Is Economic Recovery Possible?
Introduction
The world economy started developing rapidly after the industrial revolution. The Western countries could produce mass amounts of products over their citizens’ needs, and market the unneeded amount of the products to the other countries. The developing technology has enabled the merchants to reach the farthest points on the world to sell their products. These developments have brought the term of globalization. The technological advancements and the developing capitalism have led the humankind to an economic development path. Some of the Western economies could manage to get the big shares in the world economic development while the other countries have suffered from being underdeveloped.
The developed economies could increase their gross domestic products up to a certain limit, and their citizens could develop their human qualities and their life qualities through using the advantage of the high income per capita in their countries. Many people blame the developed countries for using the resources of the developing or the underdeveloped countries through the colonial movements all around the world. The underdeveloped countries could never catch the phase of the developed countries. Consequently, the developed Western economies have claimed that they could form a sustainable economic development while the rest of the world still could not comprehend the meaning of the sustainability. The developed economies are after forming a green economy nowadays while the multinational companies originated from the developed economies are polluting the environment in the other developing and the underdeveloped economies.
The developed economies have faced many economic and financial crises in time starting from 1930s to 2014. Each crisis has taught something new to the capitalist world. The crises have shaped the world economy. Until 2008, the economists have believed that the crisis is solved through the transformation of the capitalist economies. The governments have created some intervention strategies, and the developed economies could cope with the global crises. However, the global financial crises started in 2008 were completely different one.
After 2008, the governments have tried to comprehend the crisis to develop the economic strategies to deal with the economic consequences; however, they have been unsuccessful. The worst thing was that the economists could not develop an understanding what was happening in the developed economies.
This essay will argue whether a recovery is still possible for the developed economies or the world economy. It is not easy to answer yet. The answer is not a simple "yes" or "no."
The last global financial crisis is completely different from the previous global economic crises. The world has transformed into a big village after the globalization has reached a peak level. Thus, all the economies are interlinked and even all the individuals all around the world are interlinked. Also, we can claim that the links between the individuals and the economies have a relatively higher level of strength. Thus, a simple change on the one side of the world can create some influences all over the world. As known, the physics academicians call this as a butterfly effect.
Considering that the world economy is relatively tighter at the current time, the influences of the global economic and financial crisis have been spread to the entire world in a short term. Also, another essential consequence of this situation has been the transformation of the relations between the developed world, the developing economies, and the underdeveloped economies. The convergence theories in the literature of the economic development were assuming that the developing economies could converge to the developed economies in 1980s; however, that did come true. The last global financial crisis started in 2008 has shown us that the developed economies are converging to the developing economies. Subsequently, we observe a different convergence among the developed and the developing economies.
The last crisis has taught us a new lesson. The developed economies’ claim of sustainability was not a certain fact. In another word, the developed economies have the possibility to break down. The crisis has shown the weaknesses of the developed capitalist economies. The developed economies were consumption-centered economies, and they were happy to produce relatively more innovative jobs concentrated in the service industry. Also, these developed economies were teaching the developing economies to increase the share of the service industry to the other developing countries. However, this claim sounds suspicious nowadays.
The statistics in the developed countries indicate that the individuals have developed some behaviors damaging the national economies and the world economy because of the butterfly effect. The people in the United States wanted to buy very expensive houses through using the mortgage credits those were available through the financial system in the United States. However, the economic changes made it very difficult for the home-owners to repay their mortgage credits. Therefore, the people who have enjoyed the rich America have been transformed into the people suffering from the financial system and their ambitions for consuming more. The crisis started in the sub-mortgage markets has influenced all the other developed economies in Europe.
The capitalist economy have taught the individuals to spend more and more in time for a lively economy and relatively better economic opportunities in the future. High level of consumption was assumed to be the engine of the capitalist economies. However, this policy has transformed the working individuals into the individuals enjoying the life. Consequently, the individuals have transformed the jobs they were doing in the past. In the past, many of the individuals were working in the real production sectors like agriculture, industrial production, and other similar industries. In the modern age, the individuals have preferred working on relatively more in the service industry. Producing a good has become less valuable while producing a service to satisfy the spoiled customers have gained relatively more value. Thus, the jobs were become less productive in the American economy and the other developed economies because the individuals have assigned less value to the real production against the service production.
