Economic Recession and Crime Rates

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Table of Contents

Introduction
Causes of economic recession
Effects of economic recession
Conclusion
Works Cited

Introduction

Economic recession according to the economists is as a period when there is a contraction in the business cycle and hence a general slow down in economic activity. The great depression is one of the greatest economic recessions because it affected most of the countries in the world. It occurred in 1929 and started in the United States of America. During an economic recession period, there are indicators of economic development that vary in the same way. For example, the level of production measured by the level of gross domestic product (GDP) declines. The level of employment during an economic recession goes down as well as the level of investment spending. In addition, during an economic recession, household incomes decline. Due to the decline of production levels during this period, business profits also declines. Moreover, during economic recession period the inflation and the capacity utilization decline. On the other hand, economic recession leads to bankruptcies and the level of unemployment increases. Due to the increase in the level of unemployment, the crime rates also increases (Hughes p. 5). Many individuals turn to crime earning a living and hence the government incurs an extra cost of providing security to its citizens.

This essay discuss economic recession because it affects many economies in the world and how it relates to the crime rates.

Causes of economic recession

Under consumption

According to economists, various factors cause economic recession. One if the major cause of economic recession is under consumption. This is where the consumers consume fewer products available in the market. Decline in household income leads to under consumption and therefore the consumer standard of living also declines. When the consumers consume fewer products, the profits of the organizations or the producers goes down. Decline in the profits of the producers’ leads to the decline in government revenue earned through taxes. This is because taxes paid by the taxpayers are usually determined by the level of profits that the payer makes during a certain period. Therefore, when government revenue decreases, government spending also declines due to the shortage of finances (Wilson p. 50). In addition, decline in profits of the producers lowers the level of production and consequently it leads to unemployment because the company may not be able to pay all the employees when the sales are low.

In addition, decline in household income leads to under consumption of other things such as visiting of tourism sites and other leisure activities also contributes to the decline of government finances. This is because government earns revenues through the fees paid at the entrance or visiting sites managed by the government. This revenue helps to provide social amenities and hence leads to development. To be able to provide the social amenities to the society when the government finances are low, borrowing is usually the option. Borrowing can be either internal or external. In internal borrowing, the government borrows money from business people or banks that are within the country. On the other hand, in external borrowing the government borrows money from the World Bank or other organizations in the worlds such as the UN. A lot of borrowing leads to a deficit in the balance of payment (Wilson p. 50). Therefore, under consumption of any commodity or resource leads to economic recession.

Financial crises

Financial crises contribute to economic recession. The action taken to restore the economy to equilibrium for example during inflation or deflation affects the economy. When the money in circulation is low, the economist may decide to increase money supply in the economy by dumping huge amounts of monetary in the economy using either fiscal or monetary policy. Increase in money supply in the economy, leads to inflation. Inflation is an increase in the prices of commodities during a certain period. Increase in the prices of goods and services leads to a decline in the demand of the commodities. Inflation also leads to increase in the cost of production, due to the increase in the prices of law materials. Moreover, inflation leads to national debts. In the end, inflation leads to a deficiency in the balance of payment and unemployment (Hughes p. 5).

The stock market also cause recessions. a decline in the stock market anticipates a recession. Decline in the stock market leads to low interest rate. Investors invest in the stock market when the interests are high and therefore, when the interest rates are low investment spending also declines. Low level of investment in an economy leads to a decline in economic growth and development. This is because the public prefers holding their money in liquid form rather than investing it because they do not trust the stock market and do not want to invest at a loss.

Political instability

Wars and other forms of political instability lead to economic recession. This is because when there are wars in their country, due to the high level of instability, producers would not be willing to produce because of insecurity. In addition, political instability leads to a decrease in the aggregate demand especially for the exports because investors from other countries would not be willing to invest or trade with the producers from countries that are not politically stable (Wilson p. 51). For example, the wars in Sudan and Iraq hinder those countries from engaging in the international trade. Political instability also affects the stock market. Therefore, political instability leads to economic recession because it discourages investors from due to decline in the interest rates.

Effects of economic recession

Unemployment

Economic recession has a great effect in the level of unemployment. This is because when the production level is low and due to inflation, the cost of production is high, the producers tend to retrench most of their employees because they cannot be able to pay the wages and salaries. Unemployment increases during an economic recession because of the increase in the cost of production and decreases in aggregate demand, which leads to a decline of the profits (Wilson p. 50). Unemployment during this period affects the low skilled and those who have low level of education.

Productivity

During the early stages of an economic recession the level of product falls. This is due to under consumption and increase in the cost of production. When aggregate demand of the product is low the profits reduces. However, as the weaker firms closes the profits of the stronger firms in the market increases due to the decline in competition (Islam p. 117). Therefore, during the late stages of an economic recession, the stronger firms start to grow due to a decrease in competition. On the other hand, recession creates favorable opportunities for the mergers that are anti- competitive because they do not face any competition and therefore they increase during the recession period.

Social effects

Recession leads to the decrease in the level of household income. Decrease in the level of personal income lowers the living standards of people. This is because their salaries and wages determine their living standards. Unemployment also affects the living standards of individuals because it affects the stability of families and in other cases, it affect the health of individuals.

When the rate of unemployment increases, it leads to decrease in the living standard of people (Islam p. 116). Therefore, for people to sustain themselves they engage in various kinds of crime offences. Crime rates therefore increase, due to an increase in economic recession.

Conclusion

Economic recession is mostly influenced by under consumption because under consumption leads to low demand and hence a decrease in profits. Political instability and financial crises also cause recession. Recession affects the living standards of people, the level of production and level of unemployment. Therefore, the government should try to predict the occurrence of an economic recession. There are possible predictors such as three to four months change in the unemployment rate or initial claims of joblessness. Decline in the stock market and under consumption are also indicators of a recessions and hence predicts a recession. In addiction, when a recession occurs in an economy the economists should strategize on how to reset it during the early stages. The strategy depends on the economists because monetarist would use expansionary monetary policy while the Keynesians may increase government spending to promote economic growth. The strategy used should reset the recession at early stages.

Works Cited

Hughes, Gordon and Lovei Magda. Economic reform and environmental performance in transition Washigton: World Bank Publications, 1999. Print
Islam, Rizwanul and Betcherman, Gordon. East Asian labor markets and the Economic crisis: impacts, responses& lessons. Washington: World Bank Publications. 2001. Print.
Wilson, Gladstone. Et.al. Multinational enterprises: financial and monetary aspects: New York: BRILL, 1974. Print.

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