Thursday, January 9, 2014

Why were Reaganomics called voodoo economics by its critics? What made it controversial?

There were two related aspects to Reaganomics that led to it being called "voodoo economics."


First, Reagan believed in this thing called the Laffer Curve.  It says that when you lower the tax rates (in other words, take 10% of people's money rather than 15%, for example) the government will actually get more money in taxes.  Sounds weird, right?  That's why Bush called it "voodoo."


Second, Reagan believed in supply side economics.  The orthodox economics of the time said that if there is a recession, the government should give more money to the regular people (by cutting taxes or giving out unemployment benefits or hiring people to build roads and such).  The people will go spend it and that will help the economy.


Supply side economics said that you don't do this.  Instead, you lower taxes on businesses and the rich people.  They will take the extra money and invest it in things like new businesses and that way more people will have jobs.


This seemed less convincing to many people.  Most people who lose a job would think that they would be helped more if the government gave them money.  Reagan wanted to help the poor and the unemployed by giving money to the rich and the business owners.  That seems weird to many people and that is why Bush called that voodoo economics.

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