WHAT SHOULD WE DO WITH THE SURPLUS?:

October budget gap shrank to $47.2B (Reuters, 11/10/05)

The October budget deficit was a smaller-than-expected $47.2 billion, down from $57.3 billion in October 2004, due to strong receipts, a Treasury Department report showed Thursday.

Analysts polled by Reuters were expecting a $55 billion budget gap.

MORE (via Robert Schwartz):
Worry While You Spend (Robert J. Samuelson, November 9, 2005, Washington Post)

I have another theory to explain what's been a persisting disconnect between our mood and our behavior: the hangover from the 1990s boom. We subconsciously compare everything now with what happened then; and the comparison favors the past and disparages the present. Almost nothing looks as good as it did then. We were marching toward a carefree future. The Internet was everything -- and American companies dominated the Internet; the business cycle was dead or dying; interest rates and inflation were low; stock prices would rise forever; budget deficits were disappearing; and unemployment was low. The powerful U.S. economy could subdue almost any threat (say, the 1997-98 Asian financial crisis).

Not coincidentally, the Michigan confidence numbers reached unprecedented levels in the late 1990s; the historic peak occurred in January 2000 at 112. It wasn't simply that the economy did well. What was distinctive is that it did so well that it suggested we could take its future for granted. We called it the New Economy, which implied that the rules of the game had changed. There were explanations for all this bliss: new technologies; adoption of just-in-time inventory practices; the revival of entrepreneurship. These arguments were satisfying; they were also superficial. Alfred E. Neuman had become our chief economic guru: What, me worry?

The central fantasy was that we could dispense with uncertainty and anxiety. Now they've reasserted themselves with a vengeance. We fret about China, a housing "bubble" (remembering the stock and tech "bubbles"), huge trade and budget deficits, oil -- as well as terrorism, Iraq and possible pandemics. The return of worry partly accounts for the weakness of consumer-sentiment polls. People are less confident about the future. But what then explains the strength of actual consumer spending? The answer is that Americans' personal spending decisions depend less on their general view of the economy and more on their personal circumstances -- and these haven't shifted so dramatically.

Although our mood went on a roller coaster, changes in our well-being (income, wealth) were less erratic. In the late 1990s, some Americans did fabulously; but most simply did well. Since 2000 many Americans have done poorly; but most (with jobs, solid incomes and refinanced homes) still did well. In many ways, the economy is stronger now than it was then. Here are two examples. First, household net worth -- what people own minus what they owe -- is about $50 trillion, up from $42 trillion in 1999; gains from homes have more than offset losses on stocks. Second, per capita incomes (after inflation) grew almost 9 percent from 1999 to 2004. Living standards haven't stagnated.

We have a real economy and a rhetorical economy: what's actually happening and what we say is happening. The first is often more stable than the second.