Do you remember that when George Bush ran against Ronald Reagan he called Reagan’s economic theory “Voodoo Economics”? Let’s talk about economic mythology. Traditional economic theory established a relationship between supply and demand. When demand was high and supply was low, prices went up and when supply was high prices went down. Voodoo economics, also called supply side economics says that as you increase the supply you will also increase the demand, and supply could be increased by the lowering of taxes. The key is that the taxes that need to be lowered are the taxes on the working class. Lowering taxes on labor results in more take home pay, and that means more spending and more savings for investment. Lowering capital gains taxes also acts as an incentive for investment. More investment means more business and workers with more money means more buying of the goods the businesses  produce.

In theory it sounds good, but in practice it didn’t work so well. The reality was that taxes for the wealthy were reduced tremendously, but taxes for everyone else were only marginally reduced. In fact, the highest bracket income tax rate was reduced from 70% to 28% during the Reagan presidency. During the Clinton years that rate went up to 39.6% then under George W. Bush fell back to 35%. So the wealthiest people saw their taxes cut in half. Remember, though, capital gains are far lower, so the wealthiest who earn money from investments have an effective tax rate below 20%.

If you look at charts about the accumulation of wealth and increase in income, you see that during the same time period the incomes of the wealthiest increased dramatically while the incomes of the labor force essentially stagnated.

Now here comes the real Voodoo. In order to distract average Americans from the fact that the wealthiest were running away with all the candy, conservative strategists, mainly in the Republican party had to come up with an economic mythology that would convince people who were getting the shaft that it was really in their best interest. Here are the key points of that theory.

1. Trickle Down Economics… if you give the candy to the rich guys they will give candy to everyone else. Today that means give the candy to the “job creators”.

2. Deficit Spending is Bad and the Democrats are really bad because they are the ones that do it.

3. Entitlements are why there is deficit spending.

4. The economy is most prosperous under Republican leadership.

Unfortuately, if you look at the actual data since 1980, none of that is true.

1. During the last few years the rich have had more candy than ever, but we have the highest unemployment. In fact, the employment is really much higher than the reported percent because the way it is computed minimizes the long term unemployed.

2. If you look at a chart of deficit spending by president, you will discover that the Republicans are really the deficit spenders. The champion was George W. Bush who was the king of deficit spending. The charts jump off the wall during his presidency.

3. There is deficit spending and a huge national debt because we did three things… fought a war in Iraq and in Afghanistan, had an unfunded tax cut (the Bush tax cuts), had an unfunded Medicare prescription program. All that happened during the Bush administration. Yes, we have definitely had deficits during the Obama administration, but most of that was aftershock from Bush.

4. The GNP has not done significantly better under Republicans. In fact, Bush tanked the economy. Yes, Reagan did see economic improvement, but many economists chalk that up to recovery from the immediately preceding recession.

All these facts are readily available by Google. Check them out for yourself.

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