A discussion of economic strategies for dealing with crisis

Discussion of Economic Strategies for Dealing with Crisis Author’s Name The Institutional Affiliation Course Number and Name Instructor Name Assignment Due Date Table of Contents TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc165255444 \h 3Discussion on Austerity Debates Post-2008 PAGEREF _Toc165255445 \h 4Responses to the COVID-19 Crisis of 2020 PAGEREF _Toc165255446 \h 5Comparison of 2008 and 2020 Finacial Crises PAGEREF _Toc165255447 \h 6Comparison 1 - US and EU in 2008 PAGEREF _Toc165255448 \h 6Comparison 2 - US in 2008 vs 2020 PAGEREF _Toc165255449 \h 6Comparison 3 - EU in 2008 vs. 2020 PAGEREF _Toc165255450 \h 7Comparison 4 - China vs. US/EU in 2008 PAGEREF _Toc165255451 \h 8Lessons Learned from Comparing 2008 and 2020 PAGEREF _Toc165255452 \h 10Future Policy Recommendations PAGEREF _Toc165255453 \h 12Conclusion PAGEREF _Toc165255454 \h 14References PAGEREF _Toc165255455 \h 15 Introduction Global crises have always hit organizations and economies, but the two significant crises the world economy faced were the 2008 financial crisis and the COVID-19 lockdown in 2020. With the help of these crises, the flexibility of the international economic systems was evaluated, and well-defined economic reactions were generated globally. In 2008, US housing market disruptions led to the collapse of the economy, which was then retaliated by displaying a range between stimulus efforts and austerity. The critical point of this event was the government’s carrying through of significant fiscal stimulus measures, depending on Keynesian economic strategies (Reinhart & Rogoff, 2010). The Eurozone focused on managing their debts and reducing spending. Thus, they strongly emphasized managing sovereign debts and austerity due to the fear of a debt crisis like Greece’s. Additionally, the world faced another crisis; the COVID-19 pandemic was a significant health and economic crisis dealt with by the world through different economic and social approaches. The worldwide lockdown and hindrance in the daily economic undertaking led to adopting Keynesian strategies through which governments took loans and spent them on temporarily suspended workers while preserving businesses and demands. The Eurozone, unlike during the 2008 crisis, approached the Keynesian tactics as opposed to austerity response. China dealt with its economic crisis during the pandemic and 2008 by applying large-scale fiscal stimuli (Liu, Liu & Yan, 2020). The diverse propositions used by the United States, China, and the Eurozone give a vast substructure for evaluating the problems and strengths of different economic strategies. Therefore, the research critically investigates the comparative analysis of economic approaches concerning the focused countries and their responses to mediate those complexities. Discussion on Austerity Debates Post-2008 During the 2008 financial crisis, the Eurozone utilized austerity tactics that followed monetarist principles, which focused on balancing the economy by controlling the money supply. The said strategy differed from the Keynesian approach, which focused on increasing economic activity by raising government spending and using tax increases to minimize public debts (Parui, 2022). The main point was that investor confidence must be maintained to empower sustainable growth by implementing fiscal policies. According to Hillebrand (2015), these policies faced backlash due to the socio-economic effect. The downside of austerity was the increase in the unemployment rate and social disability in different countries like Portugal, Spain, and Greece. As per Rocholl (2016), the strict conditions imposed on Greece in the bailout package emphasized less on boosting the economy and more on paying off debt, which worsened economic conditions by increasing poverty and unemployment rates. The Keynesian economic strategies were used to generate a response by the US during the 2008 crisis. The $800 billion stimulus package under The American Recovery and Reinvestment Act of 2009 emphasized providing more employment and boosting the economy by investing in the subsector of education, health, and energy. It helped the US stabilize the length of the recession and maintain the employment rate (Romer, 2022). Additionally, some continual effects of austerity were evident in the Eurozone, as a constant high unemployment rate and socio-economic inequality led to a slow economic recovery (Reinhart & Rogoff, 2010). The fiscal responses to COVID-19 were flexible, which led to the re-analysis of the importance of austerity in managing global crises. Germany’s ordoliberalism influenced the Eurozone’s austerity, which ranks fiscal discipline over the macroeconomic stimulus and, in turn, portrays consistent long-term stability at a substantial social cost (Hillebrand, 2015). Through experience, it was found that an equally balanced response should include fiscal stability and maintaining socio-economic well-being at the expense of blending Keynesian and monetarist strategies. Responses to the COVID-19 Crisis of 2020 The 2020 global pandemic caused by COVID-19 led countries across the globe to make rash economic decisions and apply diverse economic spectrums and fiscal policies to deal with the economic collapse—the burden of assisting temporarily unemployed individuals and stabilizing the economy called for different economic philosophies. The US responded volatilely by implementing CARES, a coronavirus Aid, Relief, and Economic Security Act through which $2.2 trillion was allotted to stabilize businesses and provide essential services to individuals. When this fiscal spending is compared to the 2008 crisis, it was found that in 2008, the response could have been faster and faster. The United States learned from past economic experiences (Kaplan, Moll & Violante, 2020). Thus, the CARES Act showed several aspects similar to the Keynesian approach to dealing with the crisis by providing direct payments and taking care of business loans. The European Union previously used to focus more on fiscal discipline, but during the pandemic, they made remarkable changes in their approach. €750 billion program known as the Next Generation EU Recovery Plan was a landmark in history highlighting mutualized debts in an attempt to make financial recovery (Rodríguez, 2021). It was an essential shift from austerity measures that rose after the 2008 crisis. It also highlighted how the volatile nature of the pandemic required a fiscal approach. During the initial days of the pandemic in 2020, China quickly responded to economic shifts by emphasizing the implementation of fiscal and monetary policies. Policies were introduced, including tax relief and increased budgetary spending. This approach led to China’s fast economic recovery, which was reported as a 3.2% rebound from the initial collapse. Hence, this experience and other strategies to deal with initial pandemic economic impacts provide a framework for evaluating fiscal policies (Liu, Liu & Yan, 2020). It was also a turning point that made most countries approach budgetary and monetary policies as they have a visible effect on economies during the ongoing crisis. Comparison of 2008 and 2020 Financial Crises Comparison 1 - US and EU in 2008 Following the 2008 financial crisis, the United States passed the American Recovery and Reinvestment Act. This act added almost 800 billion dollars to the economy, intending to boost employment and consumer spending. The Federal Reserve cut down the interest rates and motioned quantitative easing. These acts helped in stabilizing the market and increase the speed of economic recovery. On the other hand, German ordoliberal principles influenced a different approach that the European Union adopted, through which fiscal austerity was given priority over aggressive stimulus. More focus was placed on implementing austerity measures to prevent sovereign debts by cutting budgets and tax hikes (Krugman, 2013). However, t...