Writing this article was prompted by a recent reference by Mario about a common misconception banded often on Goanet and by many with a "conservative philosophy". Before I proceed, many will know that economics is not my specialty. However since the economists on this forum have not elected to address this issue, I am writing this as a good-faith attempt to help explain some mis-conceptions. It is likely that a few individuals, who are as marginally more qualified than me in economics, will personally critique me for my efforts. Some of them do this so that they can gain some 'brownie points' or stand-tall on some-else's shoulders. However, constructive criticism of my writings is always welcome.
Voodoo Economics was a term coined by George H. Bush in 1980, when he was running against Ronald Reagan for President of the USA. Specifically Bush was referring to Reagan's proposal to cut taxes, increase government spending (on military, especially missile defense) and stimulating the economy. Reagan won the election to be President of USA, with George Bush as vice president. Reagan's program called Supply-Side Economics was based on the Laffer Economic Curve and trickle-down wealth was the main economic engine. The theory states: "Low tax rates will spur investment, which would then lead to increased economic growth, higher employment and wages." Critics labeled this "Trickle-down economics" as the tax policies that benefit the wealthy was supposed to create a "trickle-down" effect to the poor. http://en.wikipedia.org/wiki/Laffer_curve From the above web-link: The Laffer-curve central to "Supply Side Economics", provides an argument how lowering tax rates may actually increase tax revenues. Many economists have questioned the utility of the Laffer Curve in public discourse. According to Nobel prize laureate James Tobin, "the 'Laffer Curve' idea that tax cuts would actually increase revenues turned out to deserve the ridicule with which sober economists had greeted it in 1981." In 2003, the Treasury dept. of US govt. released a non-partisan economic studyshowing that the 1981 tax act produced a major loss in government revenues of almost 3% of GDP. David Stockman, President Reagan's budget director during his first administration and one of the early proponents of supply-side economics, maintained that the Laffer curve was not to be taken literally — at least not in the economic environment of the 1980s United States. In The Triumph of Politics, he writes: The whole California gang had taken the Laffer curve literally (and primitively). The way they talked, they seemed to expect that once the supply-side tax cut was in effect, additional revenue would start to fall, manna-like, from the heavens. Since January, I had been explaining that there is no literal Laffer curve. Consequences of this theory is being seen now, with the benefit of hindsight. President Reagan who used the Supply Side economics and believed in the Laffer Curve had a 40 percent increase in defense spending. Reagan's presidency from 1981-1989 ended with more federal budget debt than all 39 prior presidents combined. The Federal budget debt in his eight years went from 700 billion dollars to 3 trillion dollars. Contrary to the "Supple Side theory" government revenues decreased by 1 percent. http://en.wikipedia.org/wiki/Reagan_(president) Irrespective of the merits of the Laffer Curve, USA and now the world has operated beyond the Laffer Curve and into 'Voodoo Economics on steroids'. Since 1989, the debt has risen and now stands at 10 trillion-dollars and counting; with the interest on this debt is increasing everyday. The new debt to address the financial crises is an additional 700 billion; and the debt to save Freddie Mac and Fannie May was 5.3 trillion-dollars. (Please see Part 2- final) Regards, Gilbert Lawrence,
