Economic Problems

We explain what economic problems are, what their basic types are and their main consequences. Also, the case of Mexico.

economic problems
Economic problems lead to social and political problems.

What are economic problems?

Economic problems are the set of phenomena that occur when financial resources are not sufficient to satisfy one's needs. This can occur at the level of individuals, nations and organizations.

Economics is the science that studies how to satisfy human needs through a finite set of resources and possibilities. When this is not possible, problems arise related to financial, budgetary, productive and other aspects of society. These are, precisely, the economic problems.

These types of problems are usually central to the organization of life, since, if they are neglected, they can grow or become more complex and open the door to catastrophic or irreparable situations. Furthermore, the economic problems they trigger in turn social problems cultural and political.

For example, if a productive member of a family loses his or her job, the entire family will see its income diminish and, therefore, its ability to satisfy its daily needs, such as purchasing food and paying for services or education. the children. The quality of life of the entire family will then be directly affected.

See also: Environmental problems

Types of economic problems

Unemployment is one of the main economic problems.

There are many types of economic problems, but, according to classical economic doctrine, the main ones are: inflation, economic stagnation or recession, unemployment, devaluation and poverty.

inflation

inflation It is the progressive loss of the purchasing value of the currency compared to the market meaning that with the same amount of money you buy less and less. This is reflected in the progressive increase in the prices of goods and services.

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Inflation is a serious phenomenon that has different effects on a country's economy, such as the impoverishment of the population and the decrease in savings and investment. Likewise, its causes can be diverse, such as market fluctuations, the increase in monetary issuance or the devaluation of the currency.

Economic stagnation or recession

If economic growth is the increase in the amount of commercial and financial operations in a nation, then economic stagnation and recession occur, respectively, when the economy does not grow or when its volume of operations decreases.

This means that both stagnation and recession imply the loss of strength of an economy that is, its slowdown (stagnation) or retreat (recession). Depending on how they occur, these phenomena can generate a crisis, that is, a sudden collapse of the economy.

unemployment

Unemployment or unemployment It is the massive lack of work that is, the disincorporation of large numbers of people of productive age from the economic activity of society.

Unemployment is a common phenomenon in economies in crisis, and can have very diverse causes. Its immediate consequence is the increase in labor informality and poverty since household income decreases and with it also their consumption capacity.

The devaluation

The devaluation It is the fall in the value of a currency compared to those of other countries that is, the progressive decrease in its price in international terms. Usually, this value is expressed against stronger currencies, such as the US dollar, so more devalued money is required to acquire the same amount of dollars.

Devaluation may be due to an unfavorable exchange balance or a lack of confidence in said currency as a reserve of value. In both cases, It is an international rejection of the currency so its price is continually getting cheaper.

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poverty

poverty occurs when a segment of the population is unable to meet its own needs thus depending on the help of the State or third parties. Poverty is one of the most serious economic problems of nations, since it can lead to numerous problems of different kinds.

People in poverty lack the capacity to consume and are often socially marginalized and excluded from education and entrepreneurship.

Consequences of economic problems

economic problems poverty
Economic problems often increase poverty rates.

The consequences of economic problems can be very diverse and usually depend on the type of problem, its severity and duration, as well as the type of measures taken to solve it.

Seen this way, the main consequences tend to be new and greater economic problems, to which are added social and political problems. In very broad terms, they can be summarized as:

  • Impoverishment. The loss of consumption, savings and investment capacity of societies, which see their respective standards of living deteriorate over time.
  • Radicalization. The commitment to more desperate solutions, such as the election of violent political parties with radical thinking, or the blaming of minorities (such as immigrants) or political dissidents.
  • capital flight. Faced with many economic problems, people try to protect their money by disinvesting or moving their capital towards other, stronger economies, which often makes local economic problems even worse.
  • Insecurity. The increase in unemployment and poverty usually has a direct impact on social insecurity and urban violence.
  • Emigration. In the most dramatic cases of economic crisis, the population is forced to abandon their homes and escape to other less affected regions, or even to rebuild their lives abroad.

Economic problems in Mexico

One of Mexico's economic problems is the devaluation of the peso.

Mexico, like many other Latin American nations, has an unstable economy compared to that of the so-called first world countries. This can be evidenced in its main economic problems, which are:

  • The devaluation of the peso. Given how interconnected the Mexican economy is with that of the United States, the rise in US interest rates during the Donald Trump government (1946-) caused the Mexican peso to lose strength and forced the currency to be devalued.
  • Fall in oil revenues. After the enormous bonanza that the rise in the price of raw materials at the beginning of the 21st century meant for Mexico, the price of oil plummeted. This implies a significant reduction in the country's economic income, which limits its development options.
  • Corruption. Although it is a social and political problem, corruption always has a high economic impact, due to waste, ill-gotten money and tenders for public money at a loss. These illegal management of public assets, which do not benefit the Mexican economy but rather the pockets of third parties, are a very common problem throughout the third world.
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References

  • Bunge, A. (1920). The economic problems of the present. HE
  • Freire, M. T. (2010). Analysis of the economic environment. ESIC.
  • CEMA University. (sf). Fundamental economic problems. LM Economics in Business. https://ucema.edu.ar/