Just about everyone in both parties expects Hillary Clinton to run for president. Last week she gave the rumor mill extra fodder by trotting out a campaign-quality speech on the economy. Her talk was filled with economic observations and policy suggestions. It provides an invaluable first look at the 2008 presidential election.

Resident Scholar Kevin A. Hassett

For me, the most notable thing about her speech at the Economic Club of Chicago, a members-only establishment for the city's business elite, is how centrist it was. She acknowledged that things are going well, but worried about the stress created by long-run imbalances. She fretted about the high deficit, but stopped short of calling for big tax increases. Reminiscent of the 1992 version of Bill Clinton, she avoided excessive populism, and stressed policies of relatively narrow focus.

This suggests the first big lesson of Senator Clinton's speech: She is comfortable enough that she already has the nomination in the bag that she is running toward the center ahead of the primaries.

Under the Barrage

That confidence may be well-placed. She has been caricatured as a radical lefty by her Republican opponents since she arrived in Washington, and her grace under that barrage likely earned her significant equity with the Democratic base. By running to the middle, she is daring her opponents to try to take her base away.

The second lesson of her speech is that the large deficit will make it very difficult to be a political candidate in 2008. On the one hand, deficits make Americans anxious about their future; on the other hand, Americans hate tax increases. While it might be fun for a politician to propose brilliant new government programs, it is hard to defend them without also proposing tax increases to pay for them. The optimal strategy in such a case is to push ideas that don't necessarily cost much. Her speech was full of them.

It is well known, for example, that our public infrastructure is decaying. Clinton warned that "27 percent of our bridges are obsolete right now." She argued that we need to stop building bridges to nowhere and start spending money wisely on our crucial infrastructure.

National Energy Institute

Research and development is a big part of America's economic success, and increasing it was a key theme of her address. She is concerned about our dependence on foreign oil, and wants to spend more money on government energy research, even establishing a research program administered by a new National Institute of Energy modeled after our National Institutes of Health. She also wants to encourage private research with business tax credits.

The academic evidence suggests that R&D expenditures in the U.S. generally have very high returns. While I am doubtful that government research will get very far, encouraging more as a general principle is unobjectionable.

This centrist positioning is very striking. On China, she cited Bush economist Larry Lindsey and endorsed his analysis. On the fiscal side, Clinton called for a return to "pay-as-you-go" budgeting. She is correct that those rules appear to have helped control runaway spending in the 1990s, and Republicans have been lax in failing to restore budget sanity. She recounted health modernization proposals that she has proposed with Bill Frist and Newt Gingrich that are entirely sensible.

Citing Republicans

To be sure, there was some traditional Democratic fodder--most notably, her implication that the minimum wage should be raised--but for the most part she avoided confrontational positions, and cited about as many Republicans as Democrats.

In 2004, every Democrat bashed Republicans and called for big spending and massive tax hikes. This time around, the front- runner is going a different way.

Bill Clinton always had a keen political ear. It's extremely noteworthy that his wife has trotted out a speech that cites Frist, Gingrich and Lindsey respectfully. Americans, she seems to sense, are tired of the "with us or against us" politics of the last decade, and want to pull together to solve our most pressing problems. Regardless of one's secret policy desires, playing the conciliator is shrewd politics.

It will be interesting to see how this plays out. Some candidate will probably take a page out of the Howard Dean playbook and offer Democrats a radical (and perhaps venomous) anti-Republican platform that promises to roll back everything George W. Bush enacted. If Democrats rally behind this person, Hillary will be in trouble.

Republicans probably hope that the Democratic nominee will run on a platform of big government and tax hikes, as Senator John Kerry did. Her speech suggests Hillary Clinton would be a formidable and clever opponent. That might make the game tougher for Republicans, but if this conciliatory tone on economic policy survives the primaries, then we might have something that has rarely been seen in the U.S. general elections: A constructive debate.

Kevin A. Hassett is a resident scholar and director of economic policy studies at AEI.