FOUR years ago, when Democratic nominee Michael Dukakis was riding high, some Democrats worried justifiably that he might win the presidency just in time for the economy to fall in on him. I recall one Dukakis adviser declaring that if a new Democratic president were blamed for economic collapse, the Democrats might never elect another president.
Well, George Bush was elected instead, and the economy has indeed fallen in on him. The opposition Democrats are getting a respectful hearing as the party more likely to repair the economic damage.
But before the Democrats become too euphoric, it is worth observing that the economy has only partly collapsed. And worse may be ahead next year.
Certainly, the economy is in enough trouble to seriously jeopardize George Bush's re-election prospects. However, it is awfully hard for an economy stimulated by more than $350 billion of deficit spending to totally collapse. And the Federal Reserve under Alan Greenspan is also striving to use cheap money to coax the economy into recovery.
But the economy is so structurally weak that a big deficit and cheap money are not enough to rekindle growth -- only enough to stave off disaster. And serious hazards remain on the near horizon.
For one thing, none of the world's other major nations has a growth program either. Japan is still coping with the effects of its real estate and stock market bust. With Japanese appetites for imports depressed, despite a relatively cheap dollar, Japan's trade surplus with the United States has bounced back almost to its peak of the mid-1980s.
The Germans, having gone deep into deficit to rebuild their Eastern region, have put interest rates up to a postwar record. So neither of the world's powerhouse economies is serving as an engine of new growth.
At home, our own economy is suffering from the effects of deflation -- an experience unfamiliar to those who did not live through the 1930s. Real estate prices have been falling for more than three years, and with them have fallen the value of bank collateral and the equity in family homes.
The one deflation that has not yet occurred is a deflation of the high-flying stock market. But the stock market is holding up only because interest rates are so low, and people who would ordinarily invest in bank certificates of deposit or bonds have shifted their money into stocks.
Let inflation or interest rates creep up, and the stock market will take a sudden nosedive as all the smart money pours out.
So far, Wall Street has been lucky. Commodity prices are weak. Labor unions are weaker. So, despite very low interest rates and the big federal deficit, there is almost no inflationary pressure. That, of course, is itself a reflection of just how feeble the recovery is.
The soft economy portends good news for the Democrats in November. But consider the following nightmare scenario for January:
Bill Clinton gets elected, just as the Federal Reserve has pushed interest rates about as low as they can go. The recovery is just strong enough to rekindle some small signs of inflation. Mr. Clinton has promised new public spending. On all three counts, the money markets start getting very nervous.
Mr. Clinton's inauguration party is spoiled by a thousand-point drop in the Dow, and the commentators conclude that Wall Street is fearful because the Democrats can't be trusted with the economy.
And there's more. Governor Clinton is on record with a very sensible program to restore the quality of the American economy over the long term. This includes a better-trained and better-educated work force, comprehensive health care reform, a restoration of public investment and a shift of military technologies into commercial ones.
But all of this will take time. And even Mr. Clinton's proposed $50 billion-a-year public investment plan is not enough of a short-term jolt to get the economy out of a deep recession.
The worst case imaginable is a Democratic administration taking office amid a Wall Street crisis of confidence widely (and unfairly) blamed on the election of a Democrat. (In fact, the crisis has been building for a decade.)
The new president would face a painful choice to proceed with an even bolder and more controversial recovery program, or to attempt to calm the money markets. Most of the Democratic money men would be counseling an orthodox program of more deflation -- budget balance, spending cuts -- choking off any prospect of robust growth, let alone any demonstration that a Democratic program could revive the economy.
In 1979 Jimmy Carter, faced with a crisis of economic confidence, took this sort of advice. He named Paul Volcker, Wall Street's choice, to head the Federal Reserve and calm markets. Mr. Volcker pushed interest rates above 20 percent -- and the Democrats have been out of the White House ever since.
There are a tiny handful of Democratic Wall Streeters, most notably Felix Rohatyn, who counsel recovery by way of massive public investment rather than via deflation. But they are the minority. Most of Mr. Clinton's own Wall Street donors are in the budget-balance-austerity camp.
If Clinton does win election in November, he could well face stormy seas in January. And he had better be very sure of which course he intends to pursue.
Robert Kuttner writes a weekly column on economic matters.