The Financial Times called it “Crude Keynesianism” in one of their editorials, and that’s about right.
The Fed almost immediately got on the case as far as the recession that Bush inherited is concerned, as has been pointed out already. See chart:
Fed Funds Rate from 1998 to Today
But a mere recession wasn’t the biggest problem Bush inherited. That would be this:
The Rapidly Deteriorating Current Account Deficit
If you look at this closely, you’ll see the real trouble began around 1998, right around the time of the Asian Crisis. Growth in Asia stalled, and the US was left as one of a very few rapidly growing economies. In that situation, we’ll have a decline in our balance of payments, because the rest of the world isn’t a very good customer for our exports, but we were still a good customer for theirs.
As can be seen, after a short time early in the Bush Administration when the deficit improved some, it began to deteriorate again. This is due to the fact that the US is once again growing quickly while Europe, for instance, is still stuck in neutral. Our competitiveness is also being deliberately undermined by management of currency levels by Japan, China, India, and others (which helps to explain the jobs situation, as this directly affects outsourcing (China and India) and the trade deficit in goods and services (China, Japan, Malaysia, and others)). The Bush Administration should be aggressively going after this latter problem, but isn’t. It should also be jawboning the hell out of the Europeans to lower their interest rates and do whatever else it takes to get out of their slump, but once again, not much is happening there either. The US does exercise considerable influence, and if the government decided to make both of the above big issues with our trade partners, something would have happened by now.
Of course, our credibility is not helped by having a fiscal deficit piled on top of this current account deficit that’s also running at half a trillion, which is where the tax cuts come in. Not good. Actually, downright stupid, since whatever savings the US generates, which would normally have gone to covering the current account deficit, are being sucked up by this gaping fiscal hole. So IMO, the tax cuts are not only not doing any good, they are actively making the situation worse.
So, not only is nothing being done to solve either deficit, both are getting worse under this Administration, and they don’t seem to be much concerned about it either.
This could end well, especially if Europe finally gets out of its own way, or it could end badly. The outcome will mostly be decided by luck, since the Administration seems to be incapacitated by its tax-cutting ideology.