Explaining the Financial and Economic Crises
New Directions in Modern Economics series
Edited by Eckhard Hein, Daniel Detzer and Nina Dodig
Chapter 8: Financial deregulation and the 2007–08 US financial crisis
Following the Great Depression of the 1930s, a series of financial regulations were introduced in the United States. The main aims of these regulations were to ensure the stability of the financial sector and enhance its role in supporting investment and production by the non-financial corporate sector. In addition to these regulations, the state’s involvement in active macroeconomic management increased, especially after the Second World War, and international trade and finance regulations were introduced following the Bretton Woods conference. Keynesian policies were used to generate demand and to tackle business cycles, while the state carried out heavy infrastructural investment and regulated key industries. Social expenditure programmes were established, together with a redistributive taxation system. This configuration provided high rates of economic growth, and hence the era is usually referred to as the ‘golden age’ of capitalism. While, on the labour side, membership ratios in unions were increasing and real wages were going up in this period, corporations were taking advantage of an environment in which domestic product markets had an oligopolistic character and foreign competition was limited. However, a serious crisis emerged in the 1970s.
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