The Global Financial Crisis

Question: Describe about The Global Financial Crisis? Answer: Introduction: This assignment has discussed the theories and views of Neoliberal, Marxism and Keynesian approaches. This assignment has compared these theoretical perspectives in order to know the process of overcoming the economic crises that has been evoked by recession. Every country has to face recession. As stated by Dolezalek (2012), recession refers to the slow activities of economics. The characteristics of recession are the huge rate of unemployment, poor indication of GDP (Gross Domestic product), poor household income etc. Therefore, this assignment has discussed these three theoretical perspectives with relevant approaches, concepts and examples in order to understand the best approaches that can be undertaken by a country. Neoliberal Approach: According to Poynter et al. (2012), neo liberalism is a revive concept of liberalism. Neo realism is the development of various thoughts of liberalism. Liberalism can be discussed as a political philosophy where equity and liberty has to be practiced with proper manner in every political, social and economical aspect. On the other hand, Overbeek and Apeldoorn (2012) stated that, neo liberalism is the modernized concept that has taken the privatization, free trade policies and reduction of government activities of liberal thought. Neo liberalism is a political economy that wants to liberate individual freedom. Neo realism strongly believes to the rights of public property, free trade, liberal economy, free economy and privatization. Within this neo liberalism framework, the state is responsible for creating and preserving an institutional framework within the society. There are also other roles of state to set the defense, policies and military for preserving the private property of human. Therefore, key characteristics of liberalism are the privatization, liberalization, free trade and free economy of the state etc. Liberalism framework has dominated over the Western countries for a period of sixty years. Freedom and democracy is the prime value of Liberalism. However, within the neo liberal framework, the role of different private sector will be increased as the role of public sector or government will be decreased (Willse, 2010). During 60s or 70s, British Prime Minister Margaret Thatcher and Ronald Reagan of United States have introduced the neo liberal framework within the economic policies. Margaret Thatcher has opened the economy of United Kingdom for many private sectors. During 1970s, several academics had seen this framework as a root of financialization (Willse, 2010). On the other hand, Vera (2014) criticized that, neo liberal approach has been emerged from the economic philosophy in order to find an alternative way between collectivist central planning and classical liberalism. Free market economy is the major framework of neo liberal economy. Within the neo liberal framework, the interference of government is low on the other hand; participation of public sector is high. Neo liberal framework has been featured within various countries in accordance with the situation of the economy and society of that particular country. Apart from the characteristics of this framework, free press as well as rule of law is the other important area of neo liberal approach those have to be considered by a country. The market and the activities of market is the core phenomenon of neo liberalism. The market here has been treated as the authority of the society and people. However , Obeng-Odoom (2012) stated that, neoliberal approach of economy is the huge source for providing a great financial ability for the country. In spite of this many has been criticized economic recession as a crisis of neoliberal capitalism. Economic slowdown of a country can be driven by either a financial crisis or collapse in aggregate demand. As per the history concerns, neo liberal approaches have been helped to increase the rate of unemployment. From the very past to the recent past, massive financial crisis have been happened by the policy of neo liberalism Therefore, Clift and Tomlinson (2011) stated that, banks and other types of financial institution have been nationalized. Necessity of nationalization has increased. Rate of unemployment has been increased in a manner. Neoliberal approach has caused for the great recession of the period. United Kingdom has suffered a great recession as well as great depression for considering the neo liberal approach of the economy. I n the age of Margaret Thatcher massive level of financial crisis has been occurred due to the policy of neo liberal approach. 2008 and 2009 has seen the deep crisis of economy and the recession has happened in this period. In the year 1930s, United Kingdom has seen the lowest growth of economy by taking neo liberal approach of economy. The rate of unemployment has been increased due to the market economy of the neo liberal approach. Financial market has been built with lots of investment opportunities for the investors. Therefore, lots of investment can take place in the financial market but there will be no job for the people of the society. Private investment would be possible within the neoliberal approach of economy. However, Vera (2014) stated that, with the help of neo liberal approach of economy the one who have money and power will become capable to increase more money. However, the poor people will become poorer. Therefore, neo liberal approach will make rich more and poor more poorer. This will make an imbalance within the society. Therefore, increased growth of public sector will decrease