Times are good. How do we know this? Well, the official statistics – gross domestic product, employment, holiday sales – say so. They could be stronger, but they could also be a lot worse. But an even more conclusive sign of America’s economic recovery may be the renewed chatter about the “twin deficits.”

For those of you too young to remember, talk of the twin deficits was all the rage in the 1980s. Ronald Reagan’s political foes were desperately trying to find a way to portray the growing economic boom as containing the seeds of disaster. So they developed the twin deficit theory, which held that big American budget deficits were stimulating unsustainable demand, leading to big American trade deficits.

And this in turn, they claimed, would lead to a collapse of the dollar – and financial apocalypse – as foreign investors lost faith in the ability of America to manage its economy.

Sure enough, in October 1987 there was a sudden panic over the dollar, which led to a mammoth 20% decline in the stock market. This led Time magazine, the New York Times, and nearly every other liberal organ to pronounce the death of Reaganomics. But reports of apocalypse proved highly premature. By the following year the stock market had recovered, the economy was steaming forward, and the electorate, seeking a third Reagan term, had elected his vice president, George H. W. Bush, by a wide margin over Massachusetts liberal Michael Dukakis.

Now that the predicted catastrophe from the Bush tax cuts of 2001-02 has failed to materialize, the twin deficit theory is undergoing a revival. Aha, say the critics, see the decline of the dollar? That’s proof that the twin deficits are leading us over a financial cliff.

Even Fed Chairman Alan Greenspan – who was on the job at the time of the 1987 panic and ought to know better – warned the other day that the budget and trade deficits amounted to a ticking time bomb.

Well, there are doubtless some bombs out there, but mainly they are in Iraq. The longer one observes the political scene, the more likely one is to remember that where our leaders stand has a lot to do with where they sit. Mr. Greenspan sits at the head of an institution whose primary mission is to keep prices – including the price of our money – stable. Thus he has a high interest in making sure that in the event of dollar instability, somebody else takes the blame.

In fairness, Mr. Greenspan has been the object of a fair amount of scapegoating himself – including from corporate leaders in the automobile and other industries who for years blamed their woes on a too-strong dollar rather than their own unwillingness to get costs under control.

Now, it would be nice – very nice – if Washington would get the budget deficit under control by reining in spending. But what most of the critics are really after is a tax increase. Not only would this not result in a balanced budget – Congress would simply spend the extra money – but it would reduce incentives to invest in American stocks and bonds, producing the very thing the critics claim to fear above all else.

Let’s remember a few basics. The current budget deficit, while large in absolute numbers, is still smaller as a percentage of gross domestic product than the Reagan deficits. Thanks to recent economic growth, in fact, the budget deficit actually is declining. If the critics were right about the link between budget and trade deficits, the dollar should be regaining strength.

And the trade deficit is growing because America is growing faster than most of the rest of the world. We can afford to buy things, which would seem to be a positive, not a negative. In 1975, one of the few years in which America sported a significant trade surplus, the American economy was in tatters (and manufacturing jobs, then as now, were declining sharply).

There may be problems with the dollar. But this is a problem for the monetary authorities, not just at home but abroad. (Are there too many dollars floating around, for example, or too few euros?) And while there is a definite problem with the American budget, it’s mainly that spending is too high – thanks largely to all those middle-class entitlements to which the politicians can’t say no – not that taxes are too low.

Let’s hope Bush the Son doesn’t get sucked into the twin deficits hysteria as his father did. The basic Reagan strategy was to improve economic incentives with lower tax rates, re-establish a dollar that was as good as gold, and keep a lid on spending. He didn’t fully succeed. But his overall strategy reassured economic actors that ugly surprises would be kept to a minimum, setting the stage for a historic economic surge – and, however briefly, a budget surplus.

Mr. Bray is a Detroit News columnist.