Definition
Voodoo Economics is a pejorative term popularized by then-presidential candidate George H.W. Bush during the 1980 Republican primaries to criticize Ronald Reagan’s economic policy proposals, often referred to as Reaganomics. The term suggests that these economic strategies lack credibility and practical basis, likening them to magical thinking in economics.
Origin of the Term
The phrase emerged from the highly contentious political environment of the 1980s in the United States. George H.W. Bush employed “Voodoo Economics” to cast doubt on the feasibility and soundness of the economic policies proposed by Ronald Reagan, which were heavily centered around supply-side economics.
Historical Context
Reaganomics
The economic policy in question, Reaganomics, was built on four key principles:
- Reducing government spending growth on social programs.
- Tax cuts, particularly for the wealthy.
- Deregulation of the economy to foster business investment.
- Monetary policy designed to reduce inflation.
Criticisms
Critics, including Bush, argued that such policies would disproportionately benefit the wealthy, increase the federal deficit, and rely on optimistic assumptions about the responsiveness of the economy to tax cuts. They labeled these assumptions as wishful thinking or “voodoo.”
Support and Criticism Analysis
- Supporters contended that Reaganomics would spur economic growth through increased investment, job creation, and broader tax revenue.
- Opponents pointed to rising income inequality, ballooning deficits, and potential underfunding of vital public services as significant risks.
Validation and Evaluation
Empirical Evidence
Short-Term Impact
- The initial implementation saw a combination of tax cuts and increased defense spending leading to a surge in the federal deficit.
- Economic growth accelerated, and inflation rates fell, contributing to a period of substantial GDP growth.
Long-Term Impact
- Pros: Proponents have cited sustained economic performance and innovation as long-term benefits.
- Cons: Critics argue that income disparities widened, and the deficit issues planted seeds for future economic challenges.
Economic and Political Perspectives
Various economic schools have weighed in on Reaganomics:
- Supply-Side Economists: Largely supportive, emphasizing growth incentives.
- Keynesian Economists: Critical of the disregard for potential demand-side limitations and social equity issues.
Related Terms
- Trickle-Down Economics: A closely related concept often used interchangeably but technically distinct, trickle-down economics specifically refers to the hypothesis that benefits provided to the wealthy will eventually “trickle down” to the rest of the economy.
- Laffer Curve: A central idea in Voodoo Economics discussions, the Laffer Curve illustrates a theoretical relationship between tax rates and tax revenue, suggesting that lower tax rates might increase total tax revenues by boosting economic activity.
Frequently Asked Questions
Is “Voodoo Economics” an official economic term?
No, it is a colloquial and largely critical term used to describe policies perceived as unrealistic or overly optimistic.
Did Reaganomics succeed?
The debate continues. Successes cited include GDP growth and inflation control, while criticisms focus on increased deficits and income inequality.
Why was it called “voodoo”?
The term aimed to highlight the perceived mystical and unfounded nature of the economic assumptions underlying Reagan’s policies.
Summary
“Voodoo Economics” remains a powerful illustration of the strong debates surrounding economic policy and its impacts. Originating as a critique of Reagan’s policies, it encapsulates the ongoing tension between different economic philosophies and their real-world applications. Understanding this term, its historical context, empirical evaluations, and associated concepts provides a deeper insight into the complexities of economic policymaking.
References
- Bush, George H.W., Speech during the 1980 Republican Primaries.
- “Reaganomics: An Inside Look.” The Wall Street Journal. August 1981.
- “Economic Policy in the Reagan Era.” American Economic Review, Vol. 75, No. 2, 1985.
- Grunwald, Michael. “The Laffer Curve and Its Impact on Tax Policy.” Time Magazine, July 2010.
