We explain what an economic crisis is, its characteristics and the causes of this phase. Also, its consequences and some examples.
What is an economic crisis?
We understand an economic crisis to be a specific phase of an economic cycle that is characterized by having negative effects such as recession, contraction or economic depression, which means that the flow of money begins to become scarce.
The economic crises are a frequent phenomenon of contemporary societies especially those belonging to the so-called Third World, whose industrial and economic bases are not always very solid or depend on the market price of export raw materials, for example.
In any case, in today's interconnected world, the global economy often experiences fluctuations and setbacks in the face of unforeseen events or regional failures that destabilize the financial system as a whole.
This can occur in various magnitudes and It usually causes social, patrimonial and even political damage since it is an important source of discomfort in the populations, especially when it is combated with unpopular thrifty measures.
Types of economic crisis
According to its triggering nature, it is possible to speak of various types of economic crisis, such as:
- agrarian crisis Caused by climatic fluctuations and other phenomena that affect the performance of agricultural production, reducing the amount of food produced to satisfy constant demand.
- Supply crisis Those that are consequences of unforeseen events that cut the distribution chain, such as natural disasters, prolonged strikes or border closures.
- Supply crisis Those in which the supply of a good or service is insufficient to satisfy current demand, causing a disproportionate increase in its price, which immediately affects the economic capacity of consumers, who must sacrifice other things to continue consuming. Energy crises are usually of this type.
- Demand crisis Caused by excess supply or a drop in demand, which unbalances the economic cycle and causes the replacement costs of sellers and producers to fall.
Characteristics of an economic crisis
Economic crises are characterized by the disadvantages of the functioning of the economic system for a long time, negatively affecting the quality of life and other social and political areas.
In addition, they have two important characteristics: instability in the markets, which makes it difficult to predict the direction to follow and therefore untimely, risky actions, which may well contribute even more to the crisis; and on the other hand, the eventual transmission of said instability from a specific sector or geography (isolated) to the rest of the systems or at least to the surrounding ones (centered), if it is too prolonged in time.
Causes of an economic crisis
Among the most common causes of economic crises are:
- Bad economic policies The defective or erroneous application of economic policies by governments can light the fuse of a local economic crisis.
- Natural, social or political disasters Like earthquakes, revolutions or wars, which interrupt normal economic performance and alter the type of existing demand.
- Fluctuations in the price of raw materials As is the case of oil, whose oscillations directly impact consuming countries and producers as well, sometimes abruptly alternating boom periods with recession periods.
Consequences of an economic crisis
The consequences of economic crises are always negative and tend to be the following:
- Economic slowdown, contraction or depression Depending on the severity of the crisis, the economy can slow down, regress, or plunge into the deep end, taking years to regain stability.
- Social impact. The crisis usually puts social and cultural plans in check, leading to adjustments and reducing the quality of life of the population.
- Political impact It faces the crisis with extremely unpopular cuts and tariff increases, which leads to protests and strikes that can politically destabilize entire countries.
- Poverty Crises mainly affect the socioeconomically weakest, increasing poverty and in some cases leading to misery.
Economic crisis of 1929
In the year 1929 there was a great global economic crisis that was known as the Crisis of '29 or the Great Depression. This originated in the United States, as a result of the fall in bonds on the Wall Street stock market known as the “Crash of '29” or “Black Tuesday,” and which spread rapidly throughout all the countries of the world, causing a fall in national income, tax revenues, corporate profits and prices in general.
This resulted in an increase in unemployment of 25% in the United States and in some countries of 33%, in addition to a decrease in international trade from 50 to 66%.
Other examples of economic crisis
Examples of economic crisis abound, for example:
- The oil crisis of the 70s As a result of the instability in crude oil prices, there was a global economic impact between 1973-74 and 1978-79.
- The crisis in Spain in 1993 As a consequence of the implementation of economic measures that did not understand the country's own cycles, everything was bet on a temporary bonanza and the cycle brought with it a deficit.
- The crisis of Chavista Venezuela. As a result of poor economic planning for a decade and a half, the once rich country in South America has been facing a growing shortage of food products and unstoppable hyperinflation since around 2013.
