The Republican Presidential debate on the topic of economics is upon us—the CNBC-hosted debate at the University of Colorado Boulder Wednesday evening. I’m a CU faculty member and will be in the crowd, with four of my students.
Republican nomination debates on economics have had serious consequences for politics and policy over the years. None have proven greater than those that flowed from George Bush’s charge against Ronald Reagan, in the 1980 Pennsylvania primary, that he was practicing “voodoo economics.” To this day, 35 years later, Republicans, supply-siders and tax-cutters as a matter of course get this particular charge hurled at them. Their economics is black magic, wishful thinking, unprofessional—specifically “voodoo.” “Voodoo” is a perennial, every election season, against anyone espousing a small-government, free-enterprise political economy.
Without question, the power of Bush’s neologism in our political language and culture, over the last three and a half decades, has served to protect big government from being cut down to size. It has proven very useful to the left.
What is remarkable about this state of affairs is how wildly incorrect Bush was in what he described as “voodoo economics” back in 1980. Bush said Reagan’s economics were voodoo for one reason—the Reagan plan would cause inflation.
In April 1980, the month of the Pennsylvania primary, inflation was very much on the nation’s mind. It was running at an annual rate of 19%. Nineteen percent—after a full year, 1979, when it had come in at 11 percent. People had to get massive cost-of-living raises (and business owners had to raise prices) to keep up with this incredible phenomenon. The problem was that if you did compensate for inflation by making more, the tax rates you faced went up, because the progressive income tax (and capital gains tax) was un-indexed for inflation. This loathsome process went by the name of “bracket creep.”
Basking in the glow of the Pennsylvania victory, where the “voodoo” line had had great effect, Bush pressed his case in the next Republican debate, in Houston. Bush said that Reagan’s proposal for a 30% income tax rate cut would result, point-for-point, in an increase in the rate of inflation. There would, in fact, be a “30-32%” inflation, as you can see at the 5:40 mark in the clip below.
Bush went on to trash the John F. Kennedy tax cut of 1964, which he called a “scheme” and resulted in a $4.4 billion deficit. He said economist Arthur Laffer did not believe in the very tax-cut plan he had suggested to Reagan. And he said that “our creditors abroad” were very worried about Reagan’s plan.
Here is what is amazing. Bush was wrong about everything. Every one of these points was at the time, or turned out to be, wildly inaccurate.