inflation down. Secondly, productivity improvements have enabled firms to increase output and raise wages without raising the prices of finished goods. The result: Fall in unemployment accompanied by falling inflation and modest gains in wages. Whether this streak will continue for long is open to question.

But for now, unemployment continues to fall - it stands at an astonishing 4.3 percent - and tax revenues continue to fill the coffers of the government. The rapid ascent of the stock market has helped too: large capital gains have resulted in higher capi tal-gains taxes.

The question facing the government now is not an entirely disagreeable one: What do we do with the growing budget surplus? Well, that's for another time.

Back to Articles