The high unemployment was partly a result of the productivity gains, allowing the number of hours of the standard work week to be cut while restoring economic output to previous levels after a few years.
Essays in this Time Period
Workers who remained employed saw their real hourly earnings rise because wages remained constant while prices fell; however, overall earnings remained relatively constant because of the reduced work week. During the s, the Eastern Bloc , which relied on a stagnant form of planned economy , experienced a decade-long period of stagflation , and eventual collapse from which it did not recover, culminating with revolutions and the fall of communist regimes throughout Central and Eastern Europe and eventually in the Soviet Union.
The process was accompanied by a gradual but important easing of restrictions on economic and political behaviour in the late s, including the satellite states. The collapse in the USSR was characterized by an increase in the death rate, especially by men over 50, with alcoholism a major cause. There was also an increase in violent crime and murder. A firsthand account of conditions during the economic collapse was told by Dmitry Orlov , a former USSR citizen who became a US citizen but returned to Russia for a time during the crisis.
After more or less stabilizing after the disintegration of the USSR, a severe financial crisis took place in the Russian Federation in August It was caused by low oil prices and government expenditure cuts after the end of the Cold War. Other nations of the former Soviet Union also experienced economic collapse, although a number of crises also involved armed conflicts, like in the break-away region Chechnya.
The Financial Crisis: Lessons for the Next One | Center on Budget and Policy Priorities
The default by Russia on its government bonds in led to the collapse of highly leveraged hedge fund Long Term Capital Management , which threatened the world financial system. The U. The depression, which began after the Russian and Brazilian financial crises ,  caused widespread unemployment, riots, the fall of the government, a default on the country's foreign debt, the rise of alternative currencies and the end of the peso's fixed exchange rate to the US dollar.
By the end of November , people began withdrawing large sums of dollars from their bank accounts, turning pesos into dollars, and sending them abroad, which caused a bank run. The freeze enraged many Argentines who took to the streets of important cities, especially Buenos Aires. They engaged in protests. Since , Venezuela has been suffering an economic crisis. Some economists i. In particular, Austrian theoretical research has been focused on such problems emanating from socialist forms of economic organization.
This however is not a theory of economic collapse involving the breakdown of freely functioning financial markets; rather, the focus is on economic malfunction and crisis emanating from state control. Economist Roger Garrison describes the bubble as merely a form of unsustainable boom not a theory of all depression , as Mises and F.
Hayek did, despite their disagreements on the exact workings of it. The "boom" was created by "malinvestments," as Mises called them; business decisions that are bad investments and unsustainable in the long run because lowering interest rates by padding the supply of money and credit will only work in the short-term, but will ultimately collapse because the government can only hold down interest rates so long before fear of inflation kicks in and deflation comes at the peak of the business cycle , or they go into hyperinflation which is completely outside the realm of the ABCT.
The Great Recession and its Aftermath
In "The Science of Political Economy", published in , Henry George argued that because land is a scarce resource, it is particularly subject to speculation. George uses "land" to refer to ownership of a right to use a resource. It includes mining, water, fishing, and timber rights, road and rail rights-of way, and some patents.
Today, we would add to "land" such items as taxi medallions, telecommunications licenses and pollution "rights". Henry George followed his analysis with a remedy: eliminate all taxes except for a tax on land values. The "single tax", as it later became known, would invigorate the economy by breaking up large idle holdings, making land available to those who would use it. And it would suck the air out of speculative bubbles, damping the boom and bust cycle. Henry George died before the publication of the series of books, and parts of the book are nothing more than an outline, essays and lectures as noted on the cover page.
He also stated that the expansion of the money supply, should be 1 percent or thereabout, to maintain healthy growth, and discourage saving, and encourage spending, and he wanted a debt free currency. Our current currency, as of is birthed by debt.
The Financial Crisis: Lessons for the Next One
Romanian American economist Nicholas Georgescu-Roegen , a progenitor in economics and the paradigm founder of ecological economics , has argued that the carrying capacity of Earth—that is, Earth's capacity to sustain human populations and consumption levels — is bound to decrease sometime in the future as Earth's finite stock of mineral resources is presently being extracted and put to use ; and consequently, that the world economy as a whole is heading towards an inevitable future collapse, leading to the demise of human civilisation itself.
