What caused the recession?

Was it Bush's fault?

Published on March 24, 2004 By KarmaGirl In Politics

It seems like everyone is jumping on the bandwagon to blame bush for our economic problems. Everyone sees Clinton as the one who "balanced the budget". Unfortunately, what happens while a President is in office is usually not what he did, but what the Presidents before him did.

The decline in the economy started when Clinton was in office. A great article can be found at: http://www.house.gov/jec/press/2004/01-22-04.pdf

So, what has been getting us out of the slump? The changes in tax policies and low interest rates. People blame Bush and his tax cuts for the current state of the economy, but those tax cuts are what is pulling us out. It is also a long term plan. It will be much better in a couple years from now.

What do I think hammered the last nail into the economic coffin? Gas prices. Things didn't get too bad until gas prices raised so dramatically. The cost of everything went up because it cost more to transport it. It cost more for workers to get to work. Businesses had to pay more to ship things and pay more to buy things. People lost trucking jobs because companies had to downsize to stay competitive. Truckers and delivery people saw salary decreases. It effected us globally. If a tax break is needed- it should be applied to gas.

Comments (Page 1)

Sherye Hanson

on Mar 24, 2004

Most intelligent people are aware that the recession began the last year that Clinton was in office. It began because most of the dot.coms failed. Whose fault it was, who knows? Why were they so inflated in the beginning? As for gas prices, wouldn't a president with oil connections have something to do with the price of gasoline? When the west coast had very high electricity prices and shortages, Bush did very little to help. Hoover didn't cause the Great Depression, but he did little to help those who were affected by it. That is why he was blamed.

KarmaGirl

on Mar 24, 2004

Most intelligent people are aware that the recession began the last year that Clinton was in office.

You are wrong with that. There are a lot of intelligent people who blame Bush. They may be ignorant to what happened in the Clinton administration, but that does not mean that they are not intelligent. We obviously have a lot of dumb asses in the world if what you just said is true.

As for gas prices, wouldn't a president with oil connections have something to do with the price of gasoline?

Are you not intelligent because you don't know the answer to that? Do you know *why* gas prices are the way they are? It's because environmental lobbyist got a lot of the refineries shut down. We have too few refineries in comparison to how much fuel we use. (Those SUV's are "needed" in our lifestyle, ya' know) Since we have to rely on outsourcing refining, it costs us more money. It's not the raw fuel that costs us so much. The other bit that causes gas to be expensive is the federal and state taxes. State taxes are different per state which causes the cost of gas to be different per state. If *States* would ease up on some of their taxes (which are typically higher than the federal taxes) that would help, also, The President has no control over that aspect of it since it is determined per state. He also can't get the refineries open again because of the standards that are now in place.

Power is handled by businesses. The government can't step in every time a business has issues. It may be something that we see as necessary for life, but I really don't see how we could have expected the *federal* government to get involved.

Aaron Brandt

on Mar 24, 2004

The recession started right around the changing between Clinton and Bush....when the dot com bubble burst. I really don't think the president plays a huge role in the economy. He really only does a lot in certain situations. FDR got things done during the depression, that was needed. Otherwise there are just a few times when the president really does a lot to interfere, we get things like Bush's tax cuts. Mostly the economy goes up and down on its own. It just happened to go down quite a lot during Bush, and now its going back up. The tax cuts probably helped it to rise, but I think it probably would have gone up anyway.

Did you know that OPEC has a lot to do with the prices of our oil?

KarmaGirl

on Mar 24, 2004

OPEC does have *a lot* to do with crude oil. But, look at the oil prices themselves and compare them to the dramatic change in Fuel prices (ie: gas and diesel). Crude oil only equates to 40 -50% of the cost of fuel. The rest is refining nd taxes. The more we have to pay for refining, the more the fuel is going to cost which will raise the tax base on that fuel. Before 9/11, crude oil was around $18 a gallon and gas prices were around. Afterward, it was over double that, but gas prices did not double. Why? Because the refining still cost the same and a lot of states reduced their taxes to alleviate the additional costs. None of this has to do with *any* president. More refineries and les taxes *would* help since they do constitute 50 - 60% of the price of gas.

vincible

on Mar 25, 2004

The argument is not that tax cuts, in and of themselves, are bad for the economy. It's that tax cuts could have been structured differently to have had more of a stimulative effect. Tax cuts for the rich create less spending than tax cuts for the poor--this is simple empirical fact. If you want short-term stimulus in a recession, you don't give tax cuts to the rich who will (on average) just put it in the bank, you give them to the middle and working class who have had to cut back their consumption. Stimulating the economy by cutting taxes on the rich is the most inefficient way to stimulate the economy--that's why we have a $500 billion deficit right now. This is not to say there aren't benefits to tax cuts for the rich, but short-term economic stimulus is not one of them.

