Global Crisis and Government Intervention: Economic Crisis

Global Crisis and Government Intervention: Economic Crisis

Hakan Ay, Öznur Uçar
Copyright: © 2015 |Pages: 10
DOI: 10.4018/978-1-4666-7308-3.ch012
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Abstract

The authors look at the three major global crises; they see state intervention in causes and solutions. The causes of the crisis were deregulation. To resolve the crises, again regulation policies have been applied. Although the causes of the crises seem to have been regulation policies, in fact, the main problem was homo economicus. In conclusion, the authors see that when we analyze the reasons for the three big global crises and the ways to overcome crisis, the reasons are the unethical and irrational behavior of homo economicus. That is why homo economicus must be constrained and obey constitutional financial and monetary rules.
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Background

Knowledge is cumulative. Our article is the work of cumulative knowledge. We thank thinking people who made important contributions with their knowledge and ideas.

Economic Crisis

Crisis derives from the Greek word “krisis” meaning sudden decision-making, and refers to a deteriorating situation. An economic crisis suddenly occurs and is an adverse condition that affects both state and market players. It acts on the three main variables of the economy; the general level of prices, economic growth and unemployment. In the literature, a few problems generated with different combinations of these three variables a few problems have been identified. They are: inflation, deflation, stagflation, recession, depression, and slumpflasyo.

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Approaches Of Schools Of Economic Thought

Economic crises are evaluated in terms of different economic schools of thought. One of them is a school of classical economics. In 1776, classical economics begins with Adam Smith's book Wealth of Nations and was active until the 1930s. Until 1930, the economy was believed to be in balance thanks to the invisible hand and to re-balance itself in the future economy, despite deviation from equilibrium. Likewise, the economy has come back into balance after eight crises experienced in the 19th century and three crises experienced in the 20th century until the Great Depression. However, the economic crisis of 1929 led to the collapse of this idea and an understanding of the need for government intervention. Socialism is believed to have caused the crisis of the capitalist system. According to Jean Charles Sismondi, there is no balance between the process of production and consumption. The capitalist process of production is not allowed to increase the subsistence level of the workers at the same rate as production increases. Worker’s wages will not be increased according to profit increases with higher productivity in a capitalist system. This paradox will lead to economic crisis. According to Marx, the capitalist system is the cause of the crisis. Furthermore, he has even claimed there will be no end to the business cycle in the capitalist system. Because of the contradictions within the capitalist system, there will be a crisis a decade and each crisis will lead to the next crisis.The next the business cycle will be more severe than the first one. The can be no solution if the capitalist system continues to live.

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