If the government is in surplus, it means that the government is taking in more cash than it's spending, which is the opposite of stimulus.
It's also well known that the US trade deficit exploded during the late 90s, which means that 'X-M' was also a huge drag on GDP during his years.
So the trade deficit was subtracting from GDP, and the government was sucking up more money from the private sector than it was pushing out.
There was only one "sector" of the economy left to compensate: Private consumption. And private consumption compensated for the drags from government and trade in two ways.
First, the household savings rate collapsed during the Clinton years.
And even more ominously, household debt began to surge.
"Now, you might ask, "What's the matter with a negative private sector balance?". We had that during the Clinton boom, and we had low inflation, decent growth and very low unemployment. The Goldilocks economy, as it was known. The great moderation. Again, few economists saw what was happening with any degree of clarity. My colleagues at the Levy Institute were not fooled. Wynne Godley wrote brilliant stuff during this period. While the CBO was predicting surpluses "as far as the eye can see" (15+ years in their forecasts), Wynne said it would never happen. He knew it couldn't because the government could only run surpluses for 15+ years if the domestic private sector ran deficits for 15+ years. The CBO had it all wrong, and they had it wrong because they did not understand the implications of their forecast for the rest of the economy. The private sector cannot survive in negative territory. It cannot go on, year after year, spending more than its income. It is not like the US government. It cannot support rising indebtedness in perpetuity. It is not a currency issuer. Eventually, something will give. And when it does, the private sector will retrench, the economy will contract, and the government's budget will move back into deficit."
