The U.S. economy is doing well. Unemployment is 5 percent, inflation is low, consumer confidence is at a 28-year high, and the stock market hits new records every week. Bill Clinton wants Americans to believe that this is all a result of his fiscal policy centered on the 1993 tax increase package. Reporters should be skeptical of such claims.

The one good thing that can be said about the tax increase package is that it mostly went to deficit reduction. While Clinton and the then-Democratic Congress couldn't resist boosting some domestic spending, the new taxes were largely directed towards the deficit. For this, Clinton does deserve credit.

However, that's not to say that the economy wouldn't be in even better shape if the deficit reduction had been achieved by reining in federal spending. And it is also not at all to say that federal fiscal policy is the sole determinant of economic performance it isn't. Five other variables within the control of government stand out as much of the reason for today's boom.

A rise in free trade. The policies of free trade, pursued by Republican Presidents in the 1980s and Democrat Bill Clinton in the 1990s have certainly helped the economy. Exports now constitute over 11 percent of GDP (up from eight percent less than two decades ago). Not only does free trade create new jobs and opportunities, but the jobs that are created are good ones in the U.S. today, salaries in exporting sector industries are 13 percent higher than those in manufacturing generally.

The peace dividend. The end of the Soviet empire has enabled America to dramatically cut its spending on defense. This dividend has paid off particularly handsomely for Bill Clinton. Consider that in just the four years that Bill Clinton has been President, defense spending as a share of the total economy has shrunk from 4.5 percent in 1993 to 3.4 percent in 1997 (it was 6.1 percent ten years ago). Versus one decade ago, literally hundreds of billions of dollars in resources have been freed up to go to other more productive uses in the economy.

Defeat of the Clinton health care package. If the small bit of good news of 1993 was that the Clinton tax increases mostly went to deficit reduction, the better news of 1994 was the defeat of the Clinton health care plan. By preventing the nationalization of one-seventh of the American economy, the Congress saved our health care system and prevented what surely would have been a huge drag on the economy in the form of tens of billions of dollars in higher taxes to feed hungry Washington bureaucracies.

Sound Federal Reserve policy. Firm, consistent policy from the Fed in the fight against inflation has created a sense of security both at home and abroad in the nation's financial markets. The problem with inflation is not primarily that individuals have to pay higher prices in the short term (higher wages often offset these higher prices), but rather longer-term consequences on investment.

As Herbert Stein observes, "A high rate of inflation is bound to be an uncertain rate of inflation, and the uncertainty depresses long-run investment and retards the growth of productivity. Moreover, if a high rate of inflation is tolerated it will probably escalate, but the escalation will not be allowed to go on forever, and its ending will almost certainly involve a recession with increased unemployment." Generally successful Fed policy since the early Reagan era has helped to continually build the long-term confidence of the stock and bond markets.

The prospect of a balanced budget. Wall Street investors this year have surely been buoyed not only by the prospects for a balanced budget in 2002 but also by the strong chance of some type of capital gains tax cut. And although the balanced budget package is built upon all the new taxes enacted in 1990 and 1993, at least it goes the rest of the way to balance (on paper, that is) without new taxes.

That's not to say the budget deal is all that both parties say it is. Taxes are cut only a tiny amount (a little more than one dollar per week for the average American) and much of the tax cut is designed more to win votes than to boost economic growth. Further, most of the spending cuts are delayed until the final two years of the deal, thereby casting doubt on whether we really will reach budget balance. Still, its approach is better than any other recent deficit reduction package.

Beyond these five public policy reasons, there have been important private sector developments which have helped with growth. One is increased globalization of the economy, which has benefitted both American manufacturers and consumers. Another has been the wave of downsizings in corporate America which left us with leaner and better management structures.

We're doing well now, but that doesn't mean we couldn't be doing better. And given the challenges the American economy faces in the 21st century first and foremost paying for the retirement of the baby boomers we need all the growth we can get. Journalists should keep this in mind when reporting on the economy.

John E. Berthoud is vice president of the Alexis de Tocqueville Institution in Arlington, Virginia (703) 351-4969.