Gaining Lost Ground

Measured against our own history, the American economy has put in a remarkable performance in the last six years. In comparison to the economies of our foreign competitors, the American results are nothing short of astounding.

Item. Our economy grew at a 4.7% rate in the last 90 days of 1996, roughly double the rate likely to produce inflation. Instead, inflation fell. The "GDP deflator," a much better indicator than CPI, rose at only a 1.4% annual clip.

Item. The price of gold has fallen almost 20% in the last year (from $413/oz to $341/oz); joined by big declines in wheat (from $7.50 to $4.53/bu), steers (from $75/100lb to $63/100lb), oil (from $28/bbl to $22/bbl), and the overall Commodity Research Bureau Index (from 260 to 236).

Item. The Treasury is collecting $100 billion more in annual tax revenue than anybody expected four years ago. Some of this increase can be traced to faster economic growth, but most of it is a mystery.

Item. The stock market. Sheesh.

Item. On April 18, 1995, a dollar would buy only 80 yen, the weakest dollar/yen ever. Today, the buck buys 124 yen. In dollars, the average cost of a night in a Tokyo hotel room has fallen from $215 to $112.

Item. Memo from Asian Tiger II: Korea's largest steel maker went bankrupt last week, and absent a government bailout, would have taken along Korea's largest bank. Korea's trade surplus is now a large and growing deficit.

Item. "West" German unemployment in January hit a post-war high, 12.2%, up from 10.8% in December. In the Ost: 19%. France: 12.7%. In the U.S.: 5.4%.

Item. In 1996, foreign investors bought American Treasury bills, notes, and bonds equal to 154% of new borrowing by the Treasury. The People's Republic of China bought as many Treasuries as Japan.

How did the U.S. economy get to this ascendant position? Nobody knows for sure, but a lot of people seem to like the theory that a free, open, and chaotic American economy enjoys a unique competitive position in the global economy.

It's a neat idea, but too trendy for me. In his State of the Union speech, Bill Clinton told us the main reason we re-elected him was his talent for managing globalization.

Mercy.

In a foolproof indication that globalization is overblown news, the January issues of Harper's Magazine and the Atlantic Monthly (both long-time pushers of Japan as Godzilla and the U.S. as helpless-giant-in-decline) feature cover stories on America as Dickensian bully in the globalization game.

Try a different approach. Is there any single, big change, supported by hard data, which might explain the extraordinary change in our fortunes versus our competitors? An oversimplification, of course, butÉ there is one.

Last week, Mr. Clinton sent a new budget to Congress. Every newspaper in the land printed a pie chart of revenues and spending: all headlines and eyes on entitlements, interest on the national debt, and the deficit.

If you stare at the pie long enough, another piece stands -- leaps -- out. Defense spending will be only 15% of the Federal total in 1997, down from 25% in 1989 at the end of the Cold War, just about the time this extraordinary economic interval began. In 1997 we will spend only $250 billion on defense instead of $470 billion.

While we labored under the dead weight of defending the free world, our competitors had a pretty good run. Now we are a quarter of a trillion dollars a year lighter on our feet, and making up for lost time.