Analyzing the term of the sustainability indicate us that the economic system is sustainable if the system can provide enough products for the individuals. Thus, the real aspect of the production is relatively more important. This argument takes us back to the first times in the history of economic thoughts. The Physiocratic school representative Quesnay expresses that the land is the most essential production factor because all the foods and some other resources come from the land. Trading and producing some services like banking are not fruitful economic activities according to him.
Simply looking at the American economy, we observe the simple story as follows. One person produces an apple and another person in the economy needs this apple. Thus, we expect the economic system to deliver this apple to the person who needs it efficiently. However, in the developed economies, another person buys the apple and polishes it and sells it to a tradesman. The tradesman develops an organization to make many advertisements sell the apple at the highest possible level of price. Some other professionals warn the tradesman, the first producer, and the other people joined the story of the apple’s travel in the market that they have some risks and they need to get insurance to avoid the risks in the economy. Consequently, we face a very complex picture. Buyers and sellers get confused. Thus, the economic system becomes unsustainable at one point. Comparing a simple economy to a developed economy gives us essential results. In a simple economy, the apple producer sells the apple to the real buyer for one dollar; however, in the developed economy, the same apple's value is more than 10 dollars. Consequently, the economic system becomes unsustainable. That is what happened in the American economy in 2008.
What to Do
The Marxist economic theory assumes that the economies get more and more complex in time, and eventually a final big financial crisis takes them back to the beginning to be a simple economy again. This chaos approach of the Marxist economic approach has sounded very dramatic and unreal for long years. However, the developed economies have faced a harsh time that the innovative ideas are not working as much efficient as expected. The innovative ideas have worked in the time when the developed economies have experienced a rich time; however, when they realized that the real economy in the developed economies have problems, the innovative ideas did not do well as expected. Subsequently, many economists believe that the free market economy has face very serious problems and pursuing the happiness economy is not possible in the long run.
The last financial crisis has proved the people that the free market economies cannot be sustainable without any government interventions. Further than this, the governments need to increase their controls and supports to the markets for providing the sustainability because the real economic production has faced serious problems in the developed economies. This point is much further away from the Keynesian economic approach. The Keynesian economy was suggesting making some interventions to the markets when needed; however, nowadays, the economists are discussing permanent interventions to the markets. Thus, we can claim that the world economy and the developed economies are facing something completely different we never experienced before. The individuals’ behaviors in the developed economies indicate that the sustainability of the welfare economies is not possible in the long run.
The economists and the governments still could not comprehend completely what is happening in the developed economies. We observe some negative influences of the last financial crisis, and we still do not know how to fix these problems. However, there is something certain about the happenings in the developed economies is that we have to increase the strength of the real economy in the developed economies. If the agents in the developed economies can be convinced to produce goods again, then it might be possible to foresee the future. Otherwise, if the agents continue believing that producing in their economy is worthless, then the developed economies might collapse. Thus, the most essential support can be a program promoting the new investments in the real economy. This program has to include some aspects to motivate the entrepreneurs in the real economy. Even, we might claim that the developed economies’ governments have to develop a psychological support for the new entrepreneurs. Decreasing the tax rates on the producers, providing incentives, and some other similar programs can be motivating for the producers.
Conclusion
The world economy has faced many global economic and financial crises; however, the last one has very different characteristics hard to understand. No economist could guess the economic and financial crisis in 2008, and we still can claim that the economists could not develop a good understanding for this crisis. In this situation, many people all around the world is very pessimistic.
The pessimism in the economy is the worst thing might happen. The other problems in the economies are comparatively easier to cope with; however, the pessimism is truly difficult to cope with. Thus, the governments do not have any other alternative other than intervening the markets permanently. For a relatively better understanding, we can give the following example. When a car has a mechanic problem, it is possible to fix it if there is no serious damage to the engine. However, if the engine has a serious damage, then the only way is to understand why the engine is broken. Otherwise, even the mechanics can change the engine completely, the car’s engine will probably be broken in a short term. Following this example, the crisis started in 2008 is informing us about a serious engine problem.
Reference
Molynex, S. (2013, January 8). There Will Be No Economic Recovery. Prepare Yourself
Accordingly. Retrieved November 27, 2014, from https://www.youtube.com/watch?v=bYkl3XlEneA
