Critical Factors that Influence the Economy
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Critical Factors that Influence the Economy
Jaechan Park
Brewster Academy, Wolfeboro, NH, United States
Abstract
With the current worldwide economic slowdown, to predict and react swiftly to any threat to our increasingly globalized economy is necessary. This paper mainly focuses on three main factors- war, political stability, and demand for energy, all of which have strong influence on the economy.
Before mankind first accepted the concept of currency, ancient civilizations obtained necessities through a barter system or “The original form of modern economic activity” (Bellis, 2009). Today, as societies have become globalized and dependent on one another, the world economy has become an intricate and sophisticated system that affects a vast majority of countries in the world. We have created an artificial and intangible structure for our economy, and I believe that we do not completely understand the abstract aspects of such a system. We attempt to analyze it further to improve our quality of life. At this point, I emphasize that people should reflect on the past to find what sways the global economy and thoroughly examine these factors to make accurate predictions. This essay will discuss only a small sample of the events that shape our economy: war, political stability, and the demand for energy.
Our avaricious human qualities have caused many wars. Through unceasing brutal hostilities we notice that there is an unmistakable correlation between war and the performance of an economy. The Second World War is an excellent example illustrating the positive economic consequences of war. The United States encountered an age of prosperity called, 'the rolling twenties.' The stock market grew excessively and created an uncontrollable bubble, partly from the manufacturing sector flooding the market with surplus production. This extremely high supply of goods created a chronic imbalance in the American economy until the bubble burst in 1929. This economic collapse was called, 'the Great Depression.' This collapse of the economy was solved with the onset of World War II. The excessive supply of raw materials and workers was needed by the high demand for munitions, and unemployed workers were hired at a ferocious pace. As a result, America earned huge profits through the booming war industry, which was expedited by the development of mass-production, and enjoyed unprecedented growth in the 1950s (Streich, 2009).
However, wars are not profitable for all countries. As wars may destroy established facilities and bring hardship and torment to many people. War can physically demolish the infrastructure needed to enhance an economy such as transportation networks, fuel, and electricity, among many others. A different example would be the presence of additional economic crises that hit countries participating in a war. For instance, the defeated nation of the First World War, Germany, was accused by other European nations with damaged infrastructure and asked to pay reparation to other European countries. After the bloody war, Germany lost its economic power and the government overissued its currency to pay its war debt. The rapid increase in the amount of money being printed caused the mark to depreciate and even led to long-term hyperinflation. By the year 1923 it took 200 billion marks to buy a loaf of bread compared to half a mark in 1918 (Goodman, 1981).
Politics also plays a large role in the economy. A stable political structure encourages economic activity by establishing confidence among investors that the economy will continue and not stop due to the political situation. Thus, political circumstances are reflected in the potential for economic growth. Ibrahim Rugova says,
“As you see, political problems are closely connected with economic problems. With the help of politics, we will open the way for the economy and this is why all these problems are included in the program of the newly elected government.” (Rugova, 2002)
The 1994 Economic crisis in Mexico demonstrates the connection between politics and the economy. Prior to 1994, Mexico was the darling of foreign investors as it was a newly industrialized country with a low rate of inflation and a high rate of economic growth. Mexico was also the prime investment target of the North America Free Trade Agreement (NAFTA). Nonetheless, an armed rebellion in Chiapas and political assassinations caused investors' apprehension in investing in the Mexican economy. During these domestic problems, sixty billion dollars of investment capital left Mexico (Fuller, 1997). Political stability is one of the most significant factors determining the potential for economic growth.
Dolan (2009) argues that the growing economy demands more energy. With the connection between the economy and the price of oil, the fluctuation of oil prices affects the global economy. When oil prices increase unexpectedly, so do the costs of production and services, causing inflation. Inflation caused by the instability of oil prices will affect Asian countries that are dependent on oil for the production of their exports. Thus oil plays a major role in the global economy and the international community needs to be wary about the instability of oil prices and anticipate changing energy prices.
Wars, politics, and oil are certainly not the only factors that matter. However, these still dominate the recent global recovery headlines. The impact of war in the Middle East, the political instability in Thailand and the Philippines, and current trends in oil investment attest to the fact that these three factors influence many economies today. Thus, we should predict the consequences of these factors and create economic opportunities by reacting appropriately to fluctuations that we can foresee.
References
Bellis, M. (2009). The History of Money. Retrieved December 6, 2009, from
http://inventors.about.com/od/mstartinventions/a/money.htm
Dolan, M. (2009). Building energy policies to support integrated solutions. Retrieved on December 6, 2009, from
http://www.exxonmobil.com/corporate/news_speeches_20090615_MJD.aspx
Goodman, G. (1981). The German Hyperinflation, 1923. TDRI Quarterly Review, Vol. 12 No. 3, 9-14
Interview with H. E. Ibrahim Rugo (2002) retrieved on December 6, 2009, from
http://www.winne.com/topinterviews/rugova.htm
Streich, M. (2009). 1950s and 1960s Main Streets Fuel Prosperity. Retrieved on December 6, 2009, from http://modern-us-history.suite101.com/article.cfm/1980s_and_1960s main streets fuel prosperity
Jaechan Park
Brewster Academy, Wolfeboro, NH, United States
Abstract
With the current worldwide economic slowdown, to predict and react swiftly to any threat to our increasingly globalized economy is necessary. This paper mainly focuses on three main factors- war, political stability, and demand for energy, all of which have strong influence on the economy.
