Great Depression - Sample Essay
1. There are various ways to measure a recession. In general, it is acknowledged by its standard textbook definition. In my opinion, I feel that a recession should be identified through several main characteristics rather than simply by negative GDP growth. For instance, one indicator could be when unemployment reaches a certain percentage. This can be coupled together with any fall in real GDP per capita, so it can be argued that the standard of living has actually decreased per person, a contrast to what occurs during economic growth. 2.
The massive rise in globalisation means that causes are not enclosed within a country, but can permeate other dependant countries as well. Despite there being several factors which can provoke a recession, the current situation was brought because of the toxic assets dilemma in the financial sector. Seeing as the banks had lost vast sums of money, their lending froze so that they could protect themselves from further losses. 3. The advantages and disadvantages of a recession have been widely debated. Although there are many benefits, I feel that they are constrained by the harmful effects.
Even though some economists argue that a recession can improve the efficiency of markets, it would probably be wiser to uphold a stable economy so that greater assurances can enable people to plan ahead. 4. Ultimately, the solutions are disputed between the free market systems vs. government regulations. In favour of capitalists, the argument is that the markets will adjust in the long run. But this recession has been tagged as the deepest since the Great Depression and the harsh outcomes for most people clearly exemplify the need for government assistance.
To overcome the concerns, governments should try and mitigate the ramifications. This has been the case as governments around the world have had to come together to combat the crisis; the G20 meetings and the collective policies are visible indications of tackling the problems. These are to be achieved through expansionary policies, but they must be cautious and prevent market failure turning into government failure, if their strategies exacerbate the conditions of the markets. As various economists have said, a government’s role is to “take away the punch bowl just as the party gets going”.
So finally, are recessions inevitable? After much scrutiny I believe that, theoretically speaking, it is possible. However, in practice it will be unlikely. Even if governments do their best to utilise their economic instruments and political rhetoric, we now live in a smaller world where countries are increasingly integrated economically. As we have witnessed, the sub-prime bubble in America burst onto the international scene, toppling the dominoes of confidence via the cumulative causation effect.
That is not to say that the government should not try. In fact, they should learn from any past mistakes and realise that more regulation is required in areas such as finance, where the circumstances of an economy can hinge. Additionally, the volatility of the business cycle should be dampened to sustain a long period of unwavering economic growth. In this way, many nations will prosper for a long time to come.