Academic journal article Journal of Economics and Economic Education Research

A Comparison of the Greek and American Financial Crises: Another Perspective

Academic journal article Journal of Economics and Economic Education Research

A Comparison of the Greek and American Financial Crises: Another Perspective

Article excerpt

INTRODUCTION

In the simplest of terms, the countries of the world have essentially operated under two basic financial/economic philosophies: The first is based on free market economies with localized decision-making and private ownership of property (sometimes called capitalism). The second is based on a socialistic/collective approach with more centralized decision-making and the "spreading" of that which is produced.

Those who advocate the latter approach (socialism/collectivism) argue that it is more fair because everyone can share more equally in the outputs. However, those who advocate the former method (a free market approach) argue that the socialistic approach is less fair because the economic fruits of time, effort, money, and risk-taking are largely "stolen away" by those not participating. Although the purpose of this paper is not to explore the details of the two approaches, it is necessary as a lead-in to the topic to summarize the (1) productivity, (2) economic well-being, and (3) sustainability of the two philosophies.

As to productivity, there are good comparisons from history to show the effectiveness of the two approaches. For example, in the 45 years that Germany was divided between the west under capitalism and the east under communism, West Germany had a per-capita production that was 2% times that of East Germany. Taiwan (an island nation) under capitalism had per-capita production that was three times greater than the island of Cuba under communism. Likewise, communistic Russia was out-performed 4% times by the United States. And currently the capitalistic South Korea is outperforming the communistic North Korea by more than 20 to 1 on a per capita basis.

As to the economic well-being of the individual, while there are some who acknowledge capitalism's ability to produce more, they assert that poor people are worse off because the wealthy people take most of what is produced. Of course it is part of capitalism that those who "hustle" will generally have more to enjoy, but the evidence is that poor people are also better off. In the USA, for example, we define the poor as those earning less than $10,890 per year, and that amount is greater than the average earnings of people in 65 other countries, and almost 100% of the bottom one fifth of Americans have more spending power than the bottom one fifth of countries like India. Let's also remember that of those under the poverty level in the United States, 43% own a home, 73% own a car, 97% own a color television, 78% have a VCR or DVD player, 89% own a microwave, and 80% have air conditioning (Williams, 2010). Yes, capitalism consistently outperforms other forms of government, even for the poor people.

As to sustainability, the answer is also largely provided by history. As one example, in the 1920s following World War I, the economies of the world were in a weakened condition. While communistic Russia had to temporarily abandon full communism even to survive, the 150-year-old United States relied once again on capitalism. The highest tax rate was lowered from 77% to 25% and the result was an increase in tax revenues from $77 million to $230 million, the national debt was reduced from $23 billion to $17 billion, unemployment dropped from 20% to 3.3%, the GDP of the country increased annually by 7%, and per-capita income grew by over 30%. In contrast, Russia continued to weaken under its 74 years of communism until it finally went bankrupt in about 1991. In East Germany it lasted about 45 years before bankruptcy. But "mostly" under capitalism the United States continues to endure with strength after 236 years--especially in those industries where free markets have been allowed to flourish.

There are always those who try to distinguish between communism and socialism, but the same problems occur under either approach--increased bureaucracy, red tape, and inefficiency at the central levels and declining incentives and motivation at the local levels. …

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