Before mankind first accepted the concept of currency, ancient civilizations obtained necessities through a barter system or “The original form of modern economic activity” (Bellis, 2009). Today, as societies have become globalized and dependent on one another, the world economy has become an intricate and sophisticated system that affects a vast majority of countries in the world. We have created an artificial and intangible structure for our economy, and I believe that we do not completely understand the abstract aspects of such a system. We attempt to analyze it further to improve our quality of life. At this point, I emphasize that people should reflect on the past to find what sways the global economy and thoroughly examine these factors to make accurate predictions. This essay will discuss only a small sample of the events that shape our economy: war, political stability, and the demand for energy.
Our avaricious human qualities have caused many wars. Through unceasing brutal hostilities we notice that there is an unmistakable correlation between war and the performance of an economy. The Second World War is an excellent example illustrating the positive economic consequences of war. The United States encountered an age of prosperity called, 'the rolling twenties.' The stock market grew excessively and created an uncontrollable bubble, partly from the manufacturing sector flooding the market with surplus production. This extremely high supply of goods created a chronic imbalance in the American economy until the bubble burst in 1929. This economic collapse was called, 'the Great Depression.' This collapse of the economy was solved with the onset of World War II. The excessive supply of raw materials and workers was needed by the high demand for munitions, and unemployed workers were hired at a ferocious pace. As a result, America earned huge profits through the booming war industry, which was expedited by the development of mass-production, and enjoyed unprecedented growth in the 1950s (Streich, 2009).
However, wars are not profitable for all countries. As wars may destroy established facilities and bring hardship and torment to many people. War can physically demolish the infrastructure needed to enhance an economy such as transportation networks, fuel, and electricity, among many others. A different example would be the presence of additional economic crises that hit countries participating in a war. For instance, the defeated nation of the First World War, Germany, was accused by other European nations with damaged infrastructure and asked to pay reparation to other European countries. After the bloody war, Germany lost its economic power and the government overissued its currency to pay its war debt. The rapid increase in the amount of money being printed caused the mark to depreciate and even led to long-term hyperinflation. By the year 1923 it took 200 billion marks to buy a loaf of bread compared to half a mark in 1918 (Goodman, 1981).
Politics also plays a large role in the economy. A stable political structure encourages economic activity by establishing confidence among investors that the economy will continue and not stop due to the political situation. Thus, political circumstances are reflected in the potential for economic growth. Ibrahim Rugova says,
“As you see, political problems are closely connected with economic problems. With the help of politics, we will open the way for the economy and this is why all these problems are included in the program of the newly elected government.” (Rugova, 2002)
The 1994 Economic crisis in Mexico demonstrates the connection between politics and the economy. Prior to 1994, Mexico was the darling of foreign investors as it was a newly industrialized country with a low rate of inflation and a high rate of economic growth. Mexico was also the prime investment target of the North America Free Trade Agreement (NAFTA). Nonetheless, an armed rebellion in Chiapas and political assassinations caused investors' apprehension in investing in the Mexican economy. During these domestic problems, sixty billion dollars of investment capital left Mexico (Fuller, 1997). Political stability is one of the most significant factors determining the potential for economic growth.
Dolan (2009) argues that the growing economy demands more energy. With the connection between the economy and the price of oil, the fluctuation of oil prices affects the global economy. When oil prices increase unexpectedly, so do the costs of production and services, causing inflation. Inflation caused by the instability of oil prices will affect Asian countries that are dependent on oil for the production of their exports. Thus oil plays a major role in the global economy and the international community needs to be wary about the instability of oil prices and anticipate changing energy prices.
Wars, politics, and oil are certainly not the only factors that matter. However, these still dominate the recent global recovery headlines. The impact of war in the Middle East, the political instability in Thailand and the Philippines, and current trends in oil investment attest to the fact that these three factors influence many economies today. Thus, we should predict the consequences of these factors and create economic opportunities by reacting appropriately to fluctuations that we can foresee.
References
Bellis, M. (2009). The History of Money. Retrieved December 6, 2009, from
http://inventors.about.com/od/mstartinventions/a/money.htm
Dolan, M. (2009). Building energy policies to support integrated solutions. Retrieved on December 6, 2009, from
http://www.exxonmobil.com/corporate/news_speeches_20090615_MJD.aspx
Goodman, G. (1981). The German Hyperinflation, 1923. TDRI Quarterly Review, Vol. 12 No. 3, 9-14
Interview with H. E. Ibrahim Rugo (2002) retrieved on December 6, 2009, from
http://www.winne.com/topinterviews/rugova.htm
Streich, M. (2009). 1950s and 1960s Main Streets Fuel Prosperity. Retrieved on December 6, 2009, from http://modern-us-history.suite101.com/article.cfm/1980s_and_1960s main streets fuel prosperity