What role did the government play in causing the Great Recession?

1 Answer
Dec 7, 2017

It depends on your views on economics


According to Keynesians(followers of John Magnard Keynes), the crisis was triggered by a lack of government intervention and of consumption. Indeed they consider that the state should be involved in the economy to regulate it by stimulating consumption. It can be done by transfering wealth from the rich to the poor. Inflation is not a problem for Keynesians.

According to Monetarists such as Milton Friedman, the government was responsible because there should have been money creation when the country was struck by deflation after the crisis. Indeed deflation meant that no additional money was created. Monetarists deem that money creation should be proportional to the production of goods and services which was not the case during the 1929 crisis.

According to Marxists, the crisis was caused by overproduction. Indeed Marx thought that salaried workers were underpaid by their employers since the latter were competing with one another and therefore to have producing costs as low as possible. Workers were made too poor to buy the products they made, it could be renamed underconsumption as well.

According to Austrian economists, such as Friedrich Hayek or Murray Rothbard, the crisis was caused by an excessive money creation in the early twenties that overstimulated the economy and eventually led it to crash down.