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The economy that could

October 08, 2006

AT LEAST IT DIDN'T TAKE A quarter-century. That's how long it took the Dow Jones industrial average to recover from the 1929 stock market crash. The Dow hit an all-time high Tuesday after a nearly seven-year swoon. The previous closing high for the Dow occurred when the nation was still partying like it was 1999 -- even though it was Jan. 14, 2000, when inflated dot-com share prices allowed a company such as AOL to buy a company such as Time-Warner.

We know: There's no reason to break out the champagne. The Dow may be the nation's most established stock index, but it tracks a mere 30 blue-chip companies -- and its recent surge owes a lot to such old-economy stalwarts as Caterpillar, Boeing and Altria (which is not a missionary group that builds schoolhouses in Africa but rather Philip Morris renamed). The more representative S&P 500 index is still about 10% off its 2000 high, and the tech-heavy Nasdaq composite is, well, you don't want to know.

Still, the Dow's milestone is worthy of celebration. The economy is strong, as President Bush gloated on Friday. Unemployment -- 4.6%, according to the Labor Department's jobs report -- and inflation are reassuringly low, growth is steady and the global economy appears to be sound. Corporations have become more efficient and profitable and their market valuations more reasonable than during the '90s bubble.

Despite concerns about a correction in housing prices, consumers remain confident. There have been legitimate concerns about households not faring as well as corporations in recent years, but even on this front, there is good news. Average hourly wages in September were up 4% from a year earlier.

It's always amusing to watch the political spinning of economic data, especially because it foolishly presupposes (on both sides of the statistical food fight) that the government is omnipotent. Democrats look shrill when they engage in mental contortions to argue that what is plainly good news is a mirage. It's equally disingenuous for the president to claim that his temporary tax cuts, which were sold to the country as a needed "stimulus" at a dire time, must be made permanent at a time of prosperity.

If Treasury Secretary Henry M. Paulson Jr. wants to avoid becoming just another in a series of Treasury secretaries who shrank in office to little more than White House cheerleaders, he is going to have to persuade the president to take advantage of this strong economy and address some of the federal government's structural long-term deficits.

In the meantime, all politics aside, the Dow's recovery is a tribute to the resilience of the U.S. economy, which has weathered the 9/11 attacks, Enron and other corporate scandals, increased global competition, rising oil and commodity prices, geopolitical risks associated with the war in Iraq and nuclear proliferation. There is a lot to keep one up at night, and nervousness about uncertainty and change helps explain why not everyone is exulting over objectively good data. What's more important, though, is that people don't panic either. With any luck, the Dow will hit 15,000 before it hits 10,000 again.

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