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.