Essay Example: 2008 Financial Crisis

Capitalism and neoliberalism damaged the economic and political system all over the world with its free market, privatization, austerity and deregulation theories which increased the power of corporations and decreased the role of government in markets. According to Guina (2017), the 2008 financial crisis is a cause of capitalism, and it is considered the worst financial crisis since the Great Depression of the 1930s. The crisis began in 2007 with a crisis in the subprime mortgage market in the United States and developed into a full-blown international banking crisis with the collapse of the investment bank Lehman Brothers on September 15, 2008. According to a CNN report (Louis, 2009) 2.6 million people were fired from their job, and many of them lost their house or mortgage contracts. On the business side, many companies had to fire their talented employees and shut down their businesses because of less demand for products and services. This essay argues that the 2008 financial crisis occurred because of capitalism and used Keynesian ideas and radical approaches to provide a major restructuring of the current economic and political system, which is a peculiar form of capitalism, specifically neoliberalism.

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After 1970's Opec oil crisis and stagflation have occurred in western countries, governments were forced by the public to change its economic ideology from Keynesian to neoliberalism because of high unemployment in the country. Citizens and corporations were hopeful on the new economic system because neoliberalism claimed equal opportunities for public and free market for businesses. The public was not aware that neoliberalism would extend rich and poor gap, and cause the financial crisis and many other long-term problems. Developing and extending period of neoliberalism started with Margaret Thatcher and Ronald Reagan who made a union of the United States and the United Kingdom to spread the capitalist regime. After adopting in U.K and U.S, western allies planned to spread neoliberalism to overseas countries. The reason for spreading the idea is exploiting and manipulating other countries economy and politics to gain advantage from the global competition (Dumenil & Levy, 2004). The fundamental goal of the September 11, 1973, military coup in Chile was the indoctrination of the neoliberal agenda which is caused to the impoverishment of Chile. Economically Chile has developed the country, but in development of economics study, (Tkacova, 2018) Chile cannot be said to be economically significant. After adopting neoliberalism, the gap between rich and poor extraordinarily extended and inequality increased in the country. As seen in 2008 financial crisis, capitalism and neoliberalism spread all across the globe with its negative outcomes. Neither safety net nor trickle-down theory worked in capitalist countries to develop equal income distribution and better living standards for the public.

As demonstrated in previous paragraph capitalism needs to be changed, and the first solution is based on a Keynesian approach which rescued the United States to overcome from the worst economic crisis in the history, Great depression (Romer, 1990). John Maynard Keynes has provided his theories as a solution for Great depression and stronger economy; full employment, government spending, state intervention on markets and other approaches that can help to stimulate the economy (Keynes, 1936). If consider these theories under the umbrella of government intervention in markets, saying government intervention is an inseparable and compulsory element in the Keynesian economics can be appropriate interpretation. The reason of 1929 and 2008 economic crises are identical; lack of government intervention and unstoppable power of corporations (Almunia et al., 2010). For example, private banks, lenders, and investors created subprime mortgage market -provide a mortgage without background or credit check- to develop more profitable way instead of 1% interest rate by Fed. If the system did not change from Keynesian to neoliberalism with financial support from elites and corporations in the 1970s, 2008 crisis might not occur because of the advanced power of the state on markets. However, according to a supporter of neoliberalism, 2008 economic crisis happened because of greedy bankers, incompetent management and lax supervision (Wachman, 2008). Almost all of the capitalist supporters blamed managers of private banks and mortgage corporations, but a few were able to see the big picture which is lack of government action and scanty regulations on businesses (Isodore, 2016). Additionally, both neoclassical economics and neoliberalism are designed by rich families and monopolies to augment their wealth while exploiting government decisions, workers' force and news on media contrary to Keynesian economics. The Mont Pelerin Society is an example of a capitalist society which is developed by Friedrich Hayek, funded by business people, such as Antony Fisher and supported by capitalist economists, for instance, Milton Friedman (Miroski and Plehwe, 2016). Whether capitalist societies and approaches aimed to provide better opportunities for small business and entrepreneurs in the free market or increase the wealth of large corporations and wealthy people, the results of neoliberalism and capitalist ideology is gloomy. Moreover, job loss in the United States peaked at the end of 2008, gathering the year's overall job losses to 2.6 million which the top level in six decades (Louis, 2009). Not only did this affect citizens, but corporations also found it more difficult to borrow capital for financial expenses. A lack of business capital could hurt both the supply and demand-side of the economy. As this trend sustain, it was clear that capitalist countries might face possible recessions (Kotz, 2009). However, if the Keynesian approaches would have been adopted the crisis may not have occurred. Instead of austerity, the state would increase spending on public service and infrastructure improvement which would help to stimulate the economy while improving living standards of citizens as succeed after the Great Depression.

Reasons to change capitalism and neoliberalism ideology were mentioned in the previous part with Keynesian economic and political solutions. This part focuses on radical approach, especially collaborative production and its derivatives to illustrate why capitalist systems need to change and how modernized collaborative production can overhaul current economics, and politics. Modernised and collaborative advanced output refers decentralized platforms and individual-based systems in this essay. In an economic perspective, capitalist supporters claim free market creates various chances for small business, start-ups, and entrepreneurs to join the market without discouraging from the government with harsh regulations and high taxes which then contributes grow of the economy. Milton Friedman supports the free market theory and states "A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both" (Friedman, 1962). However, as demonstrated in previous paragraphs, the free market increased the power elites and monopolies and neither equality nor freedom achieved with capitalist regimes. As a solution, peer to peer and decentralized platforms can increase the role of individuals in the economy. For example, lendingworks.co.uk provides peer to peer loan platform which means users can borrow money from another user. In addition to that, cryptocurrencies, such as Bitcoin provide decentralized finance system that gives power to individuals with producing (mining) and transacting their capital instead of private banks which are the main reason of 2008 financial crisis. Collaborative work and decentralization is the only solution to get rid of conglomerates that manipulate the economy. However, some people may claim that these systems are not increasing the role of individuals but are decreasing the power of government as a new strategy of the capitalist system. However, with new and advanced regulations government can involve the system, such as tax regulation on commercial platforms (Tapscott, 2016). Also, with the advantage of Blockchain, the government can see every transaction and deals from past to today because of every transaction recorded by distributed ledgers transparently (250).

Another point is political system or democracy, which is the political tool of capitalism to maintain the capitalist regime in parliament and government. According to Fraser Institute research, Hong Kong and Singapore are the countries that have the highest index of economic freedom but lack of real democracy (Bowles and Gintis, 2011). Whereas democracy introduced as a sound to the public where the citizens decide decision markers for themselves. Furthermore, freedom of press provided with media and social media platforms where the citizens can share their opinion. However, when media organizations include social media owned by private owners they only focus on profit and because of that reason they can manipulate these platforms for their interest. For example, Facebook and Cambridge Analytica somehow influenced United States elections and took an important role in Donald Trump victory (Lewis and Hilder, 2018). The solution collaborates and decentralized media platforms such as Mastodon where the users can share their opinion without manipulated by media owners because owners and customers are individuals.

In conclusion, this essay demonstrated capitalism and its derivatives such as neoliberalism needs to change. Keynesian economics and radical approach mentioned together to find a balance between tangible and intangible. This means, Keynesian tested and succeeded for many years and can help for the current economy to increase the role of government in the economy to ensure businesses work legally and not planning profit increasing plans that can cause financial crisis as seen on 2008 crisis where the bankers and mortgage lenders provide mortgages without a background check.