Did George W. Bush cause this crisis?

Economist Nouriel Roubini says 5 factors helped turn the nation's economic surplus into a deficit during Bush's presidency.

By Kim Peterson Aug 15, 2011 2:32PM
One well-known economist says that former President George W. Bush is to blame for the current economic crisis.

Nouriel Roubini, a New York University professor nicknamed "Dr. Doom" for his dour views on the economy, says in this video that when President Obama came to power, he inherited a budget deficit of $1.2 trillion. When Bush came to power, the country had a surplus of $300 billion.

How did we get a $1.5 trillion change in our fiscal condition during Bush's time in office? Roubini lists five factors:

1. We cut taxes.

2. We spent $2 trillion on two unwinnable wars.

3. We doubled discretionary spending. Some conservatives originally aimed to "starve the beast" by cutting taxes in order to force future cuts in spending. But spending grew so out of control in Bush's term that no beast was starved, Roubini said. In fact, the beast was fed.

4. We added entitlement benefits like the Medicare drug benefit.

5. We entered the largest economic and financial crisis ever, which caused a huge increase in the deficit through the "recession deficit" and the cost of bailing out the banks and financial institutions.

You can hear more from Roubini in the following video, in which he talks about a high probability of recession in the next year or two.

Post continues below video:
"We destroyed our fiscal sustainability before [President Obama] came to power," Roubini said. "We had guns and butter and low taxes. It doesn't work. iI you want guns and butter, you should have high taxes during wars."

Roubini was referring to the "guns or butter" macroeconomic model, that says that a nation must choose between defense spending or civilian spending, or some combination of both.

Obama "inherited a mess," Roubini added. "We're lucky that this Great Recession is not turning into another Great Depression."

Roubini became famous after warning in 2005 that the housing bubble would cause an economic crisis. Many dismissed him at the time, but after the housing bubble collapsed he was given credit for foreseeing the problems.


VIDEO ON MSN MONEY

441Comments
Aug 15, 2011 3:15PM
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I thought Congress was responsible for the budget or lack of. I agree Obama was handed a mess.  No man in his right mind would want to step into what he did.  However, congress was certainly responsible for the housing crisis. 
Aug 15, 2011 3:50PM
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OK, Bush was one of the big players to start this mess. NOOOOO disputing that.  But remember that there were a bunch of Dem and Repub Congressmen that helped him along, as did Daddy Bush, Clinton, Reagan, Carter, Ford, Nixon, etc. The leadership - AND Congress -- over the last 40 years has been a joke! Having Obama spend more than twice of what Bush did certainly DOES NOT help! Obama's relationship to Bush and his policies is the political equivalent to throwing gas on a fire.  We've got nothing but out-of-touch idiots at the helm of this country. It just disgusts me these days. We need to fire them ALL. Angry

Aug 15, 2011 3:36PM
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Congressional  Reform

 1.  Term  Limits.

  12 years only, one of the possible options  below..

       A. Two Six-year Senate  terms

       B. Six Two-year House terms

       C. One Six-year Senate term and three Two-Year House  terms

2.   No Tenure / No  Pension.

   A  Congressman collects a salary while in office and  receives no pay when they are out of  office.  

3.   Congress (past, present & future) participates  in Social  Security.  All  funds in the Congressional retirement fund move to  the Social Security system immediately.  All  future funds flow into the Social Security system,  and Congress participates with the American  people.

 4.   Congress can purchase their own retirement plan,  just as all Americans do.

 5.   Congressional pay will rise by the  lower of CPI or  3%.

 6.  Congress loses their current health care system and participates in the same health care system as the  American  people.

 7.  Congress must equally abide by all laws they impose on the American people.

 8.  All contracts with past and present Congressmen are void effective 1/1/12.   The  American people did not make this contract with  Congressmen.  Congressmen made all these contracts for themselves.   Serving  in Congress is an honor, not a career.  The Founding Fathers envisioned citizen legislators, so  ours should serve their term(s), then go home and  back to work.

Aug 15, 2011 4:00PM
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If the American taxpayer does not work at making tangible products ie:manufcturing, this country will continue to slide.  What intellectual braintrust thought that by letting jobs go overseas we could somehow benefit.  Don't know when this happened or who started this grand "global economy" plan but they should be skinned alive and thrown on a fire ant hill.
Aug 15, 2011 3:59PM
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this is the problem with washington -more concered with how they look . fix the system---stop pointing fingers.
Aug 15, 2011 4:33PM
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How about this lets try less blaming and more fixing. Face the facts whether its dems or repubs in office, they are all feasting at the same trough.
Aug 15, 2011 5:16PM
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Look I don't care who is at fault... To me all of the politicians are to blame. So lets stop being retarded and fix it. Its really simple to fix.

