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Economic Crisis of 2008

Economic Crisis of 2008

The topic of the paper presents the picture of the economic crisis of 2008 that became evident in the light of the government policy and economic analyses of the situation. It gives possible perspectives based on the evidence that had no proper information except the governmental international loans.

We need to underline that from the time of the World War I and till the 1960s, the Keynsian economic theory was the major economic thought that explained the main economic rules and governing principles. It was really popular in the scientific society in the West. John Maynard Keynes presented his General Theory of Employment in 1918; it determined the main features of the economy of that period. However, it took into account the historical conditions and events that influenced economy a lot.

Keynsian theory underlines that international enterprises were not able to have positive economic development; in order to organize their activity in a proper way, there was a strong need for the governmental intervention. There was a certain role that should be played by government in the connection with the progressive economic development:

  • Control and regulation over the monetary supply;
  • Government budget should be used in order to organize properly the business cycle of enterprises;
  • Government should serve as the employer of the last resort to manage unemployment and keep it on the certain level.

While explaining this influence of the governmental intervention into the economy of the country, we were actually speaking about three main branches of policy that influence the entire economy:

  • Monetary policy;
  • Fiscal policy;
  • Employment policy.

Moreover, Keynes underlined that the development of the entire economy or certain entrprise could not be predicted by any strategies or analyses. That is quiet unpredictable area of activity, and its results are equivalent to those that one may get in the casino.

However, the scientific society did not agree with the Keynes’ comparison of economy with casino. His vision was replaced by the “efficient market” theory witch pointed out that the efficient result of the economy depends a lot on the proper data about it. Active critics of the theory presented by Keynes were supported by the leading macroeconomists who rejected his understanding of the economic slumps.

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Moreover, we need to mention the fact that some economists returned to the position of Joseph Schumpeter, whose view was concentrated on the Great Depression and the fact that recession is a positive thing. He noted that recession is the port of the economic development and has the same value as the rapid development. Both of these scenarios paid attention to the main factors that influence economy. Economists of that period had rather narrow view on the economy; they were insisting that any attempt to fight with such economic conditions would make the situation worse for the entire international economy.

Freshwater economists, who got their economical education in the universities of the United States, could be considered as neoclassical purists. Their point of view is that the economic analysis starts from the idea that people should be rational and markets should work (thus, it is their economic nature). However, that is a well-known fact that real economy differs from the theoretical basis.

There is no doubt that a strong belief that efficient financial markets could exist without control and limitations blinded a lot of famous economists and has created the biggest financial bubble in the history. Presented theories were demonstrating only the certain part of the activity thatt should be usually held and taken into account in order to stimulate the economy in the proper way. 

The results of negative economy could not be considered the matter of concern for the scientific society only. Thus, the economy influences life and well-being of every citizen. As the result of the past losses, more than six million of jobs were lost, and the rate of unemployment has the highest level since 1940.

We need to underline the fact that economy as a branch of science got into the real trouble because of the wrong vision of the pure perfect economy that is able to renew itself without the participation of people.

   

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One thing we need to realize is that we do not need to start building economy from the beginning. We have already dealt with some of the problems of its development and gathered enough information to use it in practice. Moreover, the experience of past years could show us the direction of future activities.

The point of view presented by Krugman could be considered rational and most applicable to the present situation concerning the world economy. However, he did not underline that extreme recessions and depressions could have significant, but not positive influence on the economic development. However, this point concerned capitalist systems. Thus, deficient demand could be epidemic for their development and cause contradiction of economic production. This activity may possibly lead to the increase of the stock panic. In turn, this situation could lead to the recession and depression. We could notice the circle that could repeat again in case annoy intervention would be made. In order to ensure positive development of the capitalist systems, its main features should be changed. Here we are speaking about private ownership and control over the investment. Moreover, private profit as the tool of motivation needs to be on top of the priorities.

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