|An editor thinks that this article may not be neutral. (May 2013)|
Voodoo economics is a negative term which critics use to criticize supply-side economics.
The term origininated from George H.W. Bush, who criticized Ronald Reagan's plan for the economy during the Republican Party (United States) presidential primaries, 1980. Reagan's attitude towards the Federal Government Budget was to drastically reduce taxes - primarily for the wealthy - while greatly increasing spending - primarily for the military. Bush Sr. and others recognized that this could not possibly produce a balanced budget, and would result in great national debt. Therefore, George Bush Sr. labeled Reagan's monetary policy as "Voodoo economics".
Reagan was an adherent to a policy known as supply-side economics, which argues that economic growth can be most effectively created using incentives for people to produce (supply) goods and services, such as adjusting income tax and capital gains tax rates. Accordingly, Reagan promised an economic revival that would affect all sectors of the population. He said that cutting tax rates would actually increase tax revenues because the lower rates would cause people to work harder as they would be able to keep more of their money. Reagan also called for a drastic cut in "big government" programs and pledged to deliver a balanced budget for the first time since 1969. In the primaries, Bush famously called Reagan's economic policy "voodoo economics" because it promised to lower taxes and increase revenues at the same time.
Of course, Reagan was elected president in 1980 with George Bush Sr. as his Vice-President. In his eight years as President, Reagan would fulfill his campaign promises of lowering taxes - primarily on the wealthy - and greatly increasing spending - primarily on the military. Like Bush Sr. had recognized before Reagan captured the White House, this would lead to large Federal Budget deficits. In 1989 when George Bush Sr. became the 41st US President, this great national debt/budget deficit had to be dealt with! Even though Bush Sr. famously pledged during the 1988 Presidential Election, "Read my lips, no new taxes", after gaining the White House, he was forced to renege on that pledge and raise taxes. This is one of the reasons that led to Bush Sr. not winning reelection in 1992.