Boom and Bust in the United States - Essay Example

The Keynesian theory, the economic model credited to have helped the United States navigate the bust that was the Great Depression, recognizes that the economy and the market needed governmental intervention and responses. The reason for this is that the private sector, when left to its own devices in a free market environment, tends to make decisions that lead to inefficiencies (Morse, 45). The global financial crisis that began in the US in 2007 is a case in point. It was caused by the "housing bubble" driven by the greed of corporate managers who allowed loans with low-interest rates.

As an economic model, a capitalistic system can be considered the best in terms of generating wealth and economic development. The free market system ensures that innovation, creativity, and enterprise flourish. This strength, however, can also be its undoing as demonstrated by the economic crises in the US. Understanding the dynamics of these phenomena in the context of weaknesses of the capitalistic system will provide insights as to how to respond and minimize the impact of the busts. This is critical as they came to be expected as cyclical fixtures of the economic model. Read More