Economic History Problem
The great depression was experienced between 1929 and 1939. It was an economic downturn that lasted for a long time, and it was very deep in the history of the western world, which was industrialized. The depression started just after the stock market crashed in the United States. Therefore, Wall Street was in a great problem since all the investors were wiped away by the depression. The investment and spending of consumers also dropped. The goods that had not been sold started piling up thus the production process was slow (Watkins 1993, 42). Therefore, the industrial output declined at a very high rate. Unemployment also increased at a high rate since the companies that were failing had to lay off some workers to ensure that they were able to survive. By 1933, the depression was at its peak thus between thirteen to fifteen million people were not employed, and almost all the banks in the United States had failed. The capitalism of America also stopped working. For a very long time the free market failed, and that prevented any person from succeeding economically. It could have been very hard for the economy to recover since the depression had caused great damage to the economy and to people as well. The effects of the depression were severe, and they were experienced by very many people. Despite being assured by leaders that the problem could be solved, the situation was only getting worse thus making it very difficult for people to survive. Farmers did not have the resources to harvest the crops that were in their farms thus the crops were left to rot in the farms despite the fact that there were other people who had been starving in other places. Due to unemployment, many people turned into crime. Therefore, the rate of crime increased at a high rate as people could steal in order to acquire the basic needs. Prostitution also increased due to the great depression. That is because the women that did not have a means of acquiring money were desperate since they had bills to pay thus they could offer their bodies to men. Poverty also arose during that time. People who had been used to having money were now poor, and they did not even have means to attain money and that made life very difficult for them. Many schools were also closed at that time thus most of the students had to drop out of school. That is because the government did not have enough resources to spend on the schools thus making it difficult for the schools to run appropriately. Without education, the society and economy could not develop in any way. Many people also migrated to other areas where they could have the opportunity to earn a living. That happened because their homes had become very difficult for them to survive.
It is evident that the solution to the great depression was the Second World War. That is because around twelve million people were employed in the military during the Second World War. The war jobs helped in dealing with the unemployment problem since they offered job opportunities to very many people. Massive spending was also experienced during the war. That helped a lot in making the situation better. The government also reduced its spending. That was a result of the new deal that had been implemented by President Roosevelt. The rates of taxes were also cut, and there was a lifting of price controls during the time of war. That resulted to a recession of eight months, but then there was a surge in the private economy. Personal consumption started rising at a very high rate. The spending of private investment also grew, and that contributed a lot in making the economic situation better for the people since they could now afford to lead better lives. The spending of the government was crashing at that time, but it helped a lot since the lives of the people were now becoming better. People spent and invested more while feds spent very little. The free markets were also validated thus people were now able to buy goods at affordable prices. Many people now had jobs since there was a lot of investment, and spending and that shows that production had also increased. People were now able to earn a living through legitimate ways.
In conclusion, it is evident the great depression caused great problems all over the world. That is because it completely changed the economy and changed the lives of very many people. People were now finding life to be very difficult since the rate of poverty had also increased. With unemployment, people could do anything to ensure that they were able to attain food. Many farmers counted great losses since their harvests were only rotting in their farms. However, the government and the war contributed a lot in ensuring that the depression came to an end.
Stagflation can be described as a period through which economic growth is slow, and unemployment is high as well. It is a time through which everything is stagnant, there is a lot of inflation, and the prices are also high as well. It is a situation that occurs when prices grow, and the economy does not grow. In 1970, stagflation was experienced, and it was very severe thus it greatly affected the people. The oil prices in the world rose at a very high rate, and a sharp inflation was experienced especially by the countries that were already developed. The inflationary was a result of stagnation. With increased inflation, the level of output decreased at a very high rate (Meade 2011, 36). The prices of oil had a great effect on the economies. The production also decreased at a very high rate since many organizations were finding it hard to survive, and most of them even ended up failing. The stagflation resulted to unemployment since most of the people that were working had to be laid off, that happened because many companies were failing thus they had to cut the number of their employees in order to reduce their costs and expenditure as well. Due to unemployment, poverty increased at a very high rate since people had no means of earning a living. That made their lives very difficult, and surviving was a great challenge for them. The prices had also risen thus very few people were able to afford the basic needs. The monetary events that were experienced at that time resulted to the changes that were experienced at that time. The economies were not developing in any way, and they were making it very difficult for people to survive during those hard times. The expectations of inflation started increasing; thus they started tightening the monetary policies. The gross domestic product shrunk by six quarters and inflation tripled.
The Washington consensus was a solution to the stagflation. It is a set of policies that were used by the government of the United States as a way of dealing with the problem. One of the policies was fiscal discipline which was a strict criterion that was used to limit the deficits of the budgets. Another policy was the priorities of public expenditure. That was made by moving the expenditure towards the fields that had been neglected previously. That ensured that they were moved to fields that could bring high returns. Tax reform was also one of the policies. That was made by making the tax base broad and cutting the rates of marginal tax. Financial liberalization was also used. The interest rates were ideally made to be market determined. Exchange rates were also managed; thus they helped in inducing rapid growth in the exports that were not traditional. Foreign direct investment was also increased, and that helped in ensuring that other nations could invest in those economies thus dealing with stagflation. Monetarism was also used to deal with the problem of stagflation. That is where the government tried to control the money that was in circulation. Intellectual property rights were also secured. They are rights that ensured that the costs were not excessive, and that helped a lot in making the costs available to the costs that were informal. Privatization was also encouraged. That is because it was easy to develop the private sector, and the private sector could also have helped in dealing with the unemployment problem since it could create many job opportunities to the people that were not employed. Monetarism helped in ensuring that the economy was becoming stable. Markets were able to work well even when people were controlling the markets themselves. That is because in some instances the intervention of the government contributes in making the government unstable. That happens since governments are not well aware of how to deal with the markets, and they can cause great problems to the market. Therefore, by allowing the people to run the market to run on their own, it was easy for the people to make the right laws for them to survive. It also ensured that the government does not interfere with free markets. The solutions were of great help since they dealt with the stagflation, and they also ensured that people were now living better lives.
In conclusion, it is evident that stagnation was a very difficult time for many economies. That is because the economies were not developing, and inflation had also increased at a very high rate. Life was difficult for them, and people were barely surviving since many products and increased prices thus making it hard for them to afford the basic commodities. Many people did not have employment since they had lost their jobs thus the economy was hard on every person. However, certain measures were used, and they helped a lot in ensuring that the problem was solved. For example, the Washington consensus and monetarism helped a lot in dealing with stagflation.
Meade, J. E. Stagflation. London: Routledge, 2011.
Watkins, T. H. The Great Depression. Boston: Little, Brown, 1993.
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