NEW YORK -- As the campaign leading to next year's elections intensifies, the Republican Party finds itself deprived of a crucial weapon -- economic policy.
This is unprecedented in recent U.S. history, as the economy has been the Republicans' strong suit, and they have usually been able to best the Democrats on the issue of fiscal management.
This situation is all the more extraordinary because conservative economists should find plenty to criticize in the Clinton economic boom.
In the early 1990s, the Demo-crats appropriated many key ideas previously advocated by conservatives: fiscal discipline, low taxes, reduced regulatory oversight, individual choice and small government.
Policies based on these ideas have helped spur remarkable economic growth in the second half of the decade. Moreover, while unemployment is at its lowest level in 30 years, inflation has not become a problem. The Consumer Price Index is showing inflation of around 2.5 percent.
The Clinton administration is hogging all the credit for the economic miracle, while the Republicans have been reduced to "me too" claims, as if they are bystanders waving in the background of TV news reports.
As a result, economic conservatives have apparently decided to push their policy prescriptions to a radical extreme.
Republicans in Congress want a massive $792 billion tax cut, using putative future budget surpluses; a leading presidential contender advocates a flat tax; and many within the party crusade for additional reductions in government programs.
In fact, conservatism is suddenly in danger of undergoing the same transformation as liberalism did a generation ago.
The old meaning of liberalism, as embodied by the Manchester school of economic thought, encompassed laissez-faire policies and government noninterference in the market. But by the time Ronald Reagan referred to it as the dirty "L word," liberalism had come to mean exactly the opposite: an activist government's interference with market competition.
In much the same way, conservatism, which originally stood for past practices and traditional values, is starting to mean radicalism, extremism and revolutionary change.
Yet today's economy is very far from being a conservative paradise. On the contrary, it is dangerously overextended and unbalanced.
Here is just a sampling of what true economic conservatives should be concerned about.
The heavy debt burden is first on the list. The fiscal position of the federal government swung from a deficit equaling 4 percent of gross domestic product in the early 1990s to a 2 percent surplus.
However, other sectors of the economy have taken on debt. Net borrowing by U.S. corporations rose to $400 billion this year, more than quadrupling from 1993. The consumer is also deeply in debt, and the savings rate has fallen into negative territory.
Standard & Poor's Corp. warned recently that the United States risks becoming over-leveraged. Total debt held by consumers, corporations and the government jumped from 95 percent of GDP in 1993 to 130 percent last year.
Falling credit quality should also be on the list of conservatives' concerns. Though the macroeconomic environment is highly favorable, defaults on corporate bonds are at record levels.
Moody's Investor Services reported that 39 companies, owing $11 billion, defaulted in the second quarter, the highest total since World War II. Moody's also expects defaults to continue to rise into 2000, while its ratings downgrades have exceeded its upgrades sevenfold this year.
No U.S. bank has the top AAA rating from all three major rating agencies. Blue-chip companies, meanwhile, routinely sacrifice conservative credit quality so as to increase return on capital.
Stock market performance should be another concern. All traditional stock market gauges are well above their historical levels. The fact that professional stock pickers keep losing the performance battle to index trackers should set alarm bells ringing: Valuation methods used by professionals, which are rooted in history, have become useless in this market.
While consumer price inflation, as measured by the price index, remains moderate, asset prices have been in an inflationary spiral.
The consumption boom is also a concern. Economists pooh-pooh a record U.S. balance-of-payments gap, seeing it as a result of slow growth abroad. Yet with the consumer sector driving economic growth, consumer imports continue to rise.
Though higher oil prices are set to push the current-account gap beyond $300 billion this year, it should be kept in mind that gasoline consumption has increased dramatically in recent years, thanks to larger cars and discretionary driving.
The trade deficit has to be subsidized by foreigners lending to the United States or buying dollar-denominated financial and real assets. As any conservative knows, sinking deeper into hock to subsidize self-indulgent lifestyles is a recipe for disaster.