Taken together, the Industrial Revolution in Britain in the second half of the 18th century has unintentionally thrust man's economy into a long, never-to-return overshoot-and-collapse trajectory with regard to the Earth's mineral stock. The world economy will continue growing until its inevitable and final collapse in the future. From that point on, ever deepening scarcities will aggravate social conflict throughout the globe and ultimately spell the end of mankind itself, Georgescu-Roegen conjectures.
Georgescu-Roegen was the paradigm founder of ecological economics and is also considered the main intellectual figure influencing the degrowth movement.
Consequently, much work in these fields is devoted to discussing the existential impossibility of allocating Earth's finite stock of mineral resources evenly among an unknown number of present and future generations. This number of generations is likely to remain unknown to us, as there is no way — or only little way — of knowing in advance if or when mankind will ultimately face extinction. In effect, any conceivable intertemporal allocation of the finite stock will inevitably end up with universal economic decline at some future point. From Wikipedia, the free encyclopedia. For other uses, see Collapse.
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Main article: Great Depression. Today, many of those same shortsighted politicians continue to add to the economic woes—only this time as statistics in the increased unemployment rate. Some ousted leaders may have been correct in downplaying the seriousness of the Greek threat, but they perniciously underestimated the deeper pan-European problems that Greece reflected. The Greek situation has highlighted the frailty of other major European economies and the unsustainable nature of disjoint fiscal policy in the monetary union.
As the window of opportunity to act shrinks, the extent of necessary measures swells—all the while the requisite political will wanes. While Greece threatened instability, emergent situations threaten total collapse. Italy—the third largest economy in the entire euro zone—is the most recent and most serious concern in the sovereign debt crisis. This paper will thus focus on Italy, the most recent and significant actor in the dramatic European saga.
Above all, however, Italy is not just a paradigm or microcosm of the European crisis that gives leaders the luxury of experimenting with possible solutions to the larger, continental threat. Italy is the continental threat. The opportunity to test solutions—if it ever existed—was exhausted with Greece. This paper will focus on Italy because—if Europe does not act swiftly and correctly—not only will the euro zone necessarily fail, but the entire project of European integration will be brought to the brink.
I will begin with an exploration of the economic factors and corresponding institutional flaws within Italy that have caused this most recent scare. I will then outline the associated economic and institutional problems in the European Union that have also contributed to the gravity of the situation.
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I will finally discuss various proposals and possible solutions—domestically and internationally—and evaluate the possibility of long-term viability. I posit that deep structural reform domestically and internationally is needed to resolve the current crisis, and that national leaders have not yet done enough to salvage the continental currency. As yields on Italian bonds crept up to seven percent last month—the borrowing rate at which other European nations have needed financial aid—the government continued to refuse support.
As economist Tyler Cowen recently affirmed, one frequently cited optimistic argument about Italian debt is that it is largely held domestically. Despite the insistence by the government that Italy remains a competitive producer, the nation has run a trade deficit since One of the measures of a sound economy—the successful development of human capital—also indicates grave systematic weaknesses in the Italian system.
While politicians continually dismiss the loss of skilled Italian youth to other countries by claiming the loss is less in absolute terms than that of other nations, those countries offset this trend with an import of talent in other sectors. Italy, however, is the only large European economy that maintains a net brain drain. These economic conditions reveal serious structural flaws in Italian institutions.
In order to achieve any long-term solution to the current crisis in Italy and, consequently, to the sustainable preservation of the euro zone, these flaws must be elucidated and corrected.
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In addition to the aforementioned lack of competitiveness that has forced the state to borrow, tax evasion remains a serious problem in the southern peninsula. Tax evasion has been a contributing factor in other Southern European debt levels, notably in Greece. In Italy, the primary causes reside in institutional culture, namely in the limited use of electronic currency. According to an estimate by the Bank of Italy, Italians evade an aggregate billion Euros in taxes annually because of cash transactions. Italian law has often favored small family-owned businesses, and the continued political defense of family pact law has proven economically inefficient, regardless of its charming cultural motivations.
In , however, Romano Prodi reintroduced such legislation and made it once again legal for family owned businesses to discriminate against non-family members and secure inherited ownership. As an example, bankruptcy provisions in Common Law tradition that permit and compel companies to restructure are generally made difficult under Italian Law in favor of punitive actions that help neither the creditor nor the debtor economically.