In the short term, gas prices follow world prices for crude oil. You can't blame environmentalists for peaks and valleys in gas prices over the time-scale of a year or two.

JeremyG

on Mar 25, 2004

What happened to the fuel efficiency laws?

russellmz2

on Mar 25, 2004

the recession start date is in dispute. the NBER(a non partisan organization that is usually the one that people depend on to "declare" a recession) originally said it started a short time after bush was president. bush's economic advisors claim it started before. NBER is currently reviewing the data. not sure if it has said anything new.

spinsanity.org

However, the Business Cycle Dating Committee of the National Bureau of Economic Research, a standing body of top economists recognized as the quasi-official authority on the timing of recessions, dates the beginning of the downturn to March 2001.
...
Things changed after the Commerce Department's July 2002 release of revised data showing negative growth in the first three quarters of 2001, however. Bush, Vice President Cheney, and former White House spokesman Ari Fleischer all began claiming that the economy was in recession when Bush took office. But the definition of a recession they relied on - two consecutive quarters of negative GDP growth - is a crude one not accepted by the NBER committee, which states that it "gives relatively little weight to real GDP because it is only measured quarterly and it is subject to continuing, large revisions."

Of course, the findings of the committee are not infallible; Bush and his economists are entitled to dispute them, and the NBER body may turn out to be wrong. (NBER recently reviewed the March 2001 start date, but postponed a decision on changing it until more data are available.)

article that quoted business week(which i read somewhere but can't find anymore)

(BusinessWeek’s Michael J. Mandel) Mandel wrote, it "masks an attack on one of the few remaining bastions of economic neutrality. For almost 75 years, the start and end dates of recessions have been set by the National Bureau of Economic Research (NBER), a private nonpartisan research group based in Cambridge, Mass."

KarmaGirl

on Mar 25, 2004

In the short term, gas prices follow world prices for crude oil. You can't blame environmentalists for peaks and valleys in gas prices over the time-scale of a year or two.

Really, they don't. If that were true, the UK wouldn't be paying $6.40 a gallon for gas. The UK isn't big on refining, and they get taxed more. The US is the same way. Crude oil prices in 1990 averaged $22 per barrel. What was the average gas price? $1.05 per gallon. The average price in 1999 for crude oil was $17.50 per gallon. Average gas price? $1.35. Why did that happen? In the mid to late 90's refiners were closed down.

Stimulating the economy by cutting taxes on the rich is the most inefficient way to stimulate the economy--that's why we have a $500 billion deficit right now.

The current tax cuts don't benefit the rich anymore than anyone else. And a question: which is better: 1) running a deficit or 2) having more unemployment and more people on assistance? If you note, the country is bouncing back from the recession quite well.

vincible

on Mar 25, 2004

On gas: the key point is *short term fluctuations.* There hasn't been any dramatic change in environmental policy in the past couple years--if anything there's been a drift toward subsidizing the energy industry--so you shouldn't blame enivronmentalism for the short term changes in gas prices of the past few years. Unless you're arguing that the country's refining capacity has shrunk dramatically over the last few months.

Countries which have consistenly pursued different policies over many decades, like England and the US, should obviously see different results. (Let me also note that in European countries where tax is the bulk of the gas price, the correlation between crude oil price and gas price may not hold.)

The current tax cuts don't benefit the rich anymore than anyone else

Debatable--depends on how you measure it, I suppose. But irrelevant. The argument is that letting the rich keep more money is worse from the perspective of short term stimulus than letting the poor keep more money. If 40% of the tax cuts go to the top 1% (a reasonable estimate from what I've heard), that's 40% of the tax cuts being wasted from the perspective of fiscal stimulus. There are valid arguments for the tax cuts, but this isn't one of them.

KarmaGirl

on Mar 26, 2004

My point wasn't about short term gas prices. I also don't look at short term taxes or economy. Short term thinking doesn't ever solve a long term issue. Compare gas prices today. Crude oil is at about $30 per barrel. Average gas is $1.74 (conservatively). 1990 crude oil = $22 and gas was $1.05. What changed? $8 per barrel does not equate to $.69 per gallon more. I'm more interested in finding long term solutions than short term band-aids.

vincible

on Mar 26, 2004

Okay, point by point.

