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Economic crisis

Лозбинев Даниил Игоревич

студент 2 курса

Банковского колледжа

Среднерусского института управления - филиала

ФГБОУ ВО «Российская академия народного хозяйства

и государственной службы при Президенте Российской Федерации»

Научный руководитель: Епишина Ольга Олеговна

Annotation: The main idea of the article is concept of economic crisis. The author reveals reasons cyclical development. The author starts by telling that economic can’t develop stably. The article goes on to say that the problem of control crisis isn’t complete. I found the article useful because it give an understanding about crisis as an economic problem number one.

Key words: Economic crisis, slump, cyclicality, inflation, unemployment.

The modern world is sometimes in a state of economic crisis, which has a significant impact on the economy of countries. Therefore, the topic of the economic crisis is relevant today.

The history of human development clearly shows that a market economy can create more goods and services for more people than any other economic system. This is explained by the fact that in a market economy, there is a high motivation for creative work and progress. It involves economic freedom, so people make their own choices about what to do. At the same time, there is a high degree of risk and responsibility in economic activity, which develops initiative, enterprise and leads to high results in the development of social production.

Economic growth is the central economic problem, which all countries face. Its dynamics are used to judge the development of national economies, the standard of living of the population, and how problems of limited resources are solved [1].

Constant economic growth in a market economy has a number of significant disadvantages (inflation, unemployment, etc.), including cyclicality. The fact is that the development of the market economy is undulating, or cyclical. In different years, production may increase more or less, and in some cases, the development of the economy may have a negative sign, which means a drop in production.

Thus, the development of the economy is associated with a deviation from the average, normal indicators.

Western economic science has now developed a number of different theories that explain the causes of economic cycles and crises. Reasons for cyclicality in terms of [3]:

monetary theory-exclusively in monetary relations, in the financial sphere;

over-accumulation theory - in the disproportionate development of industries that produce manufactured goods, in relation to industries that produce consumer goods, i.e., in investment, while forgetting about consumption, the reverse effect of consumer demand on investment;

under

consumption theory - excessive savings, because they lead to a reduction in demand for consumer goods, and in a depression, the saved funds cannot be used for investment; the main attention of the proponents of this theory is paid to the consumer goods market;

psychological theories-in factors of pessimism and optimism

;

theories

of private property - in partial ownership and in the absence or insufficiency of state regulation of economic processes at the micro and macro levels

.

Over time, these theories were modified, improved, and disappeared.

The classical model of the economic cycle includes 4 phases: crisis, depression, recovery and growth [1].

The crisis is the initial phase of the economic cycle, reflected in the fall in national output, bankruptcy of enterprises, the panic on the stock markets, rising cost of capital due to high demand, rising unemployment, falling living standards and demand.

Depression is the phase of stagnation following the crisis, is expressed in a decline in production to the "bottom" and stagnation in it, a gradual sale of stocks of goods, sometimes at reduced prices.

Recovery is a phase of gradual recovery from the crisis and depression, the features of which are the re-equipment of production, attracting investment, increasing employment, income and demand.

Usually, when a country's economy revives, real GDP exceeds pre-crisis GDP.

A boom is a phase of a short-term rapid rise in output and, at the same time, there are prerequisites for the onset of a new recession. Its features area rapid increase in business entities, full employment of limited resources, the economy ceases to cope with growing demand, which causes a rise in prices (inflation), an increase in income and savings, a decrease in credit rates, and a rush on stock exchanges.

The cycles of a long wave of economic development and the cycles of technological development are in a causal relationship: each economic downturn and subsequent depression causes an innovative process that demanded new technologies and thus stimulated the next wave of technological growth.

At the same time, the end of the previous wave of historical development is the beginning of a new wave, and the past era does not disappear without a trace - it continues to live in the form of technology, culture and worldview of people who determine the choice of further movement of society [3].

The first economic crisis occurred in England in 1825, where by that time capitalism had become the dominant system, it partially affected the economies of the United States, France and Russia, it was the first crisis that covered several industries at once.

Now there are several views on the causes of economic crises:

From the Austrian theory of economic cycles, it follows that the crisis in the market economy occurs as a result of changes in the money market, created by Central banks and a system that does not have a 100% reserve rate, which leads to low interest rates and an increase in the money supply. This creates an economic boom. Firms believe that the projects will be profitable and start investing in potentially unprofitable projects – "bad investments". Households stop avoiding and start spending more of their income, because of rising prices, - they take out loans. The boom cannot go on forever, and then the second stage comes-the crash, the crisis. Lending is falling, the money supply is falling, as a result, prices are falling, and entrepreneurs have to urgently sell "bad investments". Both consumers and entrepreneurs are in debt. Production optimization begins, so layoffs occur [5].

It follows from the Marxist theory that crises are an integral feature of the capitalist economy and their cause is the production of goods in excess of effective demand. In the view of the capitalists, the case takes the form of a lack of money. Attempts are made to increase the money supply, which only materializes profit, but does not increase demand [2].

Therefore, now there are two types of causes of crises internal and external.

External ones include:

1. Political stability and direction of the state's foreign policy;

2. Factors of cultural development of society;

3. International relations;

4. National relation.

Internalones include:

1. Low profitability

2. High production costs due to excessive resource intensity and high raw material prices

3. Overestimated level of resource intensity of products

4. The lack of competitiveness of products

The sources of the next crisis may be a tendency to increase the public debt, improper allocation of state budget resources, as well as the inability to regulate the activities of the shadow banking sector.

Sources:

1. Joseph Alois Schumpeter Theory of economic development. 1982.

2. Capital: Critique of Political Economy. Volume 1// Carl Marx., Fridrich Engels 1867.

3. Elvin Hansen. Economic cycles and national income., 1951.

4. Bums A.F. and Mitchell W.C. Measuring Business Cycles. National Bureau of Economic Research. New York, 1946. 

5. Thomas E. Woods Jr.. Meltdown. A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Regnery Publishing, Inc., 2009