What Is Voodoo Economics?
Voodoo economics is a derogatory phrase used by George H. W. Bush in reference to President Ronald Reagan's economic policies, which came to be known as "Reaganomics."
- Voodoo economics is a derogatory phrase used by George H. W. Bush in reference to President Ronald Reagan's economic policies, known as "Reaganomics."
- In 1980, before being appointed as Reagan's vice president, Bush Sr. argued that the president’s supply-side reforms would not be enough to rejuvenate the economy and would greatly increase national debt.
- Bush Sr. was criticized for attacking his then-political rival, although over the years some of his earlier objections to Reaganomics have been validated.
- Voodoo economics has since become a popular, widely-used phrase to dismiss ambitious economic pledges made by politicians.
Understanding Voodoo Economics
Before George H.W. Bush, also known as Bush Sr., became Reagan's vice president, he viewed his eventual running mate's economic policies less than favorably.
Reagan, the 40th U.S. president, took power during a prolonged period of economic stagflation that began under President Gerald Ford in 1976. In response, he called for widespread tax cuts, the deregulation of domestic markets, lower government spending, and a tightening of the money supply to combat inflation.
President Reagan was a proponent of supply-side economics, favoring reduced income and capital gains tax rates. He believed that the savings generated by companies from corporate tax cuts would trickle down to the rest of the economy, spurring growth. He also assumed that companies would eventually pay more taxes anyway, boosting the government's coffers, as a healthier economy would encourage them to increase volumes.
In 1980, Bush Sr. described these economic policies as "voodoo economics", arguing that supply-side reforms would not be enough to rejuvenate the economy and would greatly increase national debt. Bush Sr. then changed his stance after being appointed vice president by Reagan, first denying that he called Reaganomics voodoo and then claiming that he was “kidding” when footage was dug up showing him use the phrase.
Criticism of Voodoo Economics
Bush Sr. was criticized for characterizing the policies of his then-political rival as voodoo economics. Among other things, his comments were viewed as a spiteful way to discredit Reagan while running against him in the Republican primary.
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 much-needed boost.
Those expectations did not exactly take shape as planned, though some aspects did prove fruitful, including the notion that deficit spending can increase economic growth. During President Reagan's two terms in office, unemployment fell considerably, disposable income rose and inflation was brought under control.
In the years that followed, some of Bush Sr.’s earlier criticisms of Reaganomics were validated. President Reagan’s policies contributed to a near doubling of national debt, in part due to his commitment to increase military spending to fight communism.
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 also failed to materialize. Moreover, President Reagan’s relaxed regulation contributed to the Savings and Loan Crisis and, by the early 1990s, the U.S. economy fell back into recession.
Voodoo economics has since become a populr, widely-used phrase to dismiss ambitious economic pledges made by politicians.
Bush Sr. prioritized broader fiscal responsibility over taxation cuts. Eventually, in 1990, when he became the 41st U.S. president, he agreed to hike taxes, reneging on a promise made just two years earlier. That embarrassing U-turn saw him face criticism from his own party. He later lost the 1992 presidential election to Bill Clinton.
Under Bush Sr.’s watch, the United States undertook its first invasion of Iraq. The mission was a resounding success but was overshadowed by a struggling U.S. economy.