How Does David Leonhardt Know That Deficit Reduction Helped Create the 90s Boom

David Leonhardt told readers today that President Clinton's deficit reduction package: "helped make possible the 1990s economic boom." The basis of this assertion is not clear.

The two main components of the boom were an uptick in productivity growth and a stock market bubble that fueled a consumption boom, which drove the economy in the late 90s. The uptick in productivity growth was the result of the effective use of information technologies. It was not associated with any extraordinary rise in investment. Investment largely followed a normal cyclical pattern in the decade. It's possible that deficit reduction helped create the psychology that drove the stock market bubble, but this would presumably not be an argument for the benefits of deficit reduction.

The piece also discusses ways to reduce Medicare costs. The most obvious way would be to allow Medicare beneficiaries to buy into the more efficient health care systems of other countries, with the beneficiary and the government splitting the savings. This is a reform that anyone who supported free trade would advocate.

--Dean Baker