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|The 2008 Financial Crisis |
|A Review and Critique |
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|Nicholas Makris |
|12/4/2012 |

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Introduction

The 2009 economic crisis was significant for two reasons: the rapid rate at which the free market constraints were dropped, and the lack of any stable resolution by the Left (Mellor, 2009). Tenets pertaining to market domination suffered a lethal crack owing to multiple nations realizing the inessential communization, rather than the actual, of economic arrangement (Mellor, 2009). The core of the problem was complicated, but simplification showed it was the nonstandard arrangement of the monetary system that created a complicated scope of financial tools and entities to be formulated.

Capitalist economies were “democratized” in a process involving de-mutualization, privatization and an always-available monetary obligation (Mellor, 2009). Homes were seen from a different perspective as financial additions, rather than dwellings, individuals were opined to commit in pensions, stock exchanges, and various other systems by which an income could be produced, theoretically converting their funds into capital (Mellor, 2009; Reuten, 2011). The rush of finances pertaining to investment reserves, endowment collaterals, pensions and the stock markets, etc. played a great role in transforming household’s savings into high risk capital assets (Bezemer, 2011). Similar to most sudden financial increases, the swift fund additions acted as bait to hook even more investors, leading to further increases until the system collapsed. Ironically, the crash seemed to have been brought about by the destitute (Ohanian, 2010). Hunting for an infinitely increasing rate of returns, one saw the rise of deranged investment plans and rising prices. This system came crashing down on itself as massive debt structures were supported by rickety and financially weak households (Mellor, 2009).

Leftist critics have analyzed and critiqued intensively, the worldwide financial capitalism and concurrently there have protests to stop globalization. However, no concrete solution has been offered, most definitely not one that has garnered much support (Stiglitz, 2009; Bholat, 2009). This is possibly due to the constraining nature of “there is no alternative” style of politics and neoliberal advances on state affairs, which is matched by anti-state Libertarians (Mellor, 2009; Desmed et al. 2010). But now that the state possesses complete and utter control of advances, the names of Keynes and Marx are being re-imagined and reinstated in the current scheme of things (Stiglitz, 2009; Acemoglu, 2009).

The recent economic crisis has given birth to a number of questions, such whether the crisis can be considered as a failure of American free market capitalism, where socialism is a possible alternative by virtue of the current economic presentation?

The present study aims at finding out whether capitalism is sustainable in United States (U.S.) after the recent 2008 financial crisis. The research questions are as follows:

• Will the global economic crisis change the principles and ideas of capitalism that have been enshrined for many years?

• Is the United States heading for abandoning the basic tenets of capitalist orthodoxy that has brought prosperity to the U.S. over the past several decades?

• Will the economic crisis lead to the decline and fall of American-style free market capitalism?

An Overview of the Crisis

In retrospect, the United States has experienced its worst economic downturn since the Great Depression. The crisis began in the year 2006 with the housing market, particularly the markets of subprime mortgages, prime mortgages, real estate, and finally made its way into the commercial market, corporate bonds, and various other debt types (Bezemer, 2011; Battiston, 2007). Owing to that, the banks in the U.S garnered losses of more than one trillion which lead to a steep decline in lending and consequently the “Great Recession” (Shaikh, 2011; Kotz, 2009).

It had been increasingly apparent for some time that America’s expansion was not going to be sustainable (Stiglitz, 2009). Highly dependent on a real estate bubble, the U.S. existed across its capacity, owing to a sustained consumption rate (Acemoglu, 2009). Even small economies, upcoming markets and 2nd or 3rd world economies that sustained themselves well were likely to become entangled in the mess and suffer, even though their practices involved increased rates of foreign exchange, no buying of corrosive mortgages, and decreased risk in derivatives (Wade, 2009).

East Asian nations however, were quick to absolve themselves of this fiscal disaster, owing to their ability to utilize export markets (Ohanian, 2010). Before the crisis spread across other nations, the U.S considered export markets a driving factor in the economy, but at the moment the crisis broke, with a majority of nations sinking low; exports could not provide a solution for this disaster (Stiglitz, 2009).

