Recessions Causes and Solutions Over

Recessions Causes and Solutions

Over the years, the causes and solutions of recessions have been continually debated. This is because politics, ideology and current events will have an impact on contemporary thinking. A good example of this can be seen with the increased powers given to the Federal Reserve through the Dodd Frank Act. This allowed regulators to have the authority in limiting the size of those firms that are considered to be too big to fail. (Anand, 2011) (Hall, 2009)

What shaped these policies were the excessive amounts of abusive lending practices and standards that were utilized by these firms. This resulted in the expansion of the role of the federal government in these areas. The basic idea is that regulators can control these practices and will require increased amounts of transparency during the process. This is despite the fact that many people are opposed to these kinds of increases and often refer to these practices as overregulation. These different opinions are showing the conflicting ideas as to the causes and long-term solutions for recessions. (Anand, 2011) (Hall, 2009)

Let the Free Market Sort it out

The most important aspect of the capitalist system is the free markets. This is where businesses will interact with customers to provide them with a host of products and services. However, in the process is when there will be times that demand will decline. This will cause a contraction in the economy. In the case of many free market proponents, they believe that regulators should stay out of these areas and let everything sort itself out naturally. This will ensure that the economy is able to maintain consistently long-term growth. These factors will force businesses and individuals to make adjustments during this time. When this happens, they will reduce the excessive practices and imbalances that led to the recession. This is the point that the economy will bottom out and begin to resume above average growth. As a result, these individuals believe that the best approach is to limit the role of the government during this process. (Anand, 2011) (Hall, 2009)

There is No Such Thing a True Free Market Economy

Despite the claims made about the benefits of a free market economy, many opponents will argue that this simply does not exist. The reason why is because the government will always play a role in regulating the practices of businesses. This will occur through protecting the interests of the general public and their ability to control business practices (through policies such as taxation). As a result, the government will play a central role in preventing obvious abuses from occurring inside the marketplace. (Anand, 2011) (Hall, 2009)

During a recession, this means that they can help to stimulate the economy. The way that this occurs is to provide additional amounts of working capital. This means that businesses and consumers will have increased access to credit. At the same time, the spending in various public works programs will improve economic activity by: directly reducing unemployment and addressing the needs of businesses. When this happens, any kind of negative downward spiral that is fueled by the recession will be mitigated. (Anand, 2011) (Hall, 2009)