The GFC Proves that Capitalism is a Fundamentally Flawed System - Assignment Example

The GFC proves that capitalism is a fundamentally flawed system’. Do you agree? – A plan for the Essay Introduction This plan is for an essay based on the following question: “The GFC proves that capitalism is a fundamentally flawed system’. Do you agree?” The essay is based on assessing whether or not the global financial system is fundamentally flawed, based on the occurrence of the Global Financial Crisis (GFC) of 2007/2008. Main focus of the essay From the question chosen, the main focus of the essay will be to evaluate the veracity of the statement that the GFC proved that the global financial system is fundamentally flawed. Since this will be an argumentative essay, a position will have to be taken which will be supported by evidence from various sources. For the essay, the basic argument will be that indeed the global financial system is fundamentally flawed and that the global financial crisis was evidence of this. This position will be supported by evidence from various academic sources. A brief examination of the other position that the global financial system is not fundamentally flawed and that the global financial crisis cannot be used as a case in point to prove this will be mentioned in passing. However, based on evidence from the academic sources that will be used, it will be shown that the argument of this position can be easily refuted and that the position that the system is flawed and the crisis is enough evidence for this is plausible. An outline of the proposed essay’s structure In general, the essay will be based on the traditional format used in argumentative essays. After a brief introduction in which the main issues raised in the essay will be presented and the position with regard to the subject of the essay stated, the essay will take the form of points being raised as evidence for the position and supported by reference to various credible sources and examples. Therefore, the points that will be raised and supported by evidence from credible academic sources will form the main segment of the essay. The number of points raised will depend on the length of the essay. After the arguments for the position stated in the introduction have been presented in the main body of the essay, a brief examination of contradicting opinion with regard to the subject of the essay will be examined. The focus will be to use the evidence presented earlier to refute the arguments presented in contrary opinion. There are several issues that will be considered in the essay. These are briefly discussed as follows. First, there will be a brief overview of the global financial system and how it is intertwined with different forms of crises that have occurred over time. Reference will be made to different crises that have occurred throughout the history of capitalism at different places in the world. The main argument in this section will be that throughout the history of capitalism and its financial system, crises of different types, sizes and magnitudes have been occurring. It will be argued that the different crises that have been witnessed in the history of capitalism are caused by basic factors that form the core of the capitalist system, regardless of the fact that every crisis has been triggered by a number of completely different factors. Of great importance will be some of the observations made by Bresser-Pereira (2010, p. 4) that the GFC can be seen within the context of the history of global capitalism, particularly starting with the forms of early capitalism in the United States and Europe, through crises such as the Great Depression to the years that preceded it. In articulating the history of capitalism and different financial crises, it will be emphasised that the history has been replete with different crises and as such, the GFC, whose occurrence was certain when one considers the prevailing conditions of the time and a history of the capitalist economy, only served to prove that. To this end, a history of capitalism and the global economy in general will be reviewed in terms of major events and issues such as the Great Depression of the 1090s, effects of World War II and the influence of the Bretton Woods institutions, the period of the 1970s following the collapse of the Breton Woods institutions, and the period preceding the GFC. Second, since the argument in the essay will seek to prove the fundamental fallacy of the capitalist system using the GFC as evidence, a critical examination of the causes of the crisis will be evaluated. The point will be to prove that indeed the factors that caused the crisis are part and parcel of the capitalist system and as such, the crisis could not have been avoided since the nature of the system made its occurrence almost a certainty. In articulating this point, reference will be made to different sources, particularly, Posner (2010, p. 256), who argues that the belief that the crisis was unlikely to occur set in motion other issues such as deregulation and development of risky financial products. The end result was a completely deregulated financial market characterised by a high level of lending to clients who were at risk of defaulting. In articulating this point, reference will be made to the argument that neoliberal economics and financial globalisation that is characterised by an increase in the level of circulation of financial assets are the factors that played a key role in causing the crisis (Bresser-Pereira 2010, p. 12). By linking the factors that caused the GFC to the financial system of the capitalist society, the argument that occurrence of the crisis was inevitable, given that the factors that caused the crisis are important characteristics of capitalism would have been proven. Such factors like deregulation, financial globalisation and elements of neoliberal macroeconomics are actually the building blocks of the global financial system. In arguing this point, reference will be made to the observation that the crisis actually represented a failure of the Big Government/ Big Bank model of financial capitalism (Wray 2009, p. 67). The characteristics of this model, epitomised by lack of supervision over market activities, complete deregulation, increased privatisation and consolidation of market power by a few leading players, will be discussed in passing. It will be argued that these characteristics of the model of global capitalism were the actual forces behind the crisis. This will add weight to the argument. Lastly, the article’s argument will be focused on showing that capitalism is inherently unstable. It will be pointed out that regardless to other arguments offered, the inherent instability of the capitalist system and the resulting fragility of the global financial system was well proven by the occurrence of the GFC. Reference will be made to the observation that the global capitalist system has been moving from a relatively stable condition to one of complete fragility (Wray 2009, p. 56). At this point, a brief outline of the state of the global financial system immediately preceding the crisis will be presented. This will take account of several issues. For instance, the role that securitisation played in precipitating the crisis will be evaluated at length. The point will be to show that securitisation of home mortgages, which grew to unprecedented levels in the United States before bursting to precipitate the crisis, is actually part of the global financial system. Another issue that forms the core trend of the global financial system and was prominent prior to the crisis is the separation of traditional banking from the market type of banking characterised by the activities of investment banks. As it is observed that the growing competition for banking and non- banking financial institutions put pressure on the profitability of banking in general, it will be argued that this element, once more, is part of the global financial model (Wray 2009, p. 58). Annotated Bibliography 1. Bresser-Pereira, LC 2010, ‘The global financial crisis, neoclassical economics and the neoliberal years of capitalism’, viewed 5 September 2014, Bresser-Pereira (2010) looks at the specific causes of the GFC. This is done within the broad context of the history of the global financial system in particular and capitalism in general. By drawing on the long history of world economics and politics, it is argued that the crisis was caused by two major factors: neoliberal hegemony that resulted into deregulation and financial globalisation that led to the process of creating fictitious financial wealth using novel instruments. This article will be useful to my essay, as the author suggests that the crisis occurred as a result of the unstable nature of capitalism. 2. Posner, RA 2010, The crisis of capitalist democracy, Harvard University Press, New York. Posner’s main argument in chapter 7 of this work is that the global financial system, just like capitalism to which it is part, is inherently unstable. And to prove the point, reference is made to the GFC – how belief about the unlikelihood of the crisis occurring led to poor government policy. This work will augment the main arguments in the essay. 3. Wray, LR 2009, ‘Money manager capitalism and the global financial crisis’, Real-World Economics Review, no. 51, viewed 5 September 2014, Wray traces the emergence of the GFC to two related factors. The first one is the death of traditional banking models coupled with the rise of non-bank financial institutions in the name of investment banks. The second one is the cyclical boom and bust of global prices of commodities. The strength of this article is in the highly detailed way in which trends in the financial system that preceded the crisis are evaluated. My argument in the essay will be highly informed by this. Read More