January 10th, 2018
Impacts of the 2008 Global Economic Crisis on the UK
Impacts of financial crises are wide-ranging including large declines in real output and high unemployment rates (Colander 2008; Percy ed. 2006). Although the crisis had its antecedent in the US, its transmission to other economies such as Europe and UK was facilitated by factors such as global trade, financial system connections, and reduced demand due to declining household wealth and loss of confidence in various investments (European Communities 2009; House of Commons 2008). This section highlights the impacts of the crisis on employment levels, income disparity (gap between the rich and the poor), international trade (exports and imports)
Impacts of Economic Crises on Employment Levels
A core effect of the economic crises is their resulting into reduction of employment levels. For instance, in the great depression of the 1930s, employment levels declined drastically and the economy could not recover fast enough to provide jobs for the population that, after the prolonged depression, had lost faith in the classical economic perspective that market forces would resuscitate the economy from such depression (Colander 2008). Such a situation for instance resulted into a different economic school of thought – the Keynesian Economics – that advocated for government intervention, to bring the economy to a recovery trajectory; avoid a situation where the economy would get stagnant on a downward spiral (Colander 2008). The 2008 financial crisis has also been characterized by massive job losses.
Reduction in the employment levels has been orchestrated by layoffs as companies attempt to resize their operations to achieve cost efficiencies. Since before the credit crises firms could acquire finances easily, the unavailability of such finances as lenders result to stringent lending practices results into the postponement of planned expansion programmes or halting those plans that had already been started prior to the economic crisis (Campello, Graham & Harvey 2010; European Communities 2009). Such limitation to credit facilities mainly affect entities spending on such aspects as capital investments, employment (freezing further employment until conditions improve), investments on technological advancement and marketing activities (Campello, et al. 2010; European Communities 2009). Other aspects that lead to the increase in unemployment rates include the failure of businesses that result due to altered demand and unavailability of credit to finance operations (European Communities 2009). Although unemployment benefits could alleviate the effect of job losses in the short term, in the long run such benefits may not adequately cushion for the rapid increases in unemployment accompanied by a simultaneous aggravation of the housing markets that increase the burden on households that are already highly-indebted (European Communities 2009). With such social welfare programs already being strained by the increased percentage of the aged population, the inability of these programs to provide adequate incomes to spur consumption that would lead to increased demand thus output is evident (European Communities 2009).
With respect to income disparities, the financial crisis effect has been increasing such disparities. For instance, with majority of the individuals taking loans that they were incapable of paying during the housing boom, resultant events that have left them highly-indebted and some losing their homesteads due to payment defaults has led to their increased poverty (European Communities 2009). On the other end however, the rich especially investors in corporations that have diversified into other markets where the impact of global crisis was largely curtailed have continued to enjoy massive profits. Similarly, with high unemployment rates, corporations could acquire services of individuals desperate for jobs, at low-level wages, thus achieving cost efficiencies that result into increased revenues (European Communities 2009). The effect of these aspects is that of increasing the poverty gap, since the wealthy remain largely unaffected whereas the status of the poor is adversely affected by increasing prices of commodities and loss of incomes following lay-offs (European Communities 2009).
Impacts of Economic Crisis on International Trade
Impact of 2008 global crisis on international trade has, on a positive way, been evident with its correction of the extent of existing imbalances between the Western countries and emerging markets such as china. Due to decreased domestic demand, the imbalances for instance between the U.S and China became more curtailed (European Communities 2009, p. 48). Secondly, such positive impact of the economic crises on the imbalance has been created by the depreciation of the major currencies against those of the emerging markets (European Communities 2009, p. 51). Appreciation of such currencies for instance lead to the increase in the value of the imports thus dissuading enhanced domestic consumption of imports relative to domestic products which could offer a better value, but whose demand is otherwise adversely affected by their relatively higher prices. Despite such improvement in trade imbalances, projections are that such improvements may be reversed with recovery resulting into increased domestic consumption and improved value of the pound and dollar with respect to these countries’ currencies (European Communities 2009). Go to part 4 here.