Early Economists' Ideas On Global Financial Development: Hayek's View - Essay Sample

Introduction

Global economists believe that financial status in the US and the UK is an example of how early economists thought about economic development. One of the world-renowned economists is Friedrich Hayek, who developed pioneering work regarding business cycles (Elsner et al., 2014). The economist argues that the inevitable effects of social planning create an affair where totalitarian forces take the upper hand if it is possible to pursue a policy. The case identifies critical facts of the case, vital decisions and presents alternative solutions.

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Key Facts

The crucial first fact, according to Hayek the economist is that issues nations face today is not as a result of capitalism but socialism. Countries will not flourish economically when relying on nationalism and state control of business activities. The primary problem is too much socialism. By 1960s, the economic policy of President Franklin Roosevelt was not challenged yet, instead, they were reinforced. The Reagan revolution in the US led to the formulation of policies prioritizing domestic affairs, aiming to solve social problems. The Reagan administration introduced policies to reduce the size of the government and streamline its operations. The objective of the plan was to reduce the financial burden on the people; thus protecting the people.

Deregulation of business operations in various industries is another fact discussed in the case study. Business deregulation is an essential factor according to the economy since it helps to ensure market forces play a significant role. For example, there should be an independent organization regulating the banking and manufacturing industries. Jimmy Carter administration introduced this policy. The Republicans and Democrats in the US supported the idea because they inclined to government intervention in business, and this would enhance competition in various industries, contributing to innovation. Furthermore, President George Bush mirrored Reagan's conservative policy, which significantly focused on internal defense. The president invested massively in defense and cut taxes to reduce the burden on people. The decision has an economic impact on the economy since the administration curtailed domestic spending.

Decisions and Their Effectiveness

Based on the economic revolution in the US, various governments made decisions affecting its economic stability. The first decision was deregulation. The Jimmy Carter administration introduced deregulation policy lifting restriction policies the government had developed. The administration sought to reduce bureaucracies and reduce government intervention in businesses. The Democrats and Republicans supported the plan since they believed that market forces encourage competition, which is necessary for economic development as a result of innovation. The decision was useful since it contributed to the development of various sectors like banking, business, and other professional industries contributing to the economic development (Elsner, Heinrich & Schwardt, 2014). Moreover, the decision reduced government interference in business activities, creating a favorable business environment for domestic and international corporations; hence, the decision was appropriate.

Another decision was implementing the conservative agenda during George Bush's administration. His administration mirrored Reagan's plan of spending massively on defense and cutting taxes at the same time. The decision meant that the government had to reduce domestic consumption. The administration had to find ways of supporting government operations (Elsner et al., 2014). For example, it introduced outsourcing programs like privatization of Social Security and expanding the role of non-profit organizations like the provision of social safety services. The decision was appropriate since it protected the territory while maintaining the taxes. However, curtailing domestic expenditure led to a cut of the provision of essential services.

The introduction of the public-choice solutions helped to reduce staffing levels and budgets for all regulatory agencies. Reducing staffs in various agencies contributed to reducing expenditure, encouraging the development of private investments (Elsner et al., 2014). The primary objective was to reduce government intervention and regulation. The decision was effective because it encouraged growth of the private sector and small-medium enterprises that contributed to the economic growth.

Alternative Solutions

The alternative solution to the issues encountered in the case study is increasing taxes and reducing massive expenditure in defense (Elsner et al., 2014). For example, Gorge Bush's administration extensively increased spending in defense, while cutting taxes. Therefore, the government would have introduced a policy reducing expenditure on defense and increasing taxes to raise more income to provide quality social services to the people. In this way, the government will provide quality services such as healthcare and education, and ensure equality in society.

Expenditure on defense significantly impacts gross domestic products. Most governments have realized that government expenditure on defense damage residential development. Therefore, they reduce spending and focus on internal development. For example, the Middle East & North America are the highest spenders on defense. For example, the region spent 5.6% of the budget in 2016 on security, while it spent 6% in 2000 (The World Bank, 2018). It shows that there is a decline in defense budget since they consume a significant amount of resources that could be used to improve economic status. Therefore, reducing defense budgets in the US would have been an alternative to the financial situation. However, expenditure depends on prevailing global political stability.

Conclusion

The economic issues facing most nations today is as a result of socialism. A country cannot flourish economically without d developing policies to minimize government intervention in business. The primary facts, in this case, are deregulation and socialism and capitalist systems. The decisions in the case study include deregulation, conservative agenda, and reducing staffing levels. The choices were effective since they stabilized the US economy as well as its military personnel.

References

Elsner, W. Heinrich, T & Schwardt, H. (2014). The microeconomics of complex economies: evolutionary, institutional, neoclassical, and complexity perspectives. London: Eslevier.

The World Bank. (2018). Military expenditure has decreased as a share of the global economy, but increased in absolute terms. Retrieved from http://datatopics.worldbank.org/world-development-indicators/stories/military-spending-shares-of-the-economy-are-highest-in-middle-east-and-north-africa.html