# Voodoo Economics Explained: History, Criticisms, and Impact

## What Is Voodoo Economics?

In the 1980 presidential primaries, George H.W. Bush labeled Ronald Reagan's economic strategies as "voodoo economics." This phrase questioned the effectiveness of Reaganomics—characterized by tax cuts, deregulation, and reduced government spending—as a solution to the economic challenges of the time. Reagan's policies, known collectively as supply-side economics, argued that benefits for the wealthy would trickle down, spurring widespread economic growth.

### Key Takeaways

*    Voodoo economics is a phrase coined by George H.W. Bush to criticize Ronald Reagan's economic policies, later known as Reaganomics.  
    
*   Reaganomics implemented tax cuts, deregulation, and a reduction in government spending with the goal of economic expansion.  
    
*   Critics argue that Reaganomics increased the national debt and failed to deliver the promised economic benefits.  
    
*   The phrase "voodoo economics" has become a common term to critique ambitious economic promises by politicians.  
    
*   Despite supporting Reaganomics as vice president, George H.W. Bush raised taxes during his presidency, which hurt his reelection prospects.

## Analyzing the Principles Behind Voodoo Economics

Ronald Reagan, a Republican, was elected the 40th U.S. president after a prolonged period of economic [stagflation](https://www.investopedia.com/terms/s/stagflation.asp) 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](https://www.investopedia.com/articles/05/011805.asp), 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](https://www.investopedia.com/terms/t/trickledowntheory.asp). 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. called these economic policies "voodoo economics," claiming they wouldn't rejuvenate the economy and would increase the [national debt](https://www.investopedia.com/updates/usa-national-debt/).

After becoming vice president, Bush Sr. denied calling Reagan's policy "voodoo economics" and later said he was joking when footage emerged.

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

## Critiques and Controversies Surrounding 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](https://www.investopedia.com/articles/economics/08/stagflation.asp#:~:text=Stagflation%2C%20or%20recession%2Dinflation%2C,demand%20in%20a%20country's%20economy.) it had been mired in since 1973. Furthermore, it was believed less government spending and reduced oversight would give the [financial industry](https://www.investopedia.com/terms/f/financial_sector.asp), in particular, a much-needed boost.

### Outcomes and Impacts of Reaganomics

Not all expectations were met. During Reagan's presidency, unemployment fell, disposable income rose, and [inflation](https://www.investopedia.com/terms/i/inflation.asp) was controlled.

However, the hoped-for increase in spending by the wealthy and businesses didn't happen. Reagan's reduced regulations also contributed to the [savings and loan crisis](https://www.investopedia.com/terms/s/sl-crisis.asp).

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

Reagan's policies nearly doubled the national debt, partly because he cut taxes while increasing military spending.

> **Important**
>
> "Voodoo economics" is now commonly used to dismiss any ambitious economic promises by politicians.

## Significant Considerations in Economic Policy

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

As president, Bush focused on fiscal responsibility rather than [tax cuts](https://www.investopedia.com/articles/07/tax_cuts.asp). In 1990, he agreed to a tax increase, breaking a promise made two years earlier, which led to criticism from his party. He later lost the 1992 election to Bill Clinton.

## What Is Supply-Side Economics?

[Supply-side economics](https://www.investopedia.com/articles/05/011805.asp) 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](https://www.investopedia.com/ask/answers/040915/what-demandside-economics.asp) 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](https://www.investopedia.com/financial-edge/0812/5-presidents-who-couldnt-secure-a-second-term.aspx) to his failure to be reelected to a second term.

## The Final Verdict on Voodoo Economics

Voodoo economics, initially used to criticize Ronald Reagan's policies, describes supply-side economics, which advocates tax cuts for businesses and the wealthy to stimulate broader economic growth. While proponents believe in the trickle-down effect where benefits flow to all from the top, critics highlight the policy's mixed results, such as increased national debt and economic disparities. Understanding the ongoing debate around this theory can inform individuals' views on policy decisions impacting their financial assessments.

> **Article Sources**
>
> 1.  WDSU News. "['A man of the highest character': Family, leaders, world reflect on former President H.W. Bush's legacy](https://www.wdsu.com/article/maine-remembers-former-president-george-hw-bush/25365411)."