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    Voodoo Economics and the Vanishing American Dream
    Voodoo Economics and the Vanishing American Dream
    Voodoo Economics and the Vanishing American Dream
    Ebook121 pages1 hour

    Voodoo Economics and the Vanishing American Dream

    By Bruce Kimzey

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    Voodoo Economics is the brainchild of economist Arthur Laffer, and the offspring of President Ronald Reagan, who adopted the Laffer theory of supply-side economics during his Presidential run in 1980. It was first labeled “voodoo economics” by Reagan’s then primary opponent George H.W. Bush, but has since become the basis for all Republican economic policy over the past thirty years. As a theory, it professes to believe in free markets, low taxes and low government spending and regulations. In practice, it has been the vehicle for the largest and longest upward transfer of economic wealth and political power in the history of the nation. It results in economic policy that demonizes the poor, dismisses the middle class, and deifies the rich. Economic problems are seen as the result of government spending for the poor and middle class, and solutions require continual new tax reductions on investment incomes, and the reduction and/or elimination of government spending programs labeled as “entitlements”.
    “Voodoo Economics” places the interests of the wealthy first, and will be defined as the belief that “You can achieve the economic outcomes you want through wishful thinking” or “If you say something often enough and long enough it will be accepted as truth even if there is little or no evidence to support it’s claims.” Examples of this thinking are “Tax cuts pay for themselves”, “The rich now pay an unfair and rising tax burden”, “A reduction in tax rates (both corporate and personal) is the best way to stimulate the economy and create jobs”, “If we eliminate the income tax on dividends and capital gains it will lead to stimulus and job creation”, and “Tax increases on those who earn over $250,000 will destroy jobs because small business owners who create most of the nation’s jobs fall primarily into that category.”
    The systematic transfer of income and wealth to the top 3 percent of the population has eroded the economic and political power of the middle class and reduced the hope of achieving the American Dream of home ownership, secure jobs with good pay, the opportunity for a higher education, and a comfortable and affordable retirement.

    LanguageEnglish
    PublisherBruce Kimzey
    Release dateOct 6, 2012
    ISBN9781301815661
    Voodoo Economics and the Vanishing American Dream
    Author

    Bruce Kimzey

    Bruce W. Kimzey taught economics and finance for almost 40 years at New Mexico State University, Pepperdine University, University of Nevada-Reno, Brigham Young University, and BYU-Hawaii. He retired in 2007 and moved to Phoenix, Arizona where he lives with his wife Judy. He received his BS degree from BYU and his PhD in economics from Washington State University in Pullman, Washington. His previous books include The Property Tax in New Mexico, Reaganomics, and Mormons and Money. Bruce was born in Worland, Wyoming and married his high school sweetheart Judy Brinkerhoff. They are the parents of six children, twenty-seven grandchildren, and three great-grandchildren.

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      Book preview

      Voodoo Economics and the Vanishing American Dream - Bruce Kimzey

      Voodoo Economics and the Vanishing American Dream

      By Bruce W Kimzey

      Copyright 2012 Bruce W Kimzey

      Smashwords Edition

      Smashwords Edition, License Notes

      This ebook is licensed for your personal enjoyment only. This ebook may not be re-sold or given away to other people. If you would like to share this book with another person, please purchase an additional copy for each recipient. If you’re reading this book and did not purchase it, or it was not purchased for your use only, then please return toSmashwords.com and purchase your own copy. Thank you for respecting the hard work of this author.

      Chapter 1What is Voodoo Economics?

      Voodoo Economics is the brainchild of economist Arthur Laffer, and the offspring of President Ronald Reagan, who adopted the Laffer theory of supply-side economics during his Presidential run in 1980. It was first labeled voodoo economics by Reagan’s then primary opponent George H.W. Bush, but has since become the basis for all Republican economic policy over the past thirty years. As a theory, it professes to believe in free markets, low taxes and low government spending and regulations. In practice, it has been the vehicle for the largest and longest upward transfer of economic wealth and political power in the history of the nation. It results in economic policy that demonizes the poor, dismisses the middle class, and deifies the rich. Economic problems are the result of government spending for the poor and middle class, and solutions require continual transfers of wealth and power to the richest three to five percent of the population, primarily in the form of new tax reductions on investment incomes.

      Voodoo Economics places the interests of the wealthy first, and will be defined as the belief that You can achieve the economic outcomes you want through wishful thinking or If you say something often enough and long enough it will be accepted as truth even if there is little or no evidence to support its claims. Examples of this thinking are Tax cuts pay for themselves, The rich now pay an unfair and rising tax burden, A reduction in corporate tax rates is the best way to stimulate the economy and create jobs, If we eliminate the income tax on dividends and capital gains it will lead to stimulus and job creation, and By calling for higher taxes on the wealthy President Obama is promoting ‘class warfare’.

      During the Presidential primary campaign of 1980 the top two Republican contenders were Ronald Reagan and George H.W. Bush. Reagan based his campaign on a then little known economic theory proposed by Arthur Laffer a few years earlier that had become known as the Laffer curve. This theory was a version of a more general theory known as supply-side economics. The idea was to cut income tax rates for the very rich, which would then save a majority of their new after-tax income and make funds available for new investment, which would result in an increase in supply, or output, and create new jobs while also leading to a reduction in average prices. The Laffer spin was to argue that the new investment and output would increase Gross Domestic Product (GDP) and lead to increased government tax revenues, which would reduce the budget deficit. We could then enjoy full employment, lower inflation, a balanced government budget, and still have funds for increases in needed government programs.

