What is Voodoo Economics? Origins, Principles, and Effects

Voodoo economics, a phrase first introduced by George H.W. Bush during the 1980 presidential primaries, was used to critique the economic proposals of his opponent, Ronald Reagan. These policies, collectively known as Reaganomics, aimed to rejuvenate the U.S. economy through a combination of significant tax cuts, deregulation of domestic markets, reduced government spending, and a tightening of the money supply.

Ronald Reagan, the 40th U.S. president, was a proponent of supply-side economics. This economic theory emphasized the reduction of income and capital gains tax rates to stimulate economic growth. Reagan believed that by cutting corporate taxes, savings generated by businesses would trickle down, benefiting smaller businesses, fostering innovation, creating jobs, and eventually benefiting the entire population. Additionally, he argued that the revitalized companies would contribute more taxes to the government as a healthier economy encouraged increased production.

In 1980, George H.W. Bush famously labeled these economic policies as “voodoo economics,” expressing skepticism that supply-side reforms alone could rejuvenate the economy and fearing a substantial increase in the national debt.

George H.W. Bush faced criticism for characterizing his then-rival’s policies as voodoo economics. The criticism viewed his comments as a strategic attempt to discredit Reagan while running against him in the Republican primary. Supply-side economics, focusing on motivating the rich to stimulate spending and job security, faced challenges in delivering the expected economic revival.

While Reagan’s presidency saw successes such as lower unemployment and controlled inflation, the anticipated increase in spending did not materialize as planned. Additionally, the relaxation of regulations contributed to the savings and loan crisis. By the early 1990s, the U.S. economy had fallen back into recession, and Reagan’s policies contributed to a near doubling of the national debt.

Despite successes such as lower unemployment and controlled inflation, Reaganomics had unintended consequences. The expectation of increased spending following tax cuts on the wealthy did not materialize as planned. Additionally, President Reagan’s relaxed regulation contributed to the savings and loan crisis, leading to an economic downturn in the early 1990s.

After two terms as vice president, George H.W. Bush was elected president in 1989. However, he prioritized broader fiscal responsibility over tax cuts and even agreed to a tax increase in 1990. This shift led to criticism within his party, and he lost the 1992 presidential election to Democrat Bill Clinton.

Supply-side economics is a theory that advocates increasing the supply of goods and services to drive economic growth. According to this theory, businesses aiming to boost production need to spend money, hiring more people, expanding factories, purchasing more raw materials, and finding additional outlets for their goods. Government officials subscribing to this theory argue for tax cuts for corporations and wealthy individuals, asserting that this puts more money in the hands of producers, leading to increased spending that benefits consumers and workers.

Demand-side economics stands in contrast to supply-side economics. This economic approach 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 to boost related production, purchases, and hiring. This approach is also known as Keynesian economics, named after John Maynard Keynes, who developed the theory as a way out of the Great Depression in the 1930s.

As vice president, George H.W. Bush supported President Ronald Reagan’s program of tax cuts for corporations and wealthy individuals. However, as president in 1990, he raised the maximum individual income tax rate from 28% to 31%, contrary to his earlier promise. This decision contributed to his failure to be reelected to a second term.

Voodoo economics, also known as supply-side economics, is a term used to criticize policies favoring tax cuts for businesses and the wealthy as a means to stimulate economic growth. Despite its more formal name, the theory faced criticism and challenges, with unintended consequences such as increased national debt and economic downturns.

Voodoo economics is a term coined by George H.W. Bush to criticize Ronald Reagan’s economic policies, later known as Reaganomics. It refers to an approach favoring tax cuts for businesses and the wealthy to stimulate economic growth.

While Reaganomics saw successes such as lowered unemployment and controlled inflation, it also led to unintended consequences like increased national debt and economic downturns in the early 1990s.

The side effects of Reaganomics included the anticipation of increased spending that did not materialize as planned and the relaxation of regulations contributing to the savings and loan crisis, leading to an economic downturn in the early 1990s.

As president, George H.W. Bush raised taxes in 1990, deviating from his earlier promise, to prioritize broader fiscal responsibility over tax cuts. This decision contributed to criticism within his party and his subsequent loss in the 1992 presidential election.