Economic Crises: The Role of Greed and Government Mismanagement
Every sunday morning sermon I've attended was about making the congregation understand the problems that greed causes. Therefore, the final answer is…
Root Cause of Economic Crises: Greed
The main root cause of any economic crisis is greed. However, government mismanagement is frequently cited as the underlying factor that exacerbates these crises.
Government Decisions and Economic Impact
The economy is effectively controlled by the government, and if one studies the root causes of economic crises, one will find that they are often due to government mismanagement. Interest rates, inflation, subprime mortgages, globalization, healthcare, student loans, and policies during the COVID-19 pandemic are all examples of government decisions that have resulted in significant negative impacts on the economy.
Causes of Economic Crises
There are several reasons why crises occur, and they often start with an external shock that shakes the confidence of the markets. For instance, in 2008, the subprime mortgage crisis in the USA was a key trigger, and in 2020, the COVID-19 pandemic had a profound impact.
Another common trigger is the oversupply or glut of goods or properties. When inventories or properties are unsold, prices drop, and companies suffer. This leads to difficulties in repaying loans, which causes firms to shut down, and banks to tighten their lending. As a result, the economy is driven down as companies and workers lose income.
The Marxist Perspective on Economic Crises
According to Marxist theory, the accumulation of wealth on one hand and poverty on the other is a recurrent feature of capitalist society. Marx argued that the basic cause of economic crisis is a disproportion between the massive growth of means of production and the limited growth in wages and the number of workers employed.
Marx’s Theory of the Tendency of the Rate of Profit to Decline
Marx contended that the easiest way to look at this is to ask who buys the greatly expanding quantity of goods. Due to low wages, workers cannot afford the goods they produce. Capitalists, who cannot increase wages because that would destroy profit, cannot sell their goods. This leads to factory shutdowns and layoffs, reducing the total amount of wages, and causing a ‘crisis of overproduction’.
Capitalism’s Cyclical Nature
Capitalism, according to Marx, is characterized by periodic lurches into crisis. It is not a planned system, and the stampede of capital into and out of investment is caused by uncontrollable economic pressures.
Sometimes, people thought that the state could prevent these crises. By intervening in the economy, increasing state investment during low private investment and reducing it during high private investment, the aim was to keep production stable. However, even state investment has become part of the system's instability.
Why Crises Tend to Get Worse
Crises do not just take place with monotonous regularity; Marx also predicted they would get worse over time. This is because the competition between capitalists and capitalist nations forces them to invest in labor-saving equipment, reducing the number of workers needed. As investment outpaces the growth in labor, the source of profits—labor—cannot keep up, leading to a declining rate of profit.
This explains why the system is not reaching a balanced state of full employment and economic stability. Instead, it is heading towards a permanent state of crisis, with a never-ending slump and job losses.
Conclusion
The crises of overproduction are not simply too much production; they are about the unequal distribution of wealth. The very success of capitalism in piling up huge investments in new equipment has led to a decline in the rate of profit, which means worsening crises. As capitalism matures, its crises get worse, and there is no guarantee that this trend will be reversed without a socialist revolution to transform the system and society.
Keywords: economic crisis, government mismanagement, root cause, overproduction