Implications of the Global Economy Crisis (2008) for Us Economy

Implications of the Global Economy Crisis (2008) for US Economy

Abstract

        The economic crisis that was recently witnessed around the world including the United States and the various efforts that were made by the various governments in order to bring some stability to their economies, have raised questions on the strengths of free-market system and what informs interventions by the state. This paper's objective is to put into perspective the debate on interventions by the government and free-market efficiency. The paper also seeks to make a case for the need for regulating financial institutions so that economies are more stable (Aikins, 2009).

Introduction

        The economic crisis raised several questions on the place of the interventions states make in stabilizing economies as well as the strengths and weaknesses of the free market system. A lot of debate has been going on in this area. At the height of the crisis in 2008, various governments of industrialized countries, in fear that the situation may escalate further, took serious measures to ensure that the financial institutions that were facing financial turmoil in their nations did not collapse. The U.S. was at the forefront and made interventions to a scale that could be equated to the ones seen during the great depression (Aikins 2009).

Market Society and Laissez-faire Economies

        The theory of laissez-faire economics is based on the model that production, be they of goods or services, is governed and controlled by the consumers who are deemed to be rational in the choices they make. An idealized competitive economy is characterized by self-regulation, free flow and availability of information as well as the revelation of preferences and exclusion. These factors of revelation of preferences, and assuming that individuals are rational in meeting their preferences, constitute what consumer sovereignty is based on. Only exclusivity when it comes to ownership and use of property can ensure the transfer of property and hinder people using goods and services they have not paid for (Aikins 2009).

        The liberal self-regulating state of the 19th century lead to the emergence of 'market society' (Polanyi 1957, 250) The liberal state stood for influencers who were behind market focused institutions. When World War I ended, embedded liberalism replaced classical liberalism and market society. Embedded liberalism was focused on employment, growth and redistribution and was grounded on socialism (Ruggie 1983; Polanyi 1957). The need for the state to intervene in macroeconomics was reinforced during the great depression. The economy stagnating made it urgent that states make various interventions to guard against loss of employment (Gallarotti 2000). As Marx had predicted, in their efforts to protect their capitalist states from collapsing, the states adopted policies that they were against that encouraged the use of resources of other producers to better the position of other people so as to promote equity in the society (Aikins 2009).