The crisis is distinctly different from the U.S post-war recessions and other recessions that occurred alongside in financially stable nations such as Canada, France, Germany, Italy, Japan and the United Kingdom (Stiglitz, 2009). In the U.S. output and earnings were low simply because of a massively low rate in labor input. As a contradiction, low production and income in other U.S financial crises were majorly due to lowering of productivity rather than labor (Ohanian, 2010).

The 2008 recession, in comparison to the Great Depression of the 1930’s, can be more convincingly implied to have been started by fiscal crises (Ohanian, 2010). In the 1930’s, banking scares did not begin to occur until halfway through the depression, and even so, the banks in question were not even half as large as today’s giants (Chari et al. 2007, Ohanian, 2010). This is in stark contrast the 2008 crisis which has involved mainly local and small bank holding companies (Ohanian, 2009).

The Troubled Asset Relief Program (TARP) allowed more than a 50 percent share of deposits in commercial banks that required government assistance; a number much larger than the 1930’s (Ohanian, 2009). The disaster came to a head in September and October of 2008, vis-a-vis the rate of job loss accelerated owing to the recession that had begun at the top of the year 2008 (Ohanian, 2010). Many large and powerful financial bodies in the U.S. and other places had been completely weakened, which also caused severe stress in the world’s monetary system (Ohanian, 2010).

Moving on to other phases where the recession had an effect, it can be seen that the political sphere experienced a major shift (Kotz, 2009). November 2008 saw the electorate across the nation switch en masse towards the Democrat candidate for President, as opposed to the history of presidential elections in the recent past (Kotz, 2009). The Democrat candidate was able to raise a huge amount of finances, and was able to financially phase out his opponent even in the areas held strongly by the opposition, something that was not a recurring act in the recent years (Stiglitz, 2009; Taylor, 2009). The prevalent ideology of the previous three decades seem to have suddenly become intangible, and policy sustenance has shown that major market researchers and have decided to support part nationalization of banks and an increased government injection process along with it abandoning the ideologies of some conservative intellectuals (Stiglitz, 2009; Kotz, 2009; Panayotakis, 2010).

Over the past, it has been seen that any capitalist system would eventually go through a phase of financial disaster. The form of such however, has differed according to the prevailing time period. No matter the strength of any system that promotes capitalism, large profits and market growth, accumulation and accruement, the underlying system of capitalism that contains its contradictory values will almost always bring it down, thus resulting in a total structural breakdown. (Kotz, 2009; Kotz, 2008)

Causes

While examining the role of capitalism behind the crisis, it is very necessary to examine the root of the crisis. Hence, this section will discuss the causes of the economic crisis on the basis of the findings of various existing literatures.

➢ Fall in Profit

In recent decades a noteworthy decline in the profit rate for the entire US economy in every sphere has been one of the major factors gearing the economic performance towards a deplorable condition in the country (Moseley, 2011). There was a scary decline of around 40% in the profit rate for the nonfinancial corporate from the 1950s to the early 1980s (Shaikh, 2011). This profit rate decline was the main cause of the most dreaded scourge of an economy-higher unemployment and higher inflation and workers receiving lower wages to cut down the inflation (Moseley, 2011). The depression periods has showed that the decline in the rate of profit had led to reduction in business investment, as a consequence of which the growth rate became slow thus leading to unemployment. There were other factors that have also contributed- mostly from the period that followed after war. Many governments in the 1970s tried their level best by reducing tax values, interest rates and adopted monetary policies that could lead to expansion of the economy so as to fight the unemployment (Rasmus, 2004).

However, the results were contrary to what they had hoped would happen. The capitalist firms raised their prices at a faster rate as a response to the government measures because a capitalist firm would nothing other than profit (Rasmus, 2004). Thus there came inflation in an even bigger form quivering the balance in the economy more. The government attempt to increase employment dropped due to the protests of the financial capitalists. The result was less inflation with higher unemployment. Therefore, in a way, the government policies have actually worsened the financial condition. To sum it up the combination of unemployment and inflation at a particular time ultimately has the decline in the rate of profit as the primary cause. (Lowenstein, 2005; Moseley, 2011) ➢ Adverse effects of policy measures for ensuring profit

The capitalists have reacted to the diminution in the profit rate by numerous ways. Inflation related policy that escalated the prices at a quicker rate, cut down real wages or at least averted hikes in real wages so that all the profits of rising productivity would result in greater gains (Moseley, 2011). Lately more and more companies had ended up reducing money wages in reality for the very first time after the great depression of 1930s. The workers faced the dilemma of either living with lower wages or giving up on their job (Rasmus 2004).

