While financial crises have been present for many years such as the Great Depression in and the 2008 financial crisis surprised many. The difficulties and struggle in the mortgage market in the United States had moved up to larger financial markets and later the economy. This financial crisis in 2008 that ensued the global recession until 2012 had changed the way the economy is viewed globally. The crisis had made global economy spiral down. The prices of commodities were constantly changing in an unpredictable ways which had frozen consumers. Secondly, due to the uncertainty in prices of commodities, there was an imbalance in the financial system which likewise aggravated things. Additionally, financial crises such as that of 2008 can be marked by the collapse of trade and credit, and the failure of banking which likewise disrupt monetary and financial systems-- thus, the economic inefficiency. Many argues that the 2008 financial crisis is the cause of the flaws in the banking systems and such. However, it can also be argued that the financial crises that continue to plague people in all nations are consequences of capitalism. Moreover, this paper will take that stand and explain why so using well researched facts and analysis.
It had been noted that financial crises may be avoided if democratic states were capable of resisting the deregulation of the financial systems. In other words, putting the regulation of the financial systems away from the states had caused financial crisis such as in 2008, the Great Recession and other financial crises in history. This characteristic of the market may be simply referred to as capitalism. The term capitalism is widely accepted as the economic system marked by the dependence of production on private properties. Among the many differences between capitalism and socialism is the role of the government in the economy. In a capitalist economy, government intervention is absent and thus provide freedom in the markets. Capitalism is different from anarchism since in a capitalist economy, the government still has a role despite the absence of their intervention. The government only functions to make sure that there is protection on private properties. While economic freedom seems to be desirable, per se, there are many problems with capitalism that trigger instability in the financial markets which include monopoly and inequality. Chris Harman had mentioned that economic crises are features of a capitalist economy. It may be agreed upon that the economic crisis in 2008 was the result of the United States’ subprime mortgage lending. To make profits, financiers who have economic freedom lent people who can be considered as bad credit money. Such money lent had triggered the increase in house prices. The said financiers went their way to borrow a lump of money elsewhere, which created easy profits at first. Essentially, after being lured into making easy profits, many banks had joined the cycle. After months, the interests generated by the subsequent lending and borrowing had been so high that many mortgage holders had their homes repossessed. The mortgage lenders was not able to gain profits from selling the repossessed house. They were unable to pay back their loans, causing many banks to lose a significant amount of money. Afterwards, many entities who were provided the freedom to do so by a capitalist economy refused lending, which led to the “credit crunch”. Similarly, the problem may be traced back to the economic freedom that private entities treasure. They are able to dictate prices, refuse to aid in economic development, and many more. So why does the government fail to do something? Why would they allow capitalism to ensue crises? The answer is simple—politicians are elected with the help of private entities. Obama, for example, had made it through presidential campaign and elections due to the help that private entities provide. Without the help private entities who owns pretty much of the economic resources with the help of their ability to “undistributed” wealth, then many politicians would not make their way into the position they are today. As such, it is only logical that they must maintain that these private entities who support them be stable. Thus, policies that were supposed to provide everyone the chance to prevail given the economic freedom are placed in their favour. There is no government control over the prices of commodities, but there are regulations set by them that are influenced by private entities. Slowly, the gaps between the rich and the poor widen. Again and again, financial crises will occur.
As an alternative to a capitalist economy, many had proposed that a socialist economy should be installed. This essentially means that the control over economic decisions will be put into the hands of the government. The means of production and the prices of commodities will be likewise dictated by a government which is directed to even out wealth and resources.
However, there is a divisive debate between capitalism and socialism, despite the evident failure of capitalism. This may root from the fact that while socialism puts the control back to the government, there is no guarantee that the government will make their way to prioritize those who does not provide them support such as the case for politicians who are backed by institutions. Furthermore, a socialist economy brings in other problems too, despite the promise of abolishing monopoly and the restoration of equity, such as the lack of a competitive market and the generation of shortages in resources if not directed accordingly.
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