the power of government. The Government can be able to impose rule of law for the people of the country. Marxian Approach: According to Clift and Tomlinson (2011), Marxian concepts are a classical and scientific concept that focuses upon the structure of socialism instead of capitalism. Marxism has focused upon the critical aspect of political economy. Concept of Marxian concept mainly analyses various types of crisis of capitalism. This concept also focuses upon the distribution of the surplus labor and the surplus value that has been generated from the surplus product. Marxian approach deals with the class struggle among the society. Marxian approach firmly protests capitalism and the various approaches of capitalism. According to Marxian philosophy, the ideal state would be that where no class among the human will exist within the society. On the other hand, no capitalist approaches should be there within the society. The laborers will get extra wages for the surplus labor. On the other hand () stated that, Marxism is the most criticized theory that has cleared the way to form a developed form of Marxism that is called neo Marxism. However, Marxism is an important and influential concept that is relevant for all era. According to many theorists, Marxism tells the scientific pattern of thinking. On the other hand, Poynter et al. (2012) tells about the neo Marxian theory that has been develop as the modern form of Marxian theories. According to Overbeek and Apeldoorn (2012), Marxian theory is a materialistic theory that has been discussed within the structure and superstructure of the society. Marxian view tells that all aspects of capitalism should be detached from the society. Existence of different classes is the main element that has tried to stop the economic reformation of a society. As per the Marxian economy concerns, the society should be freed from all aspects of class orientation. Therefore () criticized Marxism in respect of economy and the economic production. Marxism can be described as a biased theory of classical labor theory of value. Marxism deals with classical economy whereas in the situation of modern aspect Marxism cannot be able to provide any solution. Marxism tells against the free market situation. However, within the free market structure, individual people can be able to determine the distribution of goods. Therefore, Karl Marx has developed a Crisis Theory in order to deal with the economic crisis of a country. According to Karl Marx, economic crisis happens because of overproduction of the laborers. Marx has put all emphasize to the class struggle and class identity of the individual workers of the society. Therefore, rate of unemployment should be decreased by imposing Marxism within the society. Therefore, as per the Marxism concerns, whole system should be changed for the sake of economic crisis and recession. According to the Marxian approach, the whole economic and social structure should be changed. The power of capitalism should be passed by the power of socialism where any class will not exist. Keynesian Approach: As stated by Ohanian et al. (2012), Keynesian approach has been derived from John Maynard Keynes who is an economist of United Kingdom. This approach is very modern approach of 20th century. He has been called as the most influential as well as modern economist of modern era of 20th century. He has been also called as the father of modern economics. Keynesian approach deals with the time of recession and great depression of economics. Keynesian view tells that, at the time of economic recession total spending of economy or the aggregate demand influences the output of economics. This is a modern approach of economics. On the other hand, Clift and Tomlinson (2011) argued that, some economists has found that Keynesian approach is an important and effective tool in order to control the inflation and unemployment. In order to fight with unemployment, supply of the money should be increased by a country. However, increased supply of money can be helpful for spending within the structure of economy. This will help to create more opportunities of employment. As per the view of Keynesian approach, aggregate demand has been influenced by several types of factors and it affect upon the production, inflation and employment. These are the elements of causing an economic recession within the country. On the other hand, it can be stated that, Keynesian approach is the most important as well as effective approach in modern era in order to find out the reason of economic recession. This theory has put more emphasis upon the structure of unemployment within the country. This approach has focused upon the role of p rivate sector in the economic situation. However, this approach has also concerned about the role as well as responsibility of public sector or government into the economic structure of a country. Therefore, Obeng-Odoom (2012) stated that, Keynesian approach is useful in the era of post world war. There are several principles in order to describe the action of economy. According to Keynesian approach, some decisions on economic level of private and public sector both can influence aggregate demand. Some economic decisions of private sector will result of poor outcomes of macroeconomics. Decision of private sector can decrease the amount of money that can be spent by the people at the time of recession. This situation can be called as a market failure. In this situation, market failure therefore demands for active policies of government, like Fiscal Stimulus package can be imposed by the government for managing the crisis situation of the