To restrict health insurance and retirement pension benefits has also been another far-flung policy. Health insurance demands higher and higher premiums from the workers and the ones who led themselves to believe that they would enjoy an easy retirement are in for a rude shock. As a result they will have to work longer which leaves very few jobs for the new workers. (Lowenstein 2005; Moseley, 2011)

An alternative business policy is to “downsize”. Downsizing refers to ceasing or discontinuing the services off 10-20 percent of a firm’s staff and expecting the remaining staff to handle the work volume of the laid-off workers (Moseley, 2011). A current policy has been to employ bankruptcy as a means to deduct wages and benefits considerably (Battiston, 2007).

A further increasingly important policy strategized by the capitalists to cut back on wage costs has been to shift their production operations to areas around the world that are low-wage. This has been the key driving force responsible for the globalization of current decades: a universal search for low wages with the purpose of raising the profit rate. As a result, the policies of capitalist ventures to heighten their profit rate in recent years have become the cause for immense suffering for many workers: more eminent unemployment, more prominent inflation, sluggish real wages and augmented insecurity and stress and job exhaustion. Nearly all American workers this day work harder and for a longer span for constantly lesser pay and even lesser benefits than they did many years ago. The era where blue collar workers were a part of the middle class in the United States seemed to have ended. (Roberts, 2010; Moseley, 2011)

➢ Amplification of household debt-housing market bubble

Astonishingly and unsatisfactorily the recovery of the profit rate has not ensued in a significant improvement in business investment and hence had failed to lead to a swell of employment opportunities as normal expectations would be. As a percentage of the G.P (Gross Domestic Product) business investment had persisted on low levels despite the recovery of the profit rate. Rather than investing in business expansion, executives and owners had preferred to spend their higher profits in different ways including mortgages. (Moseley, 2011)

A key aftermath of the larger profits and the repeated weakness of business investment is that banks had a lot of money to offer, but the non-financial conglomerates did not feel the need to borrow it from them (Pessac and Serially, 2009). Consequently, banks looked for new borrowers. In the meantime, workers were stuck with stagnant wages for years and were very keen to borrow money to be able to afford a new house or a car and sometimes even for the bare minimum. Then, banks began focusing on workers more and more as their borrower-customers, particularly for home mortgages over the span of the last ten years or so (Pressacco and Seravalli, 2009). The total percentage of bank lending for households claimed fifty percent in 2006 raised from a thirty percent in the year 1970. The net value of home mortgages multiplied three fold between the years 1998 and 2006, and the household debt ratio to GDP doubled and still kept counting, from a 45 percent in 1970 to a whopping 95 percent in 2007 (Moseley, 2011). It was a remarkable upsurge of household debt, unheard of in U.S history, which is now known as housing market bubble of the US. ➢ Enhancement of financial sector debt One more crucial aspect of the current crisis was that there took place a cardinal change in the source of funds for U.S banks in the recent years. Previously banks used to count on deposits as their key source of funds to lend it out. But, recent decades show that banks have been increasingly swearing by debt as a chief origin of funds to loan out. Debt financing facilitates banks to “leverage up” their equity and therefore earn a prominent rate of return on their equity. At the same this increasing habituation of banks on debt financing also had ended up making the banking system more precarious and less defendable to further crisis. (Acharya and Richardson, 2009)

➢ The financial explanation

The 2007-2009 recessions had a concrete financial explanation. It showed that among other events, mostly due to the values of asset-supported securities that suddenly got depreciated and large institutions failing to take any preventive measures in this regard led to the deepening of the calamity that quickened the down turn to take a nasty shape (Ohanian, 2010). The interest rates soared up high.

