President Lyndon Ronald Bush

President Bush has fired and replaced his Treasury Secretary and chief economic advisor. Will those changes make any difference? Economic historian Harold James sets the Bush economic strategy in its historical context and hears dangerous echoes of past American failures.

In the 1990s, the international economic and financial system was more stable than in previous decades, despite the turbulence of 1997-98. But that stability is now disappearing fast--along with the fundamental consensus on which it rested.

One of the most important elements of the 1990s consensus--exported globally as the "Washington Consensus"--was the idea of fiscal responsibility. In the US, the commitment to fiscal rectitude followed President Clinton's early realization that balanced budgets would stabilize financial markets, reduce borrowing costs, and thus generate higher growth. He carried this policy through a skeptical Congress, even at the price of abandoning many of the social welfare promises he made during his 1992 presidential campaign.

In Europe, meanwhile, the consensus was embodied in the European Union's Growth and Stability Pact and made operational in the rigid Maastricht criteria that capped government budget deficits at 3% of GDP.