Voodoo Economics: Definition, History, and Validation

What Is Voodoo Economics?

Voodoo economics is a derogatory phrase first used during the 1980 presidential primaries by George H.W. Bush, then a candidate, to describe his opponent Ronald Reagan's proposals to reinvigorate the U.S. economy. Reagan won that election, and his economic policies came to be known as "Reaganomics."

Reaganomics was a policy that combined steep tax cuts, the deregulation of domestic markets, lower government spending, and a tightening of the money supply.

Key Takeaways

  • Voodoo economics is a derogatory phrase first used by George H.W. Bush to describe Ronald Reagan's economic policies.
  • It was later known to both critics and supporters as Reaganomics.
  • Reaganomics was based on the belief that tax cuts on corporations and the rich would propel economic expansion to the benefit of all.
  • The phrase voodoo economics is now often used to dismiss any ambitious economic promise made by a politician.

Understanding Voodoo Economics

Ronald Reagan, a Republican, was elected the 40th U.S. president after a prolonged period of economic stagflation that began under Republican President Gerald Ford in 1976 and continued into the term of President Jimmy Carter, a Democrat whose single term ended with his defeat by Reagan in the 1980 election. Reagan's vice president was George H. W. Bush.

President Reagan was a proponent of supply-side economics, which favors reducing income and capital gains tax rates in order to encourage economic growth. He believed that the savings generated by companies from corporate tax cuts would trickle down. That is, the savings would be invested in ways that benefited smaller businesses, spurred innovation, created new jobs, and eventually benefited the population as a whole.

He also asserted that the newly-invigorated companies would eventually pay more taxes anyway, boosting the government's coffers as a healthier economy encouraged them to increase production.

In 1980, Bush Sr. famously described these economic policies as "voodoo economics," arguing that supply-side reforms would not be enough to rejuvenate the economy and would greatly increase the national debt.

Bush Sr. changed his stance after being elected vice president, first denying that he called Reagan's policy proposal voodoo economics and then claiming that he was “kidding” when footage was dug up showing him using the phrase.

Nevertheless, the phrase caught on with Reagan's critics.

Criticism of Voodoo Economics

Bush Sr. was criticized for characterizing the policies of his then-rival as voodoo economics. His comments were viewed as a spiteful attempt to discredit Reagan while running against him in the Republican primary.

A core belief of supply-side economics is that motivating the rich invigorates spending and increases confidence and job security among the working population.

In the drooping economy of the late 1970s, it was argued that these forces would bring the economy out of the stagflation it had been mired in since 1973. Furthermore, it was believed less government spending and reduced oversight would give the financial industry, in particular, a much-needed boost.

Side Effects of Reaganomics

Those expectations did not all take shape exactly as planned. During President Reagan's two terms in office, unemployment fell considerably, disposable income rose, and inflation was brought under control.

However, the expectation that decreased taxes on the wealthy and businesses would result in increased spending on goods, services, and salaries failed to materialize. Moreover, President Reagan’s relaxed regulation contributed to the savings and loan crisis.

By the early 1990s, the U.S. economy had fallen back into recession.

President Reagan’s policies contributed to a near doubling of the national debt, in part due to his commitment to cut taxes while increasing military spending.

Voodoo economics has become a popular phrase used to dismiss any ambitious economic pledges made by a politician.

Special Considerations

After two terms as vice president, George H.W. Bush was elected president in 1989 and served for a single term.

As president, Bush prioritized broader fiscal responsibility over tax cuts. In 1990, he even agreed to a tax increase, reneging on a promise made just two years earlier. That embarrassing U-turn saw him face criticism from his own party. He went on to lose the 1992 presidential election to a Democrat, Bill Clinton.

What Is Supply-Side Economics?

Supply-side economics is a theory that maintains that increasing the supply of goods and services leads to economic growth. That is, businesses that aim to increase production need to spend money. They hire more people, expand factories, buy more raw materials, and find more outlets for their goods.

Government officials who subscribe to this theory advocate tax cuts for corporations and wealthy individuals. They argue that this is a way to put more money in the hands of producers who will increase their spending to the benefit of consumers and workers.

What Is Demand-Side Economics?

Demand-side economics could be seen as the opposite of supply-side economics.

Demand-side economics maintains that increasing the demand for goods and services is the key to economic growth.

A demand-side economic policy might call for large-scale government spending on infrastructure projects in order to increase related production, purchases, and hiring.

Demand-side economics may also be called Keynesian economics for John Maynard Keynes, who developed the theory and advocated its implementation as a way out of the Great Depression of the 1930s.

Was George H.W. Bush a Voodoo Economist?

As vice president, George H.W. Bush wisely did not make any reference to voodoo economics. He supported President Ronald Reagan's program of tax cuts on corporations and wealthy individuals.

As president, Bush might have been a more moderate proponent of voodoo economics. In 1990, he raised the maximum individual income tax rate to 31%, from 28%, two years after promising to do no such thing. That contributed to his failure to be reelected to a second term.

The Bottom Line

Voodoo economics is a derogatory term for an economic policy that favors tax cuts for business and wealthy individuals as a way to spur economic growth that benefits all. Trickle-down economics is another derogatory term for it.

Its more formal name is supply-side economics. This theory argues that increasing production of goods and services leads the way to economic growth.

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  1. WDSU News. "'A man of the highest character': Family, leaders, world reflect on former President H.W. Bush's legacy."