You argued,

"what has been getting us out of the slump? The changes in tax policies and low interest rates. People blame Bush and his tax cuts for the current state of the economy, but those tax cuts are what is pulling us out. It is also a long term plan."

This seems to me to be a classic Keynsian argument about how to deal with short-term fluctuations in the economy—during a recession, you cut taxes, so people spend more, which means demand for products grows, which means economic growth occurs. If this is your argument, then tax cuts for the poor are more effective than tax cuts for the rich, because the rich can save more of their income than the poor. Am I misreading you? Are we maybe disagreeing on definitions for “short term” and “long term”?

What do I think hammered the last nail into the economic coffin? Gas prices. Things didn't get too bad until gas prices raised so dramatically.

You then blame the ensuing recession on environmentalists closing refineries, as opposed to, say, geopolitical uncertainty. I find this implausible. Here's why.

Let's look at gas prices in real dollars (stripping out inflation which is irrelevant):

source:
http://oregonstate.edu/Dept/pol_sci/fac/sahr/gasol.htm

First, note that gas prices were roughly constant—indeed, trending downward—throughout the Clinton presidency. Prices spiked in 2001—I assume this is what you are referring to. So we have a jump over the course of *one year*.

For your explanation of environmentalists closing refineries being the cause of price fluctuations to be plausible, you need to show that there were a large number refinery closings in 2000 and early 2001, and that this number is large *compared to* the number of closings in the years prior and since. Agreed? If so, do you have any evidence for this? I don't, and I looked, but maybe you can find something I missed.

If you think that refining capacity is the primary determinant of price, you also need to defend the fact that gas prices are lower now than they were in 1990 once you account for inflation, in spite of the fact that no refineries have been built in the US in that time.

Finally, you can take a look at the following paper on the Federal Reserve site (which I hope you will accept as a neutral source):

http://www.dallasfed.org/research/efr/2000/efr0003b.pdf

The whole paper is about correlations between crude oil prices and gas prices. Figure 1 shows a nice correlation between them. Also, the graphic on page 26 shows that we can break down the price of retail gasoline as follows:

crude oil: 44%
taxes: 27%
distribution, marketing, profits: 16%
refining costs: 13%

I don't see how you can argue that variations in that 13% for refining are driving the variations in price. You'd need it to vary from 13 to 50 percent or more (all else equal).

Crude oil is at about $30 per barrel. Average gas is $1.74 (conservatively). 1990 crude oil = $22 and gas was $1.05. What changed? $8 per barrel does not equate to $.69 per gallon more

Iraq's invasion of Kuwait made 1990 an anomalous year in a lot of ways, especially in the oil markets. If you pick another year--*any* other year--the discrepancy is less. Picking 1996 (at random),

1996: gas prices about $1.40, crude oil about $20.
Today: gas prices about $1.74, crude oil about $30.

So crude oil has gone up by 50% or 1/2. If you presume crude oil accounts for 44% of the price of gas like the Fed says, you see that gasoline prices should have increased by 44%*50% or 22%. The actual difference in gas price is 21%.

I really did pick that one at random! But anyway, looking at other years shows a good correlation between crude oil and retail gas prices, not as good as 1996, but still good. Agreement in other years isn't quite as good but it's generally pretty strong.

(crude oil prices from: http://www.rrojasdatabank.org/tab12.htm or any of a dozen other sites, gas prices from graph referenced earlier)

KarmaGirl

on Mar 29, 2004

I am saying that you need to cut taxes across the board. I think you are naive to think that the rich won't spend their tax cuts. You think that they won't buy a new boat (you know how many people it takes to build one?) or a bigger house, etc? No matter what walk of life you come from, you will still spend money. If you want more discussion about this same topic, please visit Brad Wardell's article at: http://draginol.joeuser.com/index.asp?AID=10867

You then blame the ensuing recession on environmentalists closing refineries, as opposed to, say, geopolitical uncertainty. I find this implausible.

It's still happening today. Read this article: http://www.iht.com/articles/510679.html They state: "Prices at American gasoline pumps are expected to rise to record levels this spring and summer, as the possibility of disruptions in oil supplies and stricter environmental regulations add to a steep climb already seen this year." and "Other factors are contributing to higher gasoline prices, too. The most prominent may be the need for refineries to comply with environmental regulations"

The environmental regulations are nothing new. Just as the EPA regulations get stricter every year for engines, so does it on fuel refining. Refineries have to close down if they can not comply. The fewer the refineries, the higher the cost of refining. This is also something that we need to keep in mind as it is currently an issue.

