Theoretical Approaches to Understanding of Global Economic Crisis of 2008

Abstract

While trying to understand the varying causes that brought the global financial system to its knees, it is hard to point out a finger at a single failure. By looking at the reasons of financial meltdown from different theoretical views it becomes easier to understand that the fault lies with many. Minsky’s view of inherent instability in capitalistic economies is understandable but Marx’s extreme interpretation of capitalism does not help the crisis in detail. While on one hand, monetarists are keen on controlling the money supply, Keynesians tend to favour national intervention blaming low aggregate demand over the crisis. Measures are being taken by the governments across the world by stimulating their economies’ aggregate demand in order to divert the recession. These steps indicate a revival of old-fashioned Keynesian macroeconomics which currently stands out as ‘the best theoretical view in understanding the current financial crisis.

Keywords: Economic Crisis, Global Financial System, Capitalism, Keynesians, Macroeconomics