Glamor Economics

Chapter 188

Chapter 23 Section 7 Why Totalitarianism Rise - Economic Recession
In 1929, the Great Recession occurred in the United States.At that time, most stock prices in the United States plummeted, and the stock market collapsed. Many people lost all their assets overnight, causing a national economic panic.As a result, a large number of factories and banks closed down, and the country fell into economic difficulties.

The Great Recession led to the rise of totalitarianism in Germany and Japan, and brought serious unemployment and social instability to Western countries such as the United States, Britain, and France, making them unable to unite to stop the aggression of totalitarian countries.Roosevelt's New Deal, to a certain extent, slowed down the severe damage to the US economy caused by the economic crisis and promoted the recovery of social productivity.Due to the recovery of the economy, social conflicts were relatively eased, thus curbing the fascist forces in the United States.

It is precisely because of the experience and lessons of the 20th century that the U.S. economy was saved from the second Great Depression when it encountered the 2008 economic crisis. The rescue behavior of the "big government" played a key role in quelling this round of economic crisis.

The famous economist Krugman believes that when the economic crisis broke out at the end of 2008, its severity was comparable to the banking crisis during the Great Depression in the 20s: a series of indicators such as world trade, world industrial output, and global stock markets declined faster than even surpassed that at the time.But unlike the Great Depression, in this round of crisis, the economy did not decline in a straight line as it did at that time, but gradually began to bottom out after a bad year.He believes that the reason why the United States has been saved from repeating the mistakes of the Great Depression is that the government played very different roles in the two crises.

First of all, in this crisis, the most critical thing is not what the government does, but what the government does not do.Unlike the private sector, the federal government has not cut back significantly.Although fiscal revenue has dropped sharply during the period of economic contraction, social insurance, medical insurance, and the income of public officials have all been properly guaranteed.Expenditures in these areas have played a certain supporting role in the declining economy and become the government's "automatic stabilizer".During the Great Depression, U.S. government spending was a much smaller percentage of GDP.Although a large amount of fiscal expenditure during a crisis period will lead to a government deficit, but from the perspective of avoiding the deepening of the crisis, the deficit can be a good thing.

Second, in addition to continuing to exert its own stabilizing effect, the government has taken further measures to stabilize the financial sector and provide bailout funds for banks.While the existing bank bailouts are flawed in terms of the size and shape of their bailouts, the situation would have been much worse without such measures.In response to this round of crisis, the government did not adopt the hands-off attitude of allowing the banking system to collapse in the 20s, which is another important reason why the Great Depression has not reappeared.

Finally, the government has thought deeply and worked hard on the economic stimulus plan.It is predicted that without the implementation of the economic stimulus plan, 100 million more Americans will lose their jobs than they do now.It was the stimulus package that pulled the U.S. economy out of its free fall.

From this point of view, in the face of economic depression, the government should play a greater role.

[links to related words]

A recession is a period of stagnant or negative economic growth.Different countries have different definitions of recession. In the United States, the definition of recession is widely used when the economy has experienced two consecutive quarters of negative growth.In macroeconomics, it is usually defined as a country’s gross domestic product (GDP) growth falling for two or more consecutive quarters within a year.This definition is not widely accepted by countries around the world.The National Bureau of Economic Research, for example, defines a recession more vaguely as "several months of declines in economic activity in most sectors of the economy."Keynes believed that a decrease in the aggregate demand for goods was the main cause of a recession.

Stagflation The full name of stagflation, also known as depression inflation or inflation recession, refers to rising prices, but economic stagnation.It is the result of long-term development of inflation.For a long time, the economies of capitalist countries have generally shown: economic prosperity during periods of rising prices, low or declining unemployment rate, and falling prices during periods of economic recession or depression.Based on this, Western economists believe that unemployment and inflation cannot occur in the same direction.However, since the end of the 20s and the beginning of the 60s, the main capitalist countries in the West have experienced economic stagnation or recession, massive unemployment, severe inflation, and continuous price rises at the same time.Western economists call this economic phenomenon stagflation.

(End of this chapter)