CandleFocus Glossary Editor
Voodoo economics is a phrase used to describe the loose economic policies of President Ronald Reagan and others who followed him during the 1980s. Reagan and his administration argued that cutting taxes and ramping up government spending would lead to increased profits and minimal national debt. This “trickle-down” effect, as it was referred to, characterized economic growth as an asset-first approach, where budget deficits were met with investment and tax incentives.
In the most basic sense, voodoo economics relies on the idea of cutting taxes for businesses and the wealthy with the goal of growing the economy despite the loss of revenue. This is often done by passing the cost of deficits onto the poorest in society with the assumption that the economic boon for businesses and the wealthiest citizens would trickle-down and benefit the rest of society.
The strategy is widely seen as simply passing on the costs of economic growth to society without generating any broad-based economic benefit in return. It often results in larger deficits, increasing the debt-to-GDP ratio, and a widening of wealth inequality. In this respect, voodoo economics has failed to upend the traditional Keynesian model of investment-led economic growth, which claims that global growth should be balanced across all sectors through government spending.
Since the Reagan presidency, voodoo economics has become an all-too-familiar phrase in politics. Politicians often make grandiose promises that assume the same returns on investment, while also cutting taxes and growing government spending despite a lack of evidence that these policies truly stimulate economic growth.
Indeed, George H.W. Bush's warning against voodoo economics was prescient; even with deficit reduction measures, the US national debt still ballooned by 74.5% during Reagan's term. Additionally, his tax policies had only a marginal effect on the US economy, and widened income inequality.
Overall, voodoo economics is a term used to describe policies that rely on cutting taxes for businesses and the wealthy with the goal of economic growth without any broad-based economic benefit in return. It is largely unsuccessful as proven by rising deficits, increasing the debt-to-GDP ratio, and widening wealth inequality. Today, it has become a phrase used to describe any empty economic pledges made by politicians.
In the most basic sense, voodoo economics relies on the idea of cutting taxes for businesses and the wealthy with the goal of growing the economy despite the loss of revenue. This is often done by passing the cost of deficits onto the poorest in society with the assumption that the economic boon for businesses and the wealthiest citizens would trickle-down and benefit the rest of society.
The strategy is widely seen as simply passing on the costs of economic growth to society without generating any broad-based economic benefit in return. It often results in larger deficits, increasing the debt-to-GDP ratio, and a widening of wealth inequality. In this respect, voodoo economics has failed to upend the traditional Keynesian model of investment-led economic growth, which claims that global growth should be balanced across all sectors through government spending.
Since the Reagan presidency, voodoo economics has become an all-too-familiar phrase in politics. Politicians often make grandiose promises that assume the same returns on investment, while also cutting taxes and growing government spending despite a lack of evidence that these policies truly stimulate economic growth.
Indeed, George H.W. Bush's warning against voodoo economics was prescient; even with deficit reduction measures, the US national debt still ballooned by 74.5% during Reagan's term. Additionally, his tax policies had only a marginal effect on the US economy, and widened income inequality.
Overall, voodoo economics is a term used to describe policies that rely on cutting taxes for businesses and the wealthy with the goal of economic growth without any broad-based economic benefit in return. It is largely unsuccessful as proven by rising deficits, increasing the debt-to-GDP ratio, and widening wealth inequality. Today, it has become a phrase used to describe any empty economic pledges made by politicians.