Voodoo Economics
Categories: Econ
Voodoo economics is what George H. W. Bush called Reaganomics, the trickle-up or supply-side economics of the Reagan administration.
Reaganomics is known for slashing income taxes, especially the top bracket, as well as cutting capital gains taxes, corporate taxes, and business regulations in reaction to the death spiral economy that Jimmy Carter's administration had put in front of the American people. The idea: make the market more business-friendly, and let the higher-ups keep their money so that they can use it to create more jobs and spur economic development. (See: Reaganomics. See: Supply Side Economics.)
Obviously, H. Dubbya wasn’t a fan, and considered Reaganomics and supply-side theory poppycock. Er, voodoo...same thing.
Fun fact: H.W. Bush was Reagan’s Vice President after they were political rivals. And yes, he thought all this stuff before he came to VP prominence at the time, not just in retrospect. Dubbya had been a government employee more or less his whole life, working for the military and then the CIA; he didn't run a business or create jobs. He lived on taxpayer collections.
While Reaganomics definitely didn’t hurt the economy in the long-run, most economists agree it didn’t do anything spectacular for it, either. Good, but not great, for unemployment and inflation. Many economists cite relaxed financial regulations for contributing to the Savings and Loan Crisis, much like how axing Glass-Steagall enabled the Financial Crisis of 2008 years later.
Still, this Voodoo economics is still around, as supply-side policy has helped inform some of the Trump admin’s legislation. Maybe round two will shed some more light on the capabilities of the trickle-down theory.
Related or Semi-related Video
Econ: What are Supply Side Economics?12 Views
and finance Allah shmoop What Our supply side economics All
right people We all know that classic graph the most
famous of all economics crafts showing the upward sloping supply
curve there and the downward sloping demand curve there Yeah
we all know that where supply and demand crosses the
price there and the quantity where goods can be sold
on the market most efficiently well suppliers supply acts amount
of why goods at ze price and consumers by X
amount of why goods at ze price and yada yada
yada you get the picture There it is If it
takes two to tango and create economic growth both supply
and demand tingling there Why is their supply side economics
and then demand side economics Well it's kind of a
chicken and egg problem Demand siders The trickle up believers
think the economy is driven by consumer demand You know
at the bottom of the economic pyramid I eat you
can't make consumers buy stuff they don't want to buy
For instance way back in the seventeenth and eighteenth centuries
the Brits saw China as a huge market to tap
so they tried to come up with all this stuff
the Chinese people would want to buy But the Chinese
people didn't want any of their British stuff They were
only interested in the silver which they were getting in
heaps since Britain was importing a ton of porcelain tea
spices and silks from China into Europe and depleting themselves
of silver we'LL supply siders The trickle Down Believers believe
the economy is driven by producers who are at the
top of the economic pyramid like they're going to produce
and whatever they produce consumers will buy How will the
economy grow if the people with all the money at
the top aren't investing it into creating and growing a
new businesses The logic is that the head honchos of
the economy I either job creators the entrepreneurs the investors
the visionaries They have a lot of money which can
be either well held onto or invested well The supply
siders theory is that if taxes are high then high
income earners are incentivized to well just sit on their
hands leaving their money to collect dust when it could
be doing something more useful But if taxes are low
on the other hand well then the producers are incentivized
to invest that wealth in the economy or at least
more incentivised and that in theory would create more jobs
and lead more spending and boost economic growth That's the
money trickle down theory from the high income earners to
low income earners Supply siders have a similar theory when
it comes to regulations on all this stuff like higher
capital gains and income tax on high income earners Business
regulations are seen by supply siders to be a disincentive
for that group to invest in economy well Likewise Supply
Sider see monetary policy as reigning on their parade Monetary
policy happens when a central bank tinkers with interest rates
and the money supply and hoping to balance unemployment and
inflation for supply siders the central bank is sticking their
sticky fingers into the natural functioning of the markets where
they don't belong Well the reason we have a central
bank tinkering with things that happens because well the norm
in macro economics today is a bastardized version of Kane's
Ian Theory Kane's Ian's our demand siders So when they
see the economy going into a slump from consumers having
the blues while then those Keane's Ian's think the solution
is government intervention including monetary policy tinkering right But on
the other hand supply siders say Kane's Ian's well have
got it all wrong At the end of the day
the market will always be a mix of both supply
and demand We'LL just keep letting that Adam Smithy and 00:03:34.558 --> [endTime] invisible hand you know do its thing at no