I was never a big fan of President George H.W. Bush although, compared to his son, he was a fabulous president. And he did get one thing right his description of Reagans theory of trickle-down economics. Thats right. It was George, the elder, who first appropriately labeled it Voodoo economics.
The idea that cutting taxes for the wealthy would somehow benefit the rest of us never really made any sense. It was clear to me that the wealthy would simply spend the extra money on themselves or invest it in the stock markets. I couldnt see how the theory would result in more jobs or increased living standards for everyone else.
What did make sense to me was the idea of cutting taxes on companies that created jobs, and Reaganomics did do that. Unfortunately, the Reaganists relaxed or eliminated many of the regulations and safeguards that controlled corporations. The result was tax cuts and tax credits for large corporations that took their manufacturing jobs overseas. And due to the lack of regulation, many corporations created phony headquarters in the Bahamas and the Caymans to avoid paying taxes altogether. Amazingly, Republicans refused to even consider banning these off-shore companies from receiving U.S. government contracts.
How on Earth were U.S. citizens, other than corporate officers, supposed to benefit from that?
The short answer is that we didnt.
In an op-ed column for The New York Times, Nobel Prize-winning economist Paul Krugman summarized the real effect of Reaganomics. real incomes of the top .01 percent of Americans rose sevenfold between 1980 and 2007. But the real income of the median family rose only 22 percent, less than a third its growth over the previous 27 years. Krugman also points out that most of whatever gains ordinary Americans achieved came during the Clinton years , and that President George W. Bush had the distinction of presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains.
Of course, Krugmans statistics dont include the fiascos of 2008 in which the Fed started bailing out banks long before the public noticed; when gasoline prices hovered around $4 per gallon; when foreclosures dragged down the entire economy; and when the Bush and Obama administrations had to bail out Wall Street. All of these issues are likely to make the final cost of Reaganomics look even worse.
Yet despite all evidence to the contrary and despite the near-disastrous collapse of our entire financial system under their leadership, Republicans still cling to the notion that the failed economic policy of their former leader and idol can cure our present-day problems. Make the Bush tax cuts permanent, they say, that will bring our economy back.
If Republicans should somehow regain control of Congress during the 2010 mid-term elections, be afraid, my friends. Be very afraid. Like other apparitions of black magic, voodoo economics may be more difficult to kill than you think.