Voodoo Economics

Voodoo economics is a pejorative term used to criticize supply-side economic policies that rely on large tax cuts for corporations and wealthy individuals to stimulate broad economic growth. Coined by George H.W. Bush during the 1980 Republican primary in 1980, the phrase targeted Ronald Reagan’s signature approach—later called Reaganomics—which combined tax cuts, deregulation, and reduced government spending with the promise of “trickle-down” benefits.

Key takeaways

• The term originated in the 1980 Republican primary as a critique of Reagan’s economic program.
• Supply-side policies aim to boost production by lowering taxes on businesses and high earners, expecting investment and job creation to follow.
• Supporters argue tax cuts spark growth and can ultimately raise government revenues; critics say the benefits concentrate at the top and the policies can increase deficits.
• Reagan-era results were mixed: lower inflation and unemployment, but large increases in the national debt and a role for deregulation in the savings-and-loan crisis.

Origins and political context

Faced with stagflation in the 1970s, Ronald Reagan campaigned on supply-side ideas—cutting income and capital gains taxes to spur investment, production, and employment. George H.W. Bush labeled those policies “voodoo economics,” arguing they would fail to revive the economy and would raise the national debt. The phrase stuck and became shorthand for skepticism about aggressive tax-cutting proposals.

Principles of supply-side economics

Supply-side economics rests on a few core ideas:
* Lower marginal tax rates increase incentives to work, save, invest, and start businesses.
* Reduced taxes and deregulation free up capital that firms will use to expand production, hire more workers, and raise wages.
* Economic growth from increased production will eventually broaden the tax base and increase government receipts.

Proponents see tax cuts as a way to put money in producers’ hands; critics doubt the extent to which benefits “trickle down” to the broader population.

Outcomes and criticisms of Reaganomics

Reagan’s policies produced mixed results:
* Positive outcomes: inflation fell, unemployment declined, and disposable incomes rose for many during parts of the 1980s.
* Criticisms and negative consequences:
* The anticipated surge in private spending by the wealthy and corporations was smaller than promised.
* Deregulation contributed to the savings-and-loan crisis.
* Large tax cuts combined with increased defense spending nearly doubled the federal debt during the 1980s.
* The economy returned to recession in the early 1990s.

Politically, support for Reagan’s policies did not insulate his successors from backlash: George H.W. Bush, who supported Reaganomics as vice president, later raised taxes as president in 1990—breaking an earlier pledge—which hurt his political standing.

Supply-side vs. demand-side (Keynesian) economics

• Supply-side: Focuses on increasing production by reducing taxes and regulation for businesses and high earners to encourage investment.
• Demand-side (Keynesian): Argues that boosting aggregate demand—often through government spending, transfers, or tax cuts aimed at lower- and middle-income households—drives growth by increasing consumption and employment.

Policymakers choose elements from both approaches depending on circumstances, objectives, and political constraints.

Considerations for policy

When evaluating proposals labeled “voodoo economics,” consider:
* Timing and context: Which policies are appropriate during recession vs. inflation?
* Distributional effects: Who benefits from tax cuts or deregulation?
* Fiscal sustainability: Can tax cuts be offset by spending cuts or future revenue growth, or will they increase deficits?
* Regulatory tradeoffs: Deregulation can spur efficiency but may increase systemic risks.

Conclusion

“Voodoo economics” remains a politicized shorthand for skepticism about ambitious supply-side tax-cutting promises. Historical experience shows supply-side policies can stimulate growth in some dimensions, but they have also contributed to larger deficits, uneven benefits, and financial-sector vulnerabilities. Understanding both the intended mechanisms and the empirical outcomes helps inform balanced policy judgments.