      George H.W. Bush quickly labeled Reagan’s program voodoo economics because it was an untried, untested theory based largely on wishful thinking. But the proposal was in stark contrast to the economic policies of Jimmy Carter, which had resulted in high unemployment, high inflation, high interest rates, and large government budget deficits. Reagan wound up winning the Republican nomination and then asking Bush to run as his vice-president. Bush accepted and then spent the next 12 years defending voodoo economics as the most sensible program in history. After 8 years of Reagan’s presidency, Bush followed with 4 years in which his own economic program was to argue that Reagan had done everything that was necessary for economic stability.

      Reagan had argued that passage of his tax cuts would lead to economic prosperity and a balanced budget by 1984. The last Carter deficit was $73.8 billion, which Reagan labeled as totally unacceptable and promised to quickly balance the budget. Hence the phrase that tax cuts pay for themselves became part of the Reagan campaign and has been a central part of Republican tax policy for the past 30 years. Laffer/Reagan argued that tax cuts lead to increased output and increased tax revenue so revenues actually increase when you reduce tax rates, because the tax base expands by a larger percentage than the cut in rates. The problem was that tax revenues did not increase more than proportionately and the deficit ballooned to $222 billion during the Reagan years and to $290 billion during the Bush years. In the later years of his Presidency Reagan argued that there were good deficits created by tax cuts and bad deficits created by increased spending.

      The most significant impact of the Reagan tax policies was the beginning of the largest income redistribution upward since the 1920s. Since 1980 the only income class that has seen a significant and consistent increase in their average incomes has been the top 5% of the population. The bottom 95% of the population has seen stagnant or falling incomes in both percentage terms and in inflation adjusted dollar terms. That trend continued and accelerated during the first decade of the new millennium as a result of the George W. Bush tax cuts in 2001 and 2003.

      The long term impact of the Reagan Voodoo Economics policies cannot be overestimated. Conservative Republicans bought into this philosophy with a total commitment and have promoted it relentlessly for over thirty years. They argue that the Reagan miracle of the 1980s proved that the old Keynesian economic theories of the 1930s led to increasing government intervention and budget deficits, while the new Reagan policies led to prosperity and less government control of the private economic sector. But the long term consequences of the Reagan miracle and the subsequent Bush extension are not more freedom and a stronger market system, but less market freedom for everyone but the very wealthy, and a market that works primarily to advance the interests of the wealthy and to lead to the eventual demise of the middle class and poor.

      Voodoo Economics advances public policies that place the interests of the wealthy and large corporations at the center of the economic system, creates government budget deficits that strain government’s ability to provide services, and then demands reduction and/or elimination of public programs that benefit the poor and middle classes in the name of fiscal responsibility. It further argues that tax increases are always bad and taxes for the wealthy need to be constantly reduced to create prosperity for all. While the advancement of this theory is relatively new, it follows a long line of theories known as trickledown or supply-side that emphasizes the premier importance of capital investment, creation and increasing corporate profits, and the reduction of government regulations on business. Investors and business owners are viewed as the prime instruments of economic growth, while labor and those who earn wages and salaries are viewed as necessary evils whose contributions are to be minimized if the system is to perform most efficiently.

      If the market system produces maximum profits and eliminates or reduces the cost of wages, government interference, and taxes on investment income, then investors and business owners will be free to expand output and new product innovations that improve economic welfare and eventually create new jobs. Thus, eventually, everyone in the system will benefit when the wealthy are completely free to pursue their self-interest and maximize profits in an environment free from government interference and regulations. This is viewed as an ideal market system where free markets are able to function without restriction and thus maximize social welfare for all.

      The Voodoo Economics emphasis on supply and output is the modern incantation of an old theory called Say’s Law, proposed by Jean Baptiste Say two hundred years ago. Say argued that Supply Creates its own Demand. The process of production would involve the hiring of factors of production such as capital and labor, and the payment of wages and interest. The owners of those resources would then have the ability to demand an equivalent value of other goods and services by other producers. Thus, the process of production, or supply, would create an equivalent demand, and the market system would, by definition, always maintain full employment of its resources. Long term periods of unemployment would be impossible.

      The Great Depression of the thirties proved this theory to be false, and John M. Keynes advanced a new theory where total, or aggregate, demand was essential to maintaining long term full employment. The controversy surrounding Keynesian theory was the use of government budget deficits to stimulate the economy during periods of recession and/or depression and thereby increase the aggregate demand for output. With rising demand, business would be prompted to expand output until full employment was achieved. Modern supply-siders have resurrected Say’s Law and argued that Keynesian policies are responsible for increased government budget deficits, government regulation of business, and a stagnant economy. The economy will grow only if the ability to increase supply is expanded first, and then increased demand for that output will naturally follow.

      There are few professional economists today who are whole-hearted advocates of Keynesian theory, but there are fewer

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