economic market. On the other hand, Vera (2014) stated that, Keynesian approach supports the process of mixed economy. Mixed economy can be effective for managing the economic crisis of the country. Within mixed economy private and public both sectors have the ability to partly operate the structure of economy. In the period of financial crisis Keynesian approach has been used for resurging the financial capabilities of the market. This economic approach has been called as the foundation of macroeconomics. This approach is the best possible solutions for the global recession and depressions. During the economic crisis of 2008-09 in United Kingdom the Keynesian approach has been helped to solve some critical situation of finance and economics. Conclusion: In order to draw a conclusion, three theories have been discussed with relevant examples and approaches. There are several advantages and disadvantages of each aspect of three theories in order to find the solution at the time of economic crisis. According to Willss (2010), Keynesian theory is the best possible approach for understanding the nature and characteristics of depression and recession of the economic crisis. Keynesian approach has helped to understand the liquidity trap for the great period of recession and economic crisis within the country. As discussed by Poynter et al. (2012), at the time of inflation and stagflation the Keynesian approach is the best possible approach in order to deal with the situation. Various countries of United States and United Kingdom have seen a huge economic crisis. For that purposes, this approach was appropriate to deal with the situation of those countries. This approach has been called as a dominant philosophy of the period. This approach focuses upon the factors of macroeconomic policy. This approach also tells about the concept of mixed economy that is very important as well as necessary within the modern world. Mixed economy refers to that situation where both public and private sector has the power to operate economy. The diagnosis of this approach upon the recessions and depressions has been considered as the important element of macroeconomics. Within the modern era of world, many researchers have seen that Keynesianism is an effective as well as useful tool in order to control the inflation and unemployment. Increased supply of money can be effective in order to prevent the economic crisis. Therefore, Overbeek and Apeldoorn (2012) stated that commercial and federal bank system can be helpful for providing extra money to the society in order to provide solution to the economic crisis and recession. Public sector bank can be effective for providing extra money to the society. According to neo liberal policy there are no existences of public sector bank and non interference of government should not be able to help the society by giving extra money. Therefore, it is the Keynesianism that helps to provide extra supply of money in order to overcome the economic crisis of the country. Expanding the supply of money unemployment can be fought that can also help in order to generate more employment within the society. Structure of r eserve bank can be helpful to balance the crisis situation within the economic structure of the society. Therefore, extra supply of money can also be responsible for generating job within the society. However, Ohanian et al. (2012) discussed about the difference between Marxian approach and Keynesian approach at the time of economic crisis. The approach of Keynesians aims to find a middle way in between state guidance, laissez faire and unadulterated capitalism as well as control over the economic activity. Marxian approach and Keynesian approach defines the causes and solutions of economic crisis in different ways. Keynesian approach has dealt with the economy within the sphere of economy. It aims to describe various types of increased and decreased manner of economic cycle those can help to balance out the economic crisis of the particular country. On the other hand, Dolezalek (2012) argued that, Marxism has seen the economic crisis as a large crisis of society. Marxian approach aims to see the economic crisis as a result of overproduction by exploiting the workers. Therefore, it has been analyzed that the Keynesian approach is the best possible solution in order to deal with the economic crisis as well as recession. A country can choose this approach as it describes about the mixed economy. Power of both public and private sector can give the best possible results to the country. Reference lists Books Dolezalek, H. (2012). The global financial crisis. Edina, Minn.: ABDO Pub. Ohanian, L., Taylor, J. and Wright, I. (2012). Government policies and the delayed economic recovery. Stanford, California: Hoover Institution Press, Stanford University. Overbeek, H. and Apeldoorn, B. (2012). Neoliberalism in crisis. Chichester: Palgrave Macmillan. Poynter, G., MacRury, I. and Calcutt, A. (2012). London after recession. Farnham, Surrey, England: Ashgate. Journals Clift, B. and Tomlinson, J. (2011). When rules started to rule: the IMF, neo-liberal economic ideas and economic policy change in Britain. Review of International Political Economy, 19(3), pp.477-500. Obeng-Odoom, F. (2012). Book Review: Development and Globalization: A Marxian Class Analysis. Review of Radical Political Economics, 44(3), pp.388-390. Vera, L. (2014). The Simple Post-Keynesian Monetary Policy Model: An Open Economy Approach. Review of Political Economy, 26(4), pp.526-548. Willse, C. (2010). Neo-liberal biopolitics and the invention of chronic homelessness. Economy and Society, 39(2), pp.155-184