What Is Voodoo Economics?

What Is Voodoo Economics?

Let me tell you about voodoo economics. Back in the 1980 presidential primaries, George H.W. Bush used this term to slam Ronald Reagan's economic ideas, which we now call Reaganomics. These policies involved tax cuts, deregulation, and slashing government spending to tackle the economic woes of the era. Reagan pushed supply-side economics, claiming that perks for the rich would trickle down and boost growth for everyone.

Analyzing the Principles Behind Voodoo Economics

Ronald Reagan, a Republican, became the 40th U.S. president after beating Jimmy Carter in 1980, following years of stagflation that started under Gerald Ford in 1976. His VP was George H.W. Bush. Reagan championed supply-side economics, which means cutting income and capital gains taxes to spark growth. He figured companies saving on taxes would invest, helping smaller businesses, innovating, creating jobs, and benefiting everyone through trickle-down.

Reagan also thought these thriving companies would end up paying more taxes anyway, filling government coffers as the economy picked up. In 1980, Bush called this 'voodoo economics,' saying it wouldn't revive the economy and would just add to the debt. Once VP, Bush denied the comment and claimed it was a joke when footage surfaced. Still, the phrase stuck with Reagan's critics.

Critiques and Controversies Surrounding Voodoo Economics

Bush got heat for calling his rival's policies voodoo economics—it seemed like a bitter move in the Republican primary. Supply-side economics bets on motivating the rich to spend more, building confidence and job security for workers. In the late 1970s slump, this was supposed to end stagflation from 1973 onward. Plus, less spending and regulation would boost the financial sector.

Outcomes and Impacts of Reaganomics

Not everything panned out. Under Reagan, unemployment dropped, disposable income grew, and inflation got under control. But the expected spending surge from the wealthy and businesses didn't happen. His deregulation helped cause the savings and loan crisis. By the early 1990s, the economy recessed again. Reagan's policies almost doubled the national debt, thanks to tax cuts paired with more military spending.

Significant Considerations in Economic Policy

After eight years as VP, Bush became president in 1989 for one term. He prioritized fiscal responsibility over tax cuts. In 1990, he hiked taxes, breaking a 1988 promise, which drew party backlash and cost him the 1992 election to Bill Clinton.

What Is Supply-Side Economics?

Supply-side economics theorizes that boosting goods and services supply drives growth. Businesses ramping up production spend on hiring, factories, materials, and markets. Supporters push tax cuts for corporations and the rich, saying it puts money in producers' hands to benefit consumers and workers.

What Is Demand-Side Economics?

Demand-side economics flips that—it's about increasing demand for growth. Policies might include big government spending on infrastructure to boost production, buying, and jobs. It's also known as Keynesian economics, from John Maynard Keynes, who promoted it during the Great Depression.

Was George H.W. Bush a Voodoo Economist?

As VP, Bush avoided mentioning voodoo economics and backed Reagan's tax cuts. As president, he was more moderate—he raised the top income tax rate to 31% from 28% in 1990, despite promising not to, which helped sink his reelection.

The Final Verdict on Voodoo Economics

Voodoo economics started as a jab at Reagan's policies but now describes supply-side economics, with tax cuts for businesses and the wealthy to drive growth. Proponents swear by trickle-down, but critics point to mixed results like debt spikes and inequality. Grasping this debate helps you evaluate policies affecting your finances.