World Economy Since 1945 - Essay Example

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The concept of neo liberalism has dominated the sphere of economic policymaking in the Western world. Both the United States and the United Kingdom has strictly adhered to the school of neo liberals since the past four decades. Neo liberalism finds strong advocates in all over Western Europe. …
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Download file to see previous pages However, strong popular beliefs regarding the negative effects of this school of economic thoughts have remained. The fall of the global economy since the 2008 financial crisis has led to the development of substantial popular resistance against neo liberalism. The US has made continuing efforts to introduce neoliberal policies on the third world countries, which are in the period of economic transition. It has been successful in achieving this objective and has received the support of the international bodies, such as, the World Bank and the IMF. According to common belief, neo liberalism refers to an up-gradation on the classical liberal economics. This classical liberal economics dominated majority of the UK and the United States before the Great Depression hit the world in the 1930s (Overbeek, 2003). A new approach started to enter the thought of economists since the mid 1930s, after the world faced the perils of liberal economic relations among market agents. This approach was considered interventionist and tended to strengthen by the 1970s, when it was termed as the neo liberal economic thought. Under this new economic theory, it was accepted that, significant state intervention is required in order to retain the strength and shine of capitalist form of production relations. Without state intervention, capitalist mode of production relation cannot be viable (Kotz, 2000). An overview: European Stagnation It has been argued that the euro zone crisis had occurred as a result of “a toxic neoliberal economic policy cocktail” (Palley, 2013). This cocktail was developed in 1980s when Europe had begun to put emphasis on the model of neoliberal economic theory. By embracing this theory, income generation reduced and demand creation was suppressed. This gave rise to wide income inequality. However, the problem of stagnation did not appear immediately with the changes in economic decagons making in the European countries. A number of initial economic developments during the late 1900s postponed the occurrence of stagnation. Among them, the most important incidence was the creation of the Euro. The common currency of the Euro zone countries led to “interest rate convergence” (Palley, 2013), which swelled up the asset price and eased credit availability facilities. This brought superficial prosperity in these economies owing to the asset price bubble. But, the fictitious boom in the economy actually worsened the stagnation by delaying it and building up large heaps of debts. These economies had followed a flawed system of monetary policies that caused the debt crisis. The neo liberal economic model thus prompted flawed economic growth pattern in the developed countries that had accepted this model during the 1970s and 1980s (Palley, 2013). Shift from Keynesianism to neo liberalism in Europe Europe was developing during the mid 1900s. However, after the 1945 there has been a major change in the pattern of economic growth of the countries in Europe. Towards the end of the twentieth century, average buying power of a European consumer increased by three times. The basic factors that stimulated economic growth were cohesive associations between employers and the employees, solidarity-centred trade unions and an overall growth oriented policies of the governments. These institutions were interconnected with one another and worked consistently towards mobilization of savings and stabilizing wages and improve the climate for financial investment (Parker, 2013). However, after 1973 Europe switched from Keynesian economic point of view to the neo liberal economic thought. According to Barry Eichengreen, it resembled a switch from economic developm ...Download file to see next pagesRead More
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