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Voodoo Economics: A Look Back and Forward

  //humor-quirks.news-articles.net/content/2026/01/20/voodoo-economics-a-look-back-and-forward.html
  Published in Humor and Quirks on Tuesday, January 20th 2026 at 11:28 GMT by The New Zealand Herald
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Understanding the Core Principle

At its heart, 'voodoo economics' encapsulates the belief that reducing taxes, particularly for high-income earners and corporations, acts as a powerful economic catalyst. The underlying logic posits that lower tax burdens liberate capital, incentivizing businesses to invest, individuals to spend, and entrepreneurs to create jobs - ultimately leading to greater overall economic activity. This, in turn, is projected to generate more tax revenue for the government, a seemingly paradoxical outcome.

The Laffer Curve and Reaganomics

The theoretical foundation for this approach is rooted in the work of economist Arthur Laffer. He popularized the 'Laffer Curve,' a graphical representation illustrating the relationship between tax rates and tax revenue. The curve suggests that beyond a certain point, increasing tax rates can actually diminish revenue by discouraging economic activity. This implies that there's an optimal tax rate that maximizes government income; rates above this point become counterproductive.

Reagan's administration enthusiastically adopted this philosophy in the 1980s, implementing significant reductions in marginal tax rates. The anticipated outcome was a surge in economic growth fueled by newfound investment and consumer spending.

A Mixed Record and Lingering Questions

However, the implementation of Reaganomics didn't produce a universally lauded result. While the US economy did experience an expansion during the 1980s, it was accompanied by a substantial increase in the national debt. Critics frequently pointed out that the tax cuts disproportionately benefited the wealthiest segments of society, contributing to a widening gap in income inequality.

Did Reaganomics 'work'? The answer remains contested. Proponents highlight the economic growth of the era, claiming it validates the core principles. Detractors argue that other factors - such as loose monetary policy and deregulation - were the primary drivers of the boom, and that the tax cuts merely exacerbated long-term fiscal issues.

Relevance in 2026: A New Economic Context

The debate isn't merely historical. The resurgence of interest in supply-side economics and 'trickle-down' theories, often associated with 'voodoo economics,' has been observed in recent political and economic discourse. However, applying these principles in 2026 requires a careful reassessment considering the dramatically altered economic landscape.

Several key differences distinguish the 1980s from today. Firstly, the globalized nature of the economy means that capital is significantly more mobile, making it easier for businesses to relocate to lower-tax jurisdictions. Secondly, the structure of the workforce has shifted, with a greater proportion of income derived from capital gains and dividends, which are often taxed at lower rates. Thirdly, the levels of debt - both public and private - are considerably higher than they were in the Reagan era, making it more difficult to absorb the consequences of tax cuts. Finally, technological advancements and automation have profoundly impacted job creation and wage growth, introducing new complexities into the equation.

Beyond Simple Solutions

The concept of 'voodoo economics' serves as a crucial reminder of the complexities of economic policy. There are no simple answers, and the effectiveness of any tax strategy is inextricably linked to a wide range of interacting factors. While proponents argue that lower taxes can stimulate growth and create opportunities, critics caution against the potential for increased inequality and unsustainable debt. A nuanced and data-driven approach, taking into account the specific economic conditions of 2026 and beyond, is essential to navigate this ongoing debate.