Voodoo Economics

Definition

Voodoo Economics is a derogatory term that refers to the proposition that decreasing tax rates, particularly for corporations and wealthy individuals, will inherently spur economic growth. The term was famously used by George H. W. Bush in reference to President Ronald Reagan’s economic policies, which were commonly known as “Reaganomics.” Critics argue that such policies disproportionately benefit the wealthy and fail to facilitate the economic growth that they promise.

Phonetic

The phonetics for the keyword “Voodoo Economics” is: voo-doo ee-kə-ˈnä-miks.

Key Takeaways

Sure, here are the three main takeaways about Voodoo Economics:“`html

1. Voodoo Economics is often used pejoratively to describe economic policies which are considered unrealistic or based on overly optimistic assumptions. The term was first used by George H.W. Bush during the 1980 United States presidential primaries to criticize Ronald Reagan’s economic policies.
2. It is most commonly associated with trickle-down economics or supply-side economic theories. These policies often involve tax cuts for the wealthy or corporations, on the belief that the benefits will eventually trickle down to all levels of society, spurring economic growth. However, the effectiveness of such policies is highly debated among economists.
3. Despite its criticism, the principles of Voodoo Economics have influenced many economic policies around the world. It is most notably seen in the Reagan era in the United States and Thatcher era in the United Kingdom.

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Importance

The term “Voodoo Economics” is significant in business and finance as it represents a critical view of certain economic policies, particularly those involving tax cuts. It was first coined by George H.W. Bush during the 1980 U.S. Presidential campaign to critique Ronald Reagan’s economic strategies, which proposed substantial tax cuts would stimulate economic growth and ultimately increase government revenue. Critics argue that these policies, often associated with supply-side economics or “Reaganomics,” could lead to budget deficits because the growth might not sufficiently offset the initial revenue loss from tax reduction. Hence, the term is important as it symbolizes ongoing debates about the repercussions of tax policies on economic health.

Explanation

Voodoo Economics, a provocative term coined during the 1980 presidential campaign, refers to the concept that reducing tax rates, particularly for corporations and wealthy individuals, will inevitably spur economic growth, which would not only compensate for the lost tax revenue but generate additional revenue. This term is associated with the theory of supply-side economics, which posits that lower tax rates are essential for business expansion, investment, job creation, and in boosting productions in an economy. It is often used for policies aimed to stimulate economic growth without immediate and substantial outlays of government funds.The purpose of Voodoo Economics is to lead to increased economic expansion and make a shift in the supply-demand equilibrium resulting in higher GDP, more employment opportunities, and an acceleration in economic activity as a whole. Its implementation typically involves the massive reduction of taxes and regulations to mobilize capital resources and spur business expansion and growth. However, it also raises objections and skepticism as critics argue that this strategy disproportionately benefits the wealthiest and that it doesn’t necessarily translate into the broad economic growth that its proponents suggest.

Examples

Voodoo Economics, a term first used by George H.W. Bush during the 1980 Republican primaries, is often used in reference to economic policies which are considered to be unrealistic or ill-conceived. It’s most often used in relation to the theory of trickle-down economics, which argues that reducing taxes on the wealthy or on businesses will stimulate business investment in the short term and benefit society in the long term. Here are three real-world examples:1. Ronald Reagan’s Tax Cuts: Reagan’s administration in the 1980s is most associated with Voodoo Economics. His tax cuts policies, known as Reaganomics, were designed to stimulate economic growth through tax cuts for the wealthy, with the theory that these benefits would trickle down to the less wealthy. Critics argue that this approach did not lead to the expected widespread economic benefits, hence the term voodoo economics.2. Kansas Tax Experiment: Kansas Governor Sam Brownback drastically cut taxes in 2012 for the wealthy and businesses to boost their state economy. The benefits for the wider population did not materialize as expected, with Kansas facing budget shortfalls and its economy underperformed in comparison with neighboring states.3. Trump’s Tax Cuts and Jobs Act: The Trump administration passed a significant tax cut in 2017, arguing again that reducing corporate tax burdens would lead to an explosion of business growth and job creation. There have been mixed reviews on its impact, with critics referring to it as another example of voodoo economics as the promised widespread economic improvement has been debated.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Supply-side Economics
• Trickle-down Theory
• Reaganomics
• Fiscal Policy
• Tax Cuts

Sources for More Information

• Investopedia
• Encyclopedia Britannica
• The Library of Economics and Liberty
• The Conversation