 

Get out of Iraq now.

Cut taxes for companies who hire people in the US

Increase taxes on companies who ship jobs over seas

Cut pay for all of congress now

Let the tax cut for the top 2% expire

Start government jobs, Like solar farms in the southwest, Wind farms in the Mid west, Build a dam to this to ease our dependants on foreign oil. All materials for these jobs need to be manufactured in the US.

Build a fence on the borders on both borders North and South and have the materials manufactured in the US.

Close tax loop holes for corporations

Start a program for the troops in job placement in Law enforcement, Security, Immigration ... they deserve jobs also.

 

With this plan you will increase revenue, It will increase jobs and lower unemployment. It will also cut spending...

 

See its not that hard Washington....

 

Aug 15, 2011 3:44PM
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Well, pointing fingers is not a good thing.  How about Dems cut more spendings and Republicans agree to raise some taxes?  Even Buffet say so!  If both dont truely meet in the middle, we are going to have a gridlock, and a long, long one until we all collapse.
Aug 16, 2011 12:15AM
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People keep posting that it doesn't matter who's fault it is. It does matter. We need to know who wrecked the train so we don't let the same engineer or another engineer with the same training take over again.
Aug 16, 2011 3:49PM
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Why don't we stop all of the finger pointing about who is at fault for the current economic situation.  Reagan, Clinton, Bush, Obama .... who really CARES?  Let's get people in Washingon that are concerned with what is best for the country instead of all the posturing and trying to make their political party look good.  Republican, Democrat, Independent or whatever, STOP the madness and serving special interest groups and START working toward a viable solution that will improve the country's economic status and get Uncle Sam out of the pockets that can't afford it and dip into the pockets that can.  Cut the fat, stop entitlements, find viable solutions and stop passing the buck and the blame.  Washington needs an enema ....
Aug 15, 2011 4:32PM
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I thought Clinton started the housing mess when he went to congress and demanded better terms for the lower income lower credit people. It's not really any Presidents fault, only the congress as they are the only ones who approve budgets
Aug 16, 2011 1:06AM
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 Bush enacted policies, especially tax cuts for the wealthy,  that created more and more disparity of wealth. Right now the economy is so skewed that a huge amount of the money in the entire country is in the hands of a very small minority of the population. As a result the wealthy can produce all we want but the less well-off -- a huge majority of the people -- have too little to shop with so our consumer society is collapsing. We really need to change the tax formula so more citizens have a chance to participate more fully in the economy.
Through our tax structure we also need to provide opportunity for the next inventors or entrepreneurs to develop their ideas. Don't let the fat cats fool you with the argument that the rich should not be taxed more so that they can start businesses. How about letting the less well-off have money so THEY can start businesses!  Somewhere among our population are the next "garage inventors" like Bill Gates! Let's structure a successful society that can develop those talents. Right now we're wasting too many of them to poor education, lack of health care, crime, boredom and more. Let's invest in ourselves, not cater to the rich as in the Bush era.
Aug 15, 2011 3:08PM
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Has there been any president that did not contribute to the mess we're now in?  I think Clinton did the least damage in the form of war or taxes, but he pushed NAFTA through which was not his brain child but has finalized the manufacturing collapse.  Other than that, he is the least responsible.  He left office with a budget surplus, and we were not embroiled in a war.  Some of that was lucky timing as well.  I think that the events leading up to 9/11 were begun while he was in office.  No politician is without guilt.
Aug 15, 2011 5:06PM
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Simple solution - raise capital gains taxes. I pay them, don't want the raised but I agree 100% with Buffet. (Not that I am even 1% as smart as he is with this). Get the guys who take these huge bonus' from Wallstreet, the CEO's who make tons of money. It leaves the small business owner alone, they typically do not pay capital gains unless they did very well and we can get control over this thing. Then we need to talk about cutting spending.

 

Raising the Capital gains taxes will stop CEO's from taking these bonuses and won't hurt investing. All it will do is stop some of the tax loopholes and some of the wealthy (the people really making over $200,000 per year, not the business owner who's LLC makes 200,000 per year) pay their share in taxes. It was a good ride but it needs to come to an end eventually.

 

It is either that or cut spending, but good luck with that idea. You go tell little Susie she can't have her heart transplant.

Aug 16, 2011 11:59AM
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Repost:

 

Since the parties won't, I'll explain Republican and Democratic economic policies to you, and explain why we are still in recession.

