(FORTUNE Magazine) – Americans are feeling a bit like lottery winners lately when it comes to the economy. I choose the analogy advisedly. From the perspective of, say, January 1993, the current state of the U.S. economy looks a lot like winning a bet against million-to-one odds. Consider:

--We have just broken the record for the longest expansion in recorded U.S. history--107 months. An unlikely event.

--Until November 1998, the national unemployment rate had not dipped below 4.5% since March 1970. It has now been there for 16 months in a row. If you had asked most economists in January 1993 the odds that the unemployment rate would average 4.2% in 1999 (as it did), they surely would have quoted more than 100 to one.

--Inflation was running about 3% in '93 and is about 2% now. That's not terribly remarkable, but it's better than most forecasters thought likely in 1993. If seven years ago you had asked economists the probability that inflation would decline while unemployment tracked down to 4%, most would have declared it nearly impossible.

--In fiscal year 1992, the federal budget deficit (remember that?) was a record $290 billion, and virtually every expert projected even larger deficits in the future. A bet on achieving a $124 billion budget surplus in fiscal 1999 would have been quoted at astronomical odds--if, indeed, anyone would have handicapped such an absurd event.

--In 1993 the U.S. economy was in the 20th year of a seemingly unending period during which annual productivity grew at a sluggish 1.4% on average. Over the past four years, by contrast, productivity growth has averaged 2.6%--almost double the previous rate. How likely was that?

--The Dow Jones industrial average opened 1993 at 3300. Lately it has hovered around 11,000. Few would have bet on that.

There are plenty of amazing statistics I could cite, but these make the point. What has happened since January 1993 was extremely improbable. How in the world did we do it?

That is far too deep and complex a question to answer in this space, and part of the response is that we just don't know. There can be little doubt that the key ingredients of the magic formula lie in the behavior of the private sector--which slimmed down in the late 1980s and early 1990s, and then staged a productivity renaissance in the late 1990s. But in this age of hostility toward government, it's worth calling attention to some smart policy moves that I believe played pivotal roles in producing the American economic miracle.

The first was President Clinton's deficit-reduction package of 1993 and its predecessor, which President Bush signed into law in 1990. (Full disclosure: I was on President Clinton's original Council of Economic Advisers.) Those two big steps turned around a budget ship that was steaming inexorably toward ever larger deficits, redirecting it first toward smaller deficits and then toward surpluses.

Given the cornucopia of good news that has blessed us since, it is easy to forget the pessimism that gripped the country at the end of 1992. The recovery had been so weak and "jobless" that most Americans thought we were still in a recession. Productivity and real wages were stagnant. The huge deficit not only absorbed an unseemly share of the nation's savings but stood as a taunting symbol of government ineptitude.

It is also easy to forget the remarkable drop in interest rates that the Clinton program ignited. The yield on ten-year Treasury debt fell from almost 7% shortly after the 1992 election to just under 6% after President Clinton's plan was announced in February 1993, and then to about 5.25% after the plan passed in August 1993. The passage of the package was just as extraordinary; it nearly died in Congress. It passed without a single Republican vote in either chamber, needing Vice President Al Gore's vote to break a 50-50 tie in the Senate.

Savvy monetary policy also boosted our economy. The Federal Reserve brought its real overnight lending rate--the excess of the interest rate over inflation--down to about zero in mid-1992 and, quite remarkably, held it there for more than 18 months. The Fed then withdrew the monetary stimulus in stages, raising interest rates by three percentage points over a yearlong period ending in February 1995. But importantly, it did not commit the error to which central banks so often succumb--getting carried away and tightening too much. (Another confession: I was vice chairman of the Fed for part of this period.)

Since February 1995 the Fed has not tinkered with interest rates much. It has kept its overnight rate close to 5.5% for five years running, never raising it above 6% (its current level) or lowering it below 4.75% (an emergency rate reached during the 1998 financial crisis). The Fed let the economy grow very fast when it could have stopped the party at any time--and we have all been the beneficiaries of that patience.

So the moral of this story is... what? First, that government decisions matter. Sound monetary and fiscal policies paid rich dividends in the 1990s, just as unsound ones earlier led to grave difficulties. The next Administration should not squander the fabulous fiscal legacy of the Clinton-Gore years. And the post-Greenspan Fed--assuming the estimable chairman is not really immortal--should remember the importance of growth and the virtues of patience.

Second, that government is not inherently incompetent--it can learn and improve. In this cynical age of low voter turnout and general lack of faith in government, the macroeconomic policies of the 1990s bear eloquent witness that smarter government--not bigger government--can indeed be part of the solution.

ALAN S. BLINDER is a professor of economics at Princeton, a visiting fellow at the Brookings Institution, and vice chairman of the G7 Group.