Capitalism and American Economy
In terms of economics, capitalism is distribution and production of means in an economic system to private and corporate owners. In the United States, the role of the government in the economy can be traced back up to the era of the establishment of the British colonies. At the time, the government was actively involved in the regulation and overseeing of various economic and social activities using different strategies and approaches. In the United States, there was a serious transition in the economy after the War of Independence and the subsequent political and presidential regimes.
The economy of the United states in the period after the War of Independence and the beginning of the nineteenth century was only limited to state and local levels. The governments at the state and local levels participated in the economy through the use of regulations and subsidies. It has been postulated that American economy during this period was laissez-faire as the government did not have much control (Higgs, 2005).
Although the government played significant roles in influencing and shaping the economy of the United States, the case was not true during the reign of President Herbert Hoover. He was elected in 1928, and his philosophy and ideologies concerning the management of American economy took a shift from the previous Presidents. According to Hoover, the government was not supposed to exert more pressure on the economy through control and regulations (Norton, Sheriff and Katzman, 2011). He believed and agitated for a limited role of government in the management and regulation of the country’s economy. Instead, he preferred to manage the economy of the nation through associations (Higgs, 2005). Associationism resulted from the partnership of businesses and the federal government. During this period, the federal government exercised little control over the economy of America.
The government participated in the management and regulation of United States economy and that was evident during the reign of President Franklin Delano Roosevelt, who preferred the capitalist system of managing the economy.The increased role and power of the government in the economy of the nation stood out during the presidential reign of Roosevelt. For instance, the emergence of the New Deal that was founded on the basis of capitalist and democratic system of America clearly shows the extended role of the government in the economy of the United States (Norton et al., 2011). Roosevelt took a new approach that was different from his immediate predecessor by strengthening the role and functions of the presidency and the federal government in controlling the economy. The New Deal extended and expanded the mandates, roles and powers of the federal government, which led to increased control of the government over the economy.
Although the government previously had regulatory responsibilities over the economy, the New Deal expanded the responsibilities of the government to include overseeing of the financial systems of the nation. Namely, all banks, utilities, stock markets, farms and the majority of businesses in the nation operated in accordance with regulations set out by the federal government (Norton et al., 2011).
Financial crises disrupt financial markets by causing sharp declines in asset prices and subsequent failure of firms. Such a crisis occurred in the year 2008. It began in August 2007 where defaults in the mortgage market, in the United States of America, caused a shake in the financial markets. This resulted to the worst global financial crisis from the time when the Great Depression occurred. In the US, Wall Street firms as well as commercial banks suffered unbearable losses. Acquiring credit became much difficult since households and businesses had to pay higher rates in their borrowing.
The Great Recession impacted many people worldwide than any crisis. According to Stiglitz (2010), a flawed government policy and corrupt corporate and personal conduct in the United States initiated the financial meltdown. This problem had an overwhelming consequence. The financial crisis sparked a heated debate in regard to America's economic mistakes and the country’s appropriate form of a capitalist system.
Joseph E. Stiglitz, The Nobel Prize winner in Economics of the year 2001 made his point known in regard to the great recession. In Freefall, Stiglitz (2010), maps out the origins of the financial crisis. He faults the contention that America needed more billion-dollar bailouts with free passes to those “too big to fail,” He outlined the options and revealed that there were still choices ahead that could make a difference. According to Stiglitz (2010), the broken system could only be fixed by examining underlying theories that led the new “bubble capitalism.” This financial crisis resulted in crashing of the stock markets all over the world. Several financial firms such as investment banks, commercial banks and insurance companies, suffered severe nose diving in their financial status.
Stiglitz advocates convincingly for a reinstatement of the balance between markets and government. America being a nation that faces enormous challenges in energy, health care, education, the environment, manufacturing, and education, Stiglitz (2010), candidly addresses each in view of rising global economic order. What shapes this order is the argument over the most effective kind of capitalist system and a rebalancing of global economic power. The battle can ultimately give the lie to theories of a “rational” market and ratify the view that America's global economic supremacy is certain and unassailable. Freefall gives a clear accounting why many Americans feel disappointed today about the failure of the government and stakeholders to act in time and safe homes, education and jobs when indeed they had the capacity to do it. They instead wanted government bailouts resisting regulation that would prevent future crises. Additionally, gives insight of how we can realize a prosperous economy and a moral society for the future generations.
Globalization has had immense influence on the world politics. It is argued that the concept of infrastructural communications has brought about the demise of the sovereign states as global forces undermine the ability of governments to control their own economies and societies. This is evident in the way the American government has brought down the regimes considered as a threat to the economic growth, which had a negative influence on the economy of the United States. The ancient system was based on the idea that nations are sovereign, and no foreign state was to interfere in the affairs of any other country.
The eruption of global financial and economic crisis from the United States financial market in 2008 has since spread and developed into the global crisis (Goldin, Rogers, & Stern, 2005). The global financial crisis has led to substantial changes within economies of various nations across the world. Slower economic growth has characterized this phase, thus affecting all regions of the world. A study conducted by the United Nations (2009) revealed that more than sixty developing countries suffered from the decline in their GDP per capita in 2009. Progression and sustenance of development initiatives across the world are dependent on the prevailing economic environment. For developing countries, the success of development projects depends on the amount of aid delivered from developed countries. For example, according to Sridhar (2010), the financial crisis and economic slowdown have the potential of influencing the flow of development aid. Since most developing countries depend on development aid and foreign aid investment in the achievement of their development goals, global financial slowdown might undermine the progress and reduction in per capita growth rates.