It cannot be put in the way that the financial crisis was behind the wheels for the recession to break out, ‘crisis’ being the keyword here (Ohanian, 2010). Even several theories have been put forward to explain the situation in terms of deficiency in financial policies exemplified by deteriorations in balance sheet which reduces investments, output employment and consumption. Bernanke et al. (1999), Gertler and Kiyotaki (2010), etc. have explained these theories. There is no doubt about the fact that such explanations have a strong ground. But the quantification values of how much depression occurred and how much output got reduced and its theoretical facts are missing. The facts that these explanations lack in are as follows- decline in aggregate lending volumes, documentation if internal cash positions of firms, the consistency and relevance of the current models of financial market imperfections with the evidences obtained for the diagnosis of the downturn (Ohanian, 2010). As per the diagnosis points out, the mechanisms explaining the imperfections in the capital market vary from the models that sketch them and are quite different from them. Theoretically, the capital deviation is equivalent to imperfections in the capital market and this phenomenon separates out the returns that the capital suppliers get and the capital that the users pay. During the 2009 recessions, this deviation became reduced than the normal deviation. (Gorton, 2010; Ohanian, 2010)
Policy measures undertaken by the US Government

This section will look into the policy measures that have been undertaken by the American government to deal with this economic crisis. It will also discuss the effectiveness of all the measures that have been taken by the government. This section will help in throwing light over whether the government has stuck to the policies undertaken by a capitalist economy, or the country has started to embrace socialism. The major policy measures are as follows:

➢ The stimulus

A good stimulus has to function swiftly (like we say, be timely). It should possess a big bang for the buck, and last but not the least it should aid- and definitely not worsen- our long-standing troubles. Possessing a big bang for the buck is especially crucial owing to the fact that the emergence in the volume of the national debt, starting from $5.7 trillion in the beginning of the Bush management to over $10 trillion on the current day, with an anticipated shortage this year of $1.5 to $2 trillion, relying on how the calculations have been done (Stiglitz, 2009).
But as the case stands, most economists never found to be beguiled by standard government accounting which centered on liabilities and in turn paid very little or no attention to assets. If money is invested to produce more assets (such as advanced technology, infrastructure, skilled human resource), then these assets counterbalance the new liabilities, and end up strengthening the national balance sheet (Moseley, 2011). These particular criterions entail that the tax cuts which constitute about one third of the stimulus parcel, has not made the mark (Stiglitz, 2009). The likelihood of Americans saving substantial fractions of the tax cut is high for they are burdened with heavy debt, are dubious about proper credit access and job security, and lastly had hefty parts of their wealth ruined because of the falling prices of assets. This entails that the tax cuts don’t have chances to provide much stimulus (Stiglitz, 2009). While appraising the actual size of the stimulus, it is needed to take into consideration the negative stimulus amounting from the automatic de-stabilizers constructed into state expenses (Granados, 2010; Alesina and Ardagna, 2009). A number of states have balanced budget frameworks. This implies that when tax revenues decline- like they do when the economy battles recession and when real estate costs nose-dive- either they need to snip down their expenditures or hike up the taxes (Taylor, 2009). A shortfall of $40 billion was faced by California on its own. Sometime ago the deficit of the States was approximated to be around $150 billion a year; but because the crisis has intensified that number has crawled up (Stiglitz, 2009). Therefore nearly half of the stimulus simply countervails the negative stimulus coming from the states. To make up for the State’s revenue shortages we should have ordained an elementary revenue sharing arrangement (Galbraith, 2008; Taylor, 2009). The stimulus package was expected to aid the States in a noteworthy manner, but would still not be enough. Once one considers the negative stimulus from the states we realize how poor our stimulus is a total of 1-2 percent of GDP. (Stiglitz, 2009)
In spite of giving stimulus, there is still high degree of inadequacy in aggregate demand. With the help of some computing, in the US there has been wealth destruction of $15 trillion, a sum equal to the GDP. A diminution this could be anticipated to generate a decrease in consumption of between 5 and 6 percent of GDP. The consumption decrease, possibly over a period of several years, might be even bigger. (Stiglitz, 2009) Americans were not living within their income. They had to borrow to fulfill their living standards, while median real incomes dropped, and currently they are dropping even more.
It is not the case that they would be unable to borrow because our financial system is working the way it ought to; it is just that they would not want to borrow to carry on what were obviously indefensible levels of consumption (Taylor, 2009). The data shows a striking increase in America’s household savings rate already. If this is combined with falls in investments and exports, one begins to form an image of the seriousness of the situation. (Galbraith, 2008)
Hence, the question arises over what shall substitute the “hosing bubble?” Stieglitz (2009) have attempted to elucidate in his book that one of the reasons behind the loose fiscal policy that lent to the bubble was that there would have been in the nonexistence of loose fiscal policy, an inadequacy of net demand. Provided that the dollar remains the reserve currency of choice, there will be a demand to augment dollar holding which entails that the exchange rate will be such as to make sure that imports outperform exports. Reserves multiplied to a huge extent after the East Asia crisis, as countries discovered the risks of losing economic sovereignty during a crisis. Increasing reserves was perceived as plausible for each country individually but systematically it was expensive. The demand for reserves may intensify further as there remains a risk that the crisis will not be handled properly either. Mounting inequality too has been responsible for the lack of aggregate demand. We have spread income from those who would spend it to those who would rather not. For some time we believed besieging the problem by letting Americans at the bottom and middle spending anyway, by borrowing was possible, but that was not sustainable. (Stieglitz 2009; Galbraith, 2008; Ghotge, 2009)
By far slight if anything at all is being done to combat either of those central problems. That tells that even after efforts have been done fixing the monetary system of the US, there is little scope for optimism about a return to full-bodied growth. ➢ Rearrangement of Financial Sector

