Fortune issue: October 11, 1999
So Who Do We Thank for This Boom?
By N. Gregory Mankiw
Have an economist you want to embarrass? Ask him why the U.S. economy is doing so well.
There is no denying that we've been experiencing something close to economic nirvana--rapid growth, low inflation, and high employment. To get a sense of how unexpectedly wonderful things are, I looked back at the Clinton Administration's first Economic Report of the President. It contains the projections that the new President's economic team made in February 1994, a year after Clinton took office and started putting his policies into effect.
What did the team expect the economy to look like in 1999, and how does reality compare? The Clinton economists expected growth in GDP between 1993 and 1999 to average 2.7%; it's averaged about 3.4%. They expected inflation in 1999 to be 3.4%; it's now about 2%. They expected nonfarm employment to reach 122 million in 1999; it's more than 128 million. Almost every statistic has turned out better than predicted.
What's significant is not that an economic forecast turned out to be wrong (most do) but that it's hard to explain this success, even in hindsight. Economic prophets of all denominations need to question their deities. Consider:
And so the unexpectedly strong economy of the 1990s remains a mystery. What is not mysterious, however, is how it has led to high approval ratings for Clinton. Presidents get more credit than they deserve when the economy is good, and more blame when it's bad. When it comes to making economic policy, there's no substitute for being in the right place at the right time.
N. GREGORY MANKIW is a Harvard economics professor and author of Principles of Economics.