Voodoo Economics

Voodoo Economics, as George H.W. Bush named it in 1980, is what caused most of our national debt. It came from Wall Street and goes by the name "supply-side economics." Here's where you can find out about it.
More Voodoo-Economics Information:

Voodoo versus Republican:

The debt problem comes from Wall Street supply-siders taking over the Republicans. Ike, Nixon and Ford, all good Republicans, brought the debt down 11 out of 16 years. supply-siders brought it down 0 out of 20. That's batting 688 versus batting 0. And G.H.W. Bush was no supply-sider — he called it voodoo economics. He just got trapped by Reagan's supply-side policies. He passed a tax increase trying to partially undo Reagan's damage, but the supply-side Republicans turned on him, and he was not re-elected.
So supply-sides are far from traditional Republican balanced-budget values. Cheney, a supply-sider, said "Reagan proved deficits don't matter." Unfortunately the supply-siders have now pretty much captured the Republican party.
 

What is Supply-Side "Economics" ?
Supply-side economics was started by the the Wall St. Journal opinion editor, Robert Bartley and his right-hand man Jude Wanniski. They worked with two economists, Arthur Laffer and Robert Mundell. But Bartley took the lead, and much of supply-side economics was developed by him and Laffer at a series of dinners at Michael 1, a posh restaurant a few steps from Wall Street.
They viewed it as an attack on Keynesian economics, which described how to get out of a depression by having the government increase demand for goods and services from the private sector. This is how we got out of the Great Depression during World War II (though Keynesian economics does not suggest war as even a possible policy measure). Since Keynes focused on the demand side, Bartley and Laffer focussed on the supply side (remember "supply and demand") and call their theory "supply-side economics."
In a nutshell, Keynesian (demand-side) economics, says that when a country is in a recession, it's because businesses don't have enough business. That is, people are not buying as much as usual, so they can't sell enough, so they lay people off, and then the people who are laid off, or are afraid of being laid off, buy even less. To get things going, we need something to increase demand. Conservative economists tend to say -- have the Fed reduce interest rates so people and businesses will borrow and spend more. Liberal economists tend to say have the government cut taxes for the poor, because they will spend, or have the government borrow and spend more to help business get started again.
The right answer, is that in a regular recession, monetary policy works and is much easier to use so that is best. But in a terrible recession or a depression, the interest rate goes down to about zero and can't go any lower, so then monetary policy stops working. Then you need Keynesian economics -- like the spending for World War II>
Both conservative (monetarist -- like Milton Friedman) and liberal (Keynesian) economists say that the government needs to stimulate demand in a recession. But the two "supply-side" economist say both are wrong, that we need to give tax cuts to the rich and then the rich will be stimulated to work much harder and they are the ones who are most productive and that will make the economy hum again. Laffer drew his famous "Laffer curve" to try to prove this point (but it is just plain silly). It claims that if the government cuts their tax rate, the rich will make so much more money that they will pay more taxes not less. It also claims that if you cut the tax rate for the bottom 98% of the population this won't happen.
So this was tried under Reagan. Big tax cuts for the rich. And G. W. H. Bush called this "voodoo economics," because only two economists believed it (or at least they often said they did), and because the idea that cutting taxes for the rich would collect more money not less. Of course it never worked, and that's one reason the supply-siders ran up the debt (even compared to GDP) for 20 out of 20 years, while other Presidents, both Republicans and Democrats did not have this problem.

 

Debt Strategy

Why Supply Siders Like a rising Debt

Six keys to understanding supply-side debt strategy

  1. Eventually they want it to come down, but first they want it to go up.
  2. What they [#really care about:] ♦ Lower taxes, and ♦ Smaller government.
  3. Lower taxes cause rising debt (no, the [#voodoo] does not work).
  4. Rising debt causes pressure to cut spending and raise taxes.
  5. The Republicans pledge not to raise taxes, so spending must be cut.
  6. The Republicans block military cuts, so middle-class programs must be cut.
  • That's smaller government. And this is how supply siders use debt to "strangle" the American government.

The first year, under Reagan, it was an accident—the supply siders actually believed their own nonsense, but it soon became a plan. That's why it has gone on for 16 [now 20] years under Republicans. The national debt is aimed at Social Security, Medicare and other government programs for the middle class. If left unchecked it will kill them. So far the federal deficit has borrowed more than $1.6 trillion [now $2.5 T] from the Social Security Trust Fund, and Republicans are warning that it's going to be hard or impossible to pay it back.

Why? Because, with the national debt high and rising, taxes cut and tax increases blocked, repaying the debt to Social Security (and the workers and businesses who put their money into it) would require unacceptable borrowing or impossibly large cuts in military spending.


National Debt under Clinton

Clinton stopped the bleeding in just three years and then dropped the debt from 67% to 57% in his last five years. Bush wasted no time in reversing this progress and is now forecasting that he will achieve the highest ratio of debt to GDP in 50 years.

 


[#PopNotes]

[=really care about:] Dick Cheney summed it up: "Reagan proved that deficits don't matter." This is how he justified the huge tax cuts for the rich at the start of G. W. Bush's presidency. This shows that he knew the voodoo does would not  work and that tax cuts would turn budget surpluses in to deficits.
[=voodoo] The voodoo part of supply-side economics
is the claim that reducing tax rates cause rich people to pay more tax. Of course the rich like this theory a lot. The "idea" is that with lower tax rates, the rich will be inspired to work harder and this will make them so much richer that they will actually pay more taxes. Instead, the government just had borrow.
[=PopNotes] Just hover over green-underline links above to see the "pop" notes.