Capital allocation and risk management are two of the important jobs to be carried out by the financial markets for risk management. And these were the two fields in which the American market blew up. They created products so complicated that even its creator was not able to comprehend what each one actually was and what risks it implied. All they did was heap up more risks instead of managing the older ones. They also failed to create the products that could help the people manage the risks that they faced up to (Moseley, 2011). 97% of the investments that have revolutionized the world today have taken several years to be materialized since their inception in 1990s (Stieglitz, 2009). The resource allocation was quite a delayed affair, for example the investment with the fiber optics that took years to be made into a reality. But the delay acted as a blessing in disguise because meanwhile India and China became more acquainted with the global economy hence leading to a cut-down in the prices of interconnections. In addition to this, there were quick-fix benefits pouring in from the real estate extra investments. Now an average American could also afford a bigger house to live in but at the expense of the world economy which is unjust in all ways. (Granados, 2010; Stieglitz, 2009)

This almost led to the end of the economy in itself. Every reflection of the benefit is required to be on the higher output for a better risk management. An ideal financial system should be such that all the beneficiary services should be provided not at the expense of the resources of the society and at a reasonable cost, low if possible. The American Society has exploited almost a king-size of the resources available in the other economic parts of the world but was reluctant to return the favor that they forcibly took from them. (Moseley, 2011)

The American banks were mostly responsible for the massacre. None of the risks were managed properly by them. Billions of dollars have been messed up by these institutions. In recent years, about 40 percent of the profits made by the corporate have merged into the financial sector. But 40 percent is still too small in comparison with the huge economy of the United States. They have contributed well, as much as possible for them and have also been rewarded for their excellent service in the pioneering portions of the American economy. But social and private returns do not match in value. This way the market cannot work efficiently. (Stieglitz, 2009; Wade, 2009)

Now it is time to chalk out the type of future we would want to see. For that, in the first place, the first place, we need to do away with the previous model that has caused so much of trouble in the past years. A few decades ago, when the securities system started, it could be well imagined that the results would be catastrophic. The probable reason for that was that the investors cared less for the risks involved in every investment, or the asymmetric nature of the information system, or the depreciating tendency of the market and unfortunately all of the predictions came to be true. (Taylor, 2010)

The American banks are a total failure. President Obama was all set to deal the situation to get over these troubles. He wanted to start over with the lending systems in order to protect the nation’s financial well-being. The system was still in the ventilators but he is also hopeful that the tables will turn soon. However, as per the situations, recovery did not start very soon and might be there was national debt mounting up more and more and the rosy dreams set forth by the president may be far from reality. (Galbraith, 2008; Stieglitz, 2009) The only success that banks have been able to do is to scare the people about bankruptcy so that they do not engage in rash investments. (Stieglitz, 2009)

Crisis versus Capitalism

This is one of most important segments of the paper. It will consider various thoughts regarding the economic crisis and capitalism. I will discuss whether capitalism should be abandoned in America, direction policy makers are taking and consider other economic framework.

