The Democrats’ version of the 1990s economic boom goes something like this: under Clinton’s sound fiscal leadership, the government raised taxes on the very wealthy and reined in spending. The Treasury’s $300 billion deficit of 1992 became a surplus of nearly $200 billion by 2000. With the federal government borrowing less, the bond markets had excess cash to lend. Thus interest rates fell, and private businesses borrowed and invested more, creating new jobs and rising incomes. Is this true? Almost certainly not. First of all, it was the strong economy that plugged the government’s budget deficit, not vice versa. When, thanks to economic growth and a buoyant stock market, people earn more, they pay more in taxes, so deficits shrink. Further, if interest rates fell in the late 1990s this was not because of lower federal borrowing, but because the Federal Reserve reduced rates in the wake of the 1998 Asian currency crisis.

Democrats also like to contend that Bush’s policies—the upper-crust tax cut and return of large-scale deficits—caused the recession in 2001. But this too is unreasonable. By the middle of 2000, while Clinton was still president and the election still up for grabs, the stock market had begun to tumble and the economy was clearly sputtering. There is probably nothing Bush’s administration could have done during its first months in office to avert the downturn.

So, yes, the minimal spurts of fiscal policy by both Clinton and Bush played a trivial role in the recent history of the U.S. macro-economy. But it does not follow from this that the government is a trivial player in the economy. In fact, both the 1990s boom and recent recession—in their particulars if not in their magnitude—were in many ways brought to us by deliberate government policy. The Telecommunications Act of 1996 created the telecom boom, the telecom accounting scandals, then the telecom bust. Similar legislation, both federal and local, deregulated electric utilities, giving us Enron, Dynergy, and all the rest. Financial deregulation—culminating in the Financial Modernization Act of 1999, which permitted mergers between banks, brokerage houses, and insurance companies—helped create financial behemoths like Chase-Morgan and Citigroup, whose mind-boggling conflicts of interest made them eager accomplices in stock fraud.

Through favorable tax treatment, our elected representatives actively encouraged the expansion of 401(k) and similar retirement plans, generating huge flows of funds into the U.S. stock market. Our international policies also generated endless demand for U.S. stock and other financial assets. All this cash fed the “irrational exuberance” and “infectious greed” of the 1990s.

Nor should we accept, just because a very limited set of policy tools (taxes and deficits) is being proposed to address the recession, that there is nothing governments can or should do to address economic problems. As the economy limps along in the aftermath of the 1990s boom, nearly two million jobs (along with their health benefits) and hundreds of billions in retirement savings have disappeared. Will a little tax cut here or a bit of deficit spending there turn things around? Probably not. But these are not the only options available to Congress and the Bush administration. Our elected officials could also expand assistance to the unemployed, extend Medicare to those without private health coverage, increase Social Security benefits, or relieve retirees of the need to pay for prescription medicines. These policies would not only help the beneficiaries but, by putting a floor under consumer incomes, would tend to buoy the economy as well. If the economy still did not improve, the government could fund jobs rebuilding schools, child care centers, water, transit, recreation, and public health facilities.

Congress could undo some of the damage done by poorly conceived deregulation in the finance and utility industries and help stabilize those sectors. They could explore ways to better insure personal retirement accounts. They could direct the Fed to make low-interest loans available to community housing organizations. They could convene a real summit on economic policy to learn what families, labor and community groups want from the federal government and what governments in other countries have done to cope with economic problems. That our elected representatives do none of these things reflects the limits of U.S. politics, not of economic policy.

Ellen Frank teaches economics at Emmanuel College and is a member of the Dollars & Sense collective.

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