1990 was the dawn of the refinery changes. The 90's brought higher costs in Gas.

vincible

on Mar 29, 2004

think you are naive to think that the rich won't spend their tax cuts. You think that they won't buy a new boat (you know how many people it takes to build one?) or a bigger house, etc

Note that I said that the poor spend a larger *fraction* of their income than the rich, not that the rich save all their income.

Are we reading the same article??

It says "the most important factor driving the price of gasoline is the cost of crude oil." Which supports my position and disagrees with yours.
It proceeds to talk about crude oil prices and disruptions in the world market for five paragraphs, before getting to the one paragraph about "other factors" which includes environmental regulation. It's clear from the context that this is a secondary issue.
It also talks about increased demand driving price, which makes sense.
It concludes by saying that the price of gasoline has gone way down since the 1980s.

I truly don't see why you think that article supports your contention that refining costs are the primary cause of higher gas prices when it says that crude oil prices are the "most important factor" as well as (implicitly) inflation. Could you clarify your interpretation of this?

http://www.eia.doe.gov/emeu/perfpro/ref_pi/environ.pdf

Again, I'm forced to wonder if we're reading the same article, which seems to clinch things in my favor. Paragraph 3 of the introduction:

"about 5 percent of the $1.52 ($1995) per barrel decline in the majors' net cash margin from US refining and marketing operations came from increased operating costs traceable to pollution abatement. Further, or the 12 percentage point decline over the 1988 to 1995 period in the return on investment ot the majors' US refining/marketing operations, slightly over 1 percentage point can be attributed to increased capital expenditures and operating costs for polluion abatement."

So pollution abatement cost 7 cents per barrel (one barrel is 42 gallons). "Based on these results, the direct effects on operating costs of hightened environemntal standards from 1990 on appear to have had only a small role in the deterioration of cash margins in U.S. refining."

It also says "the main factor affecting margin from 1988 on has been a near continual decline in the spread between refined product prices and raw material input costs." (Title of last section.)

In short, that article seems to conclude that extra refining costs due to environmental regulation are quite small. Are you interpreting it differently? If so, could you be more specific in your interpretation? What part of the article are you thinking of?

The third link is about temporary regional price swings. Nothing it says has much bearing on overall nationwide price levels.
The fourth one says nothing at all about overall gas prices, just noting that certain small plants will close, and that volatility may occur.
The fifth one is the same as the third one, with a couple quotes added.

In short, I don't understand how any of these links support the contention that environmental regulations are the primary determinant of gas prices.

You also have not addressed any of the arguments made in my previous comment. I would appreciate it if you would do so.

KarmaGirl

on Mar 29, 2004

n short, that article seems to conclude that extra refining costs due to environmental regulation are quite small. Are you interpreting it differently? If so, could you be more specific in your interpretation? What part of the article are you thinking of?

I think you are reading that study wrong. They aren't talking about the decline in cost to the consumer, they are talking about the decline in profit that they make, which causes them to close more refineries.

Other bits in those articles:
"- California gas prices have risen 40 cents since Jan. 1 to more than $2 a gallon as refineries cut outflow to switch from winter to summer blends"

"- Gas prices shot up 50 cents a gallon in Chicago in 2000 because of refinery problems."

"But few short-term solutions are on the horizon. Most energy companies have no plans to build U.S. refineries, and Shell Oil plans to close one in Bakersfield, Calif., this summer. "

"California's tight refinery capacity and strict environmental regulations regularly make its prices among the highest in the nation."

" Drivers should brace themselves for the kind of price swings at the pump that Californians are seeing, experts say, in large part because there are fewer U.S. refineries trying to keep up with increasing demand for gasoline."

You are right- we are obviously not reading the same articles....

You also have not addressed any of the arguments made in my previous comment.

What arguments? I don't see any other valid points that you have made other than the stuff that I decided to comment on.

I would appreciate it if you would do so.

Dude, this is a blog...... I think you are taking yourself (and this discussion) a bit too seriously. Take a break or something

jeblackstar

on Mar 29, 2004

This is a blog, but it's on a site intended for serious political discussion. You've highlighted the points which support your arguement, something any good debater would do, but the thing is, vincible talks about them in context, which you do not. I've read the article, and the context supports vincible's points more than yours.

Cheers

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