 

Republicans, by and large, agree with Supply-Side economics.  In short, if business has incentive to produce more product, they will hire new employees, who will then spend money, increasing demand, enticing more production.

 

During good economic times, Supply-Side economics can work, as you have the initial demand to justify increased production of goods.  However, more often then not, Supply-Side is implemented by giving money to buiness [either in the form of loans, tax breaks, or other incentives that save money].  As a result, Supply-Side economics, as implemented by the Republican party, tends to increase the deficit due to decreased revenue.

 

The two primary problems with Supply-Side theory:

1: Business can decide to keep production flat and keep the extra profits.

2: Supply-Side fails during any period where demand decreases.

 

The first is obvious.  The second is why we are still in recession.

 

A recession is caused by a decline in consumer spending.  As a result, demand decreases.  Because of this, more goods are being produced than can be sold, leading to declining prices and an excess of goods on the market.  The obvious solution is to fire workers to reduce production, raise prices, and cut costs.

 

Now, you've now caused prices to rise, despite the fact demand has fallen, causing a farther lack of demand.  And without demand, there is no incentive to increase supply [hiring new workers].

 

You now have the US economy circa 2011.

 

When you look at Obamas economic policy, its been a sort of quasi Supply-side theory; focused on keeping business intact, but with few incentives to increase demand.

 

 

Democratic economic theory is largly based of Kenysian theory, which came mostly from lessons from the Depression.  In short, Kenysian theory believes in maximizing demand for goods, as opposed to supply.  If consumers spend money on goods, production will have to rise to match demand, leading to new job hires, and thus more demand.

 

The primary downside to Keneysian theory is you can have a super-hot economy, which grows beyond what it is capable of sustaining.  [I suspect China is one such example going forward of such a situation, bit I digress].

 

As most often implemented,a premium is spent of maximize employment, and by extension, consumer spending.  This results in government programs that offer services to select portions fo the population in order to ensure they are able to continue to spend money in the economy.  The downside, like Supply-Side, is that its expensive to implement [this time, in cost, rather then declined revenue].

 

From a Kenysians perspective, fixing a recession requires that the central governement increase spending significantly during a recession, in order to replace the demand that was lost.  While expensive, the assumption is that the economic growth that almost always follows a recession will allow for government to pay back its debts afterwards.

 

Thats one reason why Democrats want increased taxes and not just reduced services to fix the debt problem, as they believe that cutting services alone will cut into consumer deamnd, and thus cause more economic hardship [which according to the theory, will cause even more debt, making the debt negotiations moot].

 

-------------------------------------------------------------------

 

Thats economic theory in a nutshell.  And I even went out of my way to be non-partisan.  I call it the "wal-mart" debate: Do you believe Wal-Mart is good for the economy?  If yes, then you are a Supply-Side Republican.  If no, then you are a Kenysian Democrat..

Aug 15, 2011 4:51PM
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I'm no liberal by any stretch of the imagination.  The problems with our economy go all the way back to Reagan and his "trickle down" theory.  But facts are facts... conservatives decry the overspending and "big government" policies of the liberals.  The facts are that government spending and the overall size of the government grew exponentially under Bush.  While at the same time revenues plunged due to his tax cuts.  You can't have your cake and eat it to folks.  Bush definitely deserves his share of blame for this whole mess.
Aug 15, 2011 5:03PM
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Why does any idiot blame the president.  It is congress that makes/passes budgets.  Bush/Obama cannot do anything.  They can push for something, but ultimately Congress must approve the spending.  So, blame Congress.  AND, during Bush's tenure, Dems controlled both houses.  AND, for the first two years of Obama's presidency, Dems controlled both houses.  So, don't blame Obama or Bush.  It was congress's fault.  Vote out them.

 

 

Aug 15, 2011 3:22PM
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The definition of insanity is doing what you always do and expecting different results. So, even if G.W. Bush is stupid...that makes Barack Obama insane!
Aug 15, 2011 3:53PM
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Smile And so who set Bush up? I believe Billy Bob Clinton did a pretty good job. He signed the repeal of the Glass Stegal bank reforms that had served us well since the Great Depression. He ignored the terrorism threat.  Both parties are to blame for spending and cutting taxes both of which originate in the Congress of the United States. But their is a lesson to learn, don't put another politician, Perry, from Texas in the White House. They have a miserable track record. 

Aug 15, 2011 3:56PM
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jack (jacnol)

 

i agree with 100%, congress did screw up the housing mess,  the democrats owned the congress the last two years bush was in office go figure.

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