What is 'Voodoo Economics'

Voodoo economics is a slanderous phrase used by George H. W. Bush in reference to President Ronald Reagan's economic policies, which came to be known as "Reaganomics."

BREAKING DOWN 'Voodoo Economics'

Before President Bush became Reagan's vice president, he viewed his eventual running mate's economic policies less than favorably.

Reagan was a proponent of supply-side economics, favoring reduced income and capital gains tax rates.

Criticisms Raised Under the Phrase “Voodoo Economics”

When Bush characterized the policies of his then-political rival as voodoo economics, a number of concerns were pointed out that portrayed the ideas potentially misguided. Part of Reagan’s plan was to reduce tax rates on the wealthy and corporations, assuming that they would be encouraged to increase their earnings and in turn pay more in total taxes through sheer volume. Another aspect of the policies included reduced regulation of financial and other institutions.

The belief was that motivating the wealthy would invigorate spending, increase confidence among the rest of the public as their salaries potentially grew, and bring the economy out of the recession it had been experiencing. Furthermore, it was believed less government spending and reduced oversight would give the financial industry, in particular, a boost.

Those expectations did not exactly take shape as planned, though some aspects did prove fruitful. For example, though tax rates were reduced in some areas, government spending did not shrink across the board. Defense expenditures increased, for instance, which some say contributed to increasing the national debt.

Furthermore, the expectation that decreased taxes on the wealthy and businesses would result in increased spending on their part for goods, services, and payment of salaries did not precisely play out as planned.

These and other measures may have provided some short-term lifts to the economy, there were other repercussions that proved to be detrimental. Failures of financial institutions, for instance, increased under the relaxed regulatory policies and contributed to the Savings and Loan Crisis.

Though Bush later changed his stance after becoming Reagan’s running mate, his early criticisms cited some of the issues in the policies that would later take shape.

The net results of Reagan’s economic policies can be debated, such as the positive effects on unemployment rates, the stock market, and inflation. The role the policies played in the Savings and Loan Crisis cannot be overlooked. Furthermore, the expectation that the economic incentives would be enough to offset the tax rate cuts for the wealthiest did not fully come to pass. From the start of his presidency to the end of his second term, Reagan’s policies contributed to nearly doubling the national debt.

  1. Economic Recovery Tax Act Of 1981 ...

    A law signed by President Ronald Reagan for the largest tax cut ...
  2. Economic Growth Rate

    An economic growth rate is a measure of economic development, ...
  3. Stabilization Policy

    A stabilization policy is a strategy designed to keep economic ...
  4. Policy Mix

    The combination of fiscal and monetary policy a nation's policymakers ...
  5. Economics

    Economics is a branch of social science focused on the production, ...
  6. Comparative Interest Rate Method

    Comparative interest rate method is an interest-adjusted method ...
Related Articles
  1. Insights

    The Presidential Resume

    When making your way to the White House, there are some definite resume must-haves.
  2. Insights

    Retirement Money for Ex-Presidents: How Much Will Obama Get?

    Last year, the federal government spent a total of $3.25 million on the four former presidents still living.
  3. Taxes

    National Debt: Who Pays?

    There's a huge national debt being left behind for future generations, but what have past administrations done to lessen the blow?
  4. Insights

    A Concise History Of Changes In U.S. Tax Law

    We look at how U.S. taxes have changed since their inception.
  5. Insights

    What is Fiscal Policy?

    Fiscal Policy how governments adjust taxes and spending to moderate the economy. Fiscal Policy is the sister strategy to monetary policy, through which a central bank influences a nation's money ...
  6. Insights

    The National Debt Explained

    We know it's growing, but we don't know exactly how. An in-depth look why the U.S. Government's debt continues to balloon and what it all means for you.
  7. Financial Advisor

    Where Does the Economy Go from Here?

    Is the economy headed in the right direction or toward doom and gloom?
  8. Investing

    Trump Market Tops Obama, Reagan in First 100 Days

    Stocks are poised to rise more than 5% in Trump's first 100 days.
  9. Insights

    How Much Does it Cost to Become President?

    A lot, and it keeps growing with each election. if you're planning to make a run for the White House, start saving your money now.
  10. Insights

    A Look at Fiscal and Monetary Policy

    Learn more about which policy is better for the economy, monetary policy or fiscal policy. Find out which side of the fence you're on.
  1. What are some of the limitations and drawbacks of economics as a field?

    Find out why the field of economics is full of controversy. Policy decisions, political campaigns and personal finances are ... Read Answer >>
  2. What are the tax implications of a life insurance policy loan?

    Taking out a loan against your life insurance policy does not count as taxable income. A taxable event occurs if your policy ... Read Answer >>
Trading Center