The recent financial distress has clearly shown the ineffectiveness and corrupt nature of the political as well as economic system of capitalist nations. A few critics have even announced that these influential people have been disgraced, and have therefore led to an opportunity for the Left and Communists in general (Kotz, 2009). This fact does have some validity, as current surveys reveal that individuals in the U.S. are shifting their faith from free enterprise towards socialism, something that was unimaginable up until now (Kotz, 2009). The financial collapse has placed a blemish on the repute of conventional governmental and monetary privileged, leading to the growth of an idea that would have been ludicrous to many: placing a man with African-American ethnicity and modest governmental knowledge on the seat of Presidency in the U.S (Ratner, 2009; Panayotakis, 2010).

The field of governmental regulations saw the most out of the financial disaster, with the key change in U.S party politics taking place in November 2008 (Kotz, 2009). During this time, there was a massive paradigm change, with a great percentage of people moving over to the Democratic Presidential Applicant, which was in stark contrast to what had happened the years prior (Shaikh, 2011; Stiglitz, 2009). The above applicant gained a superior amount of large-scale newspaper firm support among which resided major Republican economic firms, managing to push out the competitor in terms of funds raised. Strategically, it appears that various high-class economists and ruling assessors have begun to rally themselves with idea of nationalizing key banking companies and government injection processes (Kotz, 2009; Kotz, 2008).The neo-liberal frame of mind, which was prevalent, would appear to have lost its footing, even seeing the experts forgo it for other ideologies (Kotz, 2009).

In the time to come, past occurrences show that the U.S economic system, as well as that of the world, is bound to face major shifts. One can also be able to see that the upcoming economic system will involve the governmental areas in a larger fashion. However, as much as one can predict, one cannot be sure of how the rise of the governmental structure will affect its structure, as that will count on the numerous class and group conflicts arising. Research however, has been able to single out three forms of governmental systems that may be seen in the future (Kotz, 2009).

One of these forms could be the corporatist structure of capitalism (Kotz, 2009). As it stands now, the primary factors seeking to manipulate the system of financial formation are the large banking corporations and non-financial firms. In the aftermath of three decades of neo-liberalism, movements of mass acclaim are limited and hold no strength in the process of rebuilding, in which case, owing to their low scale influence, large-scale companies will push them out and control the type of financial manipulation, leading directly to the rise of the corporatist capitalism. This illustrates a type of capitalism where large firms control and change financial policies through the government, directly resulting in a firm and profitable capitalist structure with a large amount of acquisitions over time (Panayotakis, 2010; McDonough et al. 2009).

The above system of capitalism would possess these main features. Firstly, the entire financial structure would become answerable to every policy of the government, in an attempt to regulate it and put it to use in the structuring of the real area. Its properties would however rely on the fiscal and real fields of work. In addition, the organizations, which control the capital-to-labor ratio, would retain their neo-liberal premise, in order to remain profitable. Labor would then completely be overshadowed by revenue. Thirdly, to create a resolution for the crises coming from lowered monetary growth, a new factor that would entail a stretched out program, one of governmental fiscal investments to increase profiteering. Furthermore, an advanced form of this would stress the governmental system in various fields such as transport, communication, power and technical advances. Another response system would be to capitalize on armament and security budgets. An amalgamation of the above would also be likely (Kotz, 2009).

Should a mass action arise, it would result directly in a form of state capitalism, where there would be a dual standoff between the state capital and the labor force with various mass bodies. Owing to this, there would be various shifts in the capital-to-labor agreement, whereby increase in expansion would lead to workers gaining also in salaries. The very base of this program would require firm trade union body, and an open-minded economic body to assess all relations. This system would also require a change in the inter-company politics which create a massive down force on the labor parties’ finances, a direct result of massive competition and organizational changes worldwide. Creating a larger governmental capital budget would also have to have its own part, equally dividing social and environmental pay outs, along with base system upgrades. The fiscal areas, as with the first type, would also need extreme overbearing (Panayotakis, 2010; Kotz, 2009).

