The Budget Surplus: Don't Blow It

When the Federal Reserve, the Office of Management & Budget, the Congressional Budget Office, the Democrats, the Republicans and the nation's top economists all agree, it is time to declare victory for the notion of a New Economy. Whether it's the debate over interest rates or the negotiations over the budget surplus, policymakers now start their discussions with the assumption that the economy can grow significantly faster with less inflation and lower unemployment than it could for the past two decades. Corporate CEOs, investors, and anyone living in Silicon Valley, of course, have been saying this for some time, as information technology and globalization transformed their lives. Now a torrent of tax revenues from higher incomes and stock market gains is converting Washington--so much so that a certain giddiness is taking hold and a windfall mentality is in the air. Our advice is to take a moment for some sober reflection.

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