The final type would be the removal of capitalism, in place of which socialism would take hold (Panayotakis, 2010). As stated above, three decades of neo-liberal capitalists have created a depression in the circumstances of the U.S and the globe. Owing to the financial crunch, capitalism has been reduced to the extent that people are now able to realize its less-than-desirable factors. It has left people stranded in their time of requirement, as they capitalist profit function slowly makes people unable to live, work or be secure in a standard fashion, even going as far to deny them goods and services, and a fiscally stable environment. People work hard to keep themselves from being homeless and without employment, and now they have to face lives without insurance health or otherwise, low bank savings and the overbearing global climate shift (Kotz, 2008). This leads to the idea of socialism taking root as it might serve every need that is required now. Even though it may be decades before the socialist takes its stance, the chance remains with the decline in the capitalist age (Ratner, 2009; Kotz, 2009).

Conclusions

This is the concluding chapter of the paper. This chapter will help to answer the research questions asked in the introduction section of the paper. Hence, it is first necessary to present the research question once again. There were three questions as follows:

• Will the global economic crisis change the principles and ideas of capitalism that have been enshrined for many years?

• Is the United States heading for abandoning the basic tenets of capitalist orthodoxy that has brought prosperity to the U.S. over the past several decades?

• Will the economic crisis lead to the decline and fall of American-style free market capitalism?

There is no doubt that the recent economic recession has given a severe blow to capitalist ideologies, particularly to free market driven capitalism. America has long been advocated free-market driven capitalism, but it has suffered the most during the recent financial crisis. Under free-market driven capitalism, there is little scope for the government to intervene in the operation of the market. Here, private companies play the key role in the economy. However, the recent crisis has shown how this sort of capitalist system has failed to generate enough income, offer jobs and controlling financial distress within the economy. Moreover, it has proved to be incompetent in dealing with crisis situation. Today, a large number of Americans are jobless or experiencing lower wages and salaries. As a result, some Americans are now advocating socialism, particularly recent success in China. It is a fact that countries like India, China, and other emerging nations have not suffered much during this recent financial crisis. In fact there prevailing economic frameworks which are either socialist or mixed in nature have helped them to stand firmly during this crisis period. However, it is not that all forms of capitalism are bad and should be abandoned. On the basis of the entire analysis only free-market driven capitalism has emerged as the ineffective form of capitalism that is responsible for crisis and unable to deal with crisis situation. It is quite possible that in future not a single nation adopt the framework of completely free-market driven capitalism for its economy.

Free market driven capitalism is not new to Americans. In fact for decades they have embraced orthodox principle of free-market driven capitalism and they have also prospered a lot within this economic framework and the USA has emerged as the biggest superpower of the world (Mellor, 2009). But, the recent crisis has threatened this position and raised questions over the validity of these orthodox principles in current time. The recent economic downturn has again reestablished the importance of state intervention. Keynesian thoughts are again found to be effective one more time after the Great Depression of 1930s. In fact, the policymakers of the US themselves are deviating from orthodox capitalist thoughts while proposing and implementing solutions for dealing with the crisis. Many orthodox ideas of capitalism have already been abandoned by the Obama administration. The current government of USA is placing more important roles to state intervention (Moseley, 2011). The size of stimulus package and the efforts of the government in reorganizing the financial sector reveal high level of state intervention within the economy that is completely opposite to what basic principles of capitalism say (Stiglitz, 2009). Even if complete socialism has not been adopted till now, but the policy measures somehow reflect policies of a socialist state or at least of some relaxed form of capitalism where state can play some major roles. Thus, with regard to the second research question, it can be said that the United States heading for abandoning the basic tenets of capitalist orthodoxy that has brought prosperity to the U.S. over the past several decades.

However, at this moment, it is not correct to say that in future America will emerge as a complete socialist state like China. However, there is not much doubt that the present form of capitalism, i.e. American-style free market capitalism will be abandoned in future as the recent crisis has exposed the incompetence of this sort of capitalism (Moseley, 2011; Ohanian, 2009; Kotz, 2008). But, at this moment no definite conclusions can be made about which form of economic framework and ideologies will be adopted by America. As mentioned in the last section, American can embrace pure socialism, corporate capitalism or state capitalism (Kotz, 2009). However, there is immense doubt over the adoption of pure socialism as many economists are not in favor of complete socialism. Even if state intervention is highly needed, the role of private sector cannot be totally overlooked for a country of America where private sector has played great roles for decades (Stiglitz, 2009). Moreover, it has also been found that only state intervention has not revived the US economy completely (Stiglitz, 2009); the private sector also has to regain their power. Hence, state capitalism could be an economic framework the U.S. might adopt in future.

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