Economic crisis is destructive to social organization. It affects the stability of markets, assets, institutions and individuals. In most cases, the effects of economic crises on the individual are psychologically but not publicly noticed. There is no solid political institution designed to handle this sophisticated issue.
Although there are several approaches for managing the economic crisis in shape credit to thorough research works, they are not focused on the consideration of the consequences of the financial collapse for the individuals. In this research, sufficient is paid to the analysis of social and psychological constraint that individuals should overcome during the crisis.
In particular, there is an urgent necessity review the misunderstandings and shortcoming of governmental polices that was more focused on reducing poverty and increasing funding rather than on providing social help and analysis cultural environment. Therefore, the views of this argumentative paper mostly based on the consideration of the economic crisis with regard to social and moral aspect and on the analysis of governmental wrong policies within this period.
Economic crisis reveals the instability of significant financial institutions that led to a collapse of the entire state economy. The failure of large businesses, decrease in consumers’ wealth and demand, and a considerable decline of economic activities also led to the social, cultural, and moral crisis due to the rise of unemployment.
Society was forced to quickly adjust to new economical and political environment and to introduce rapid changes to their traditional way of life. In addition, 2007 economic crisis also had a considerable impact on individual psychology.
Therefore, the collapse of significant financial institutions resulted not only in a deplorable economic and political situation. The financial crisis also led to social and psychological instability in society. The problem is that this issue is poorly addressed by scientists and economists who are more focused on the analysis of statistics and overall rates of unemployment and poverty.
In this research essay, we will plan to discuss the impact of economic crisis on social psychology, particularly individual’s behavior. In addition, this paper will also pay attention to consequences of the downturn of the World Bank for society in order to present a clearer image of the social and cultural situation in a 2007-2009 period.
It has been recognized that financial crisis in various countries have become more interconnected due to the rise of globalization and the establishment of integration tendencies (Ravion Martin, 2008, p.). Therefore, as the financial crisis is based on global issues, it more likely to have a mixed impact on the developing countries and some individuals with different level of social vulnerability.
In particular, the global financial crisis also has serious consequences for those individuals who are influenced by poor schooling and nutrition in low-income families. Therefore, the economic crisis response to social and psychological instability failed because governmental police was ignoring the key human and physical values of poor individuals and society in general (Ravallion, 2009, p).
In developed economies, the effects of economic crisis negatively influence families and discourage them to raise their children, which also led to the demographic decline. Giuliano and Spilimbergo (2009) state that financial crisis is closely connected with psychological failure of individuals. They have also confirmed the connection between economic crises and rise of social vulnerability:
Beyond the economic and political effects, economic crises have a traumatic effect on peoples’ psychology and attitude…. The experience of the dramatic years during the Great Depression had a large impact on people and, ultimately, helped forge the social beliefs and attitudes that sustained a political system for many years (Guiliano and Spilimbergo, 2009, n. p.)
It should be also stressed that the economic recession had shocking effects on individual’s beliefs. They had to overcome numerous adversities and control the newly emerged circumstances. A special consideration requires cultural issues, because dramatic shifts in political and economic life greatly influence conventions of cultural life.
The 2008 financial collapse can be compared with the Great Depression in 30s of the past century. The failure of the world banking system and subprime mortgage crisis led to the economic recession in the United States and in other leading countries.
There are also assumptions that the economic decline under consideration is associated with the bank collapse in 1930 that was reinforced by monetary policy (Goel, 2009, p. 9). However, the strategies directed at the crisis elimination were not consistent enough and, as a result, it had related consequences for the situation in 2008.
According to Shaman (2009), the advent of the economic crisis was initiated by the instability and crisis in the banking sphere which is the core of the economic system. Shaman (2009) also states that bank is considered to be a critical point in tacking and reducing poverty and, therefore, its failure led to recession in the social sphere.
The decline was also predetermined by bank polices and strategies based on secrecy and bureaucracy. Apparently, these were the major reasons that undermined banking authority’s reputation and led to social instability. Goel (2009) holds similar views and provides viable solutions to this problem:
Governments have attempted to eliminate or mitigate financial crises by regulating the financial sector. One major goal of regulation is transparency: making institutions’ financial situations publicly known by requiring regular reporting under standardized accounting procedures (p. 12).
Governmental Interventions for the economic crisis are based though raising funds to support affected organizations, institutions, and individuals. There is also the assumption that the failure of this form of intervention is due to inconsistent governmental police and inability of government to persuade donors and investors to restore the funding. In addition, the pressures on banking institutions, and the World Bank in particular, are enormous. The point is that an inefficient bank system will not be able to resist the poverty due to serious problems in internal governance reforms (Shaman, 2009, p. 37).
At this point, it should be noted that there are no specific concerns revealed by the government in handling psychological effects of the financial crisis on individuals and society in general. In developing economies, specifically in Africa, the political and economic welfare of investors may be aggravated by the rise of corrupt administrators.
Therefore, it is necessary to introduce change to governmental structure and banking organization that will insure the international community with economic and social stability. In addition, such reorganizations can make the government and the World Bank more resistant to economic crises.
According to Ravallion (2009), “Western governments have leant from experience that a slow and/or failed response to a crisis will have deeper and lasting impacts on their citizens’ lives” (p. 4).
Moreover, inability to protect the developing economies and wrong policies and strategies implied to solving this issues create a serious threat for increasing poverty in the course of economic crisis development. In addition, short-term and myopic responses of the government during the 2008 crisis led to increase of social vulnerability.
Paradoxically, western economics propagandizing democracy failed to react to the problem of poverty and education. In contrast, the Indian government was more effective in addressing families’ concerns and in presenting long-term policies of poverty reduction.
In this regard, Ravallion (2009) states that “an effective public safety net is an important element of a sound domestic policy response to a crisis, even in the poorest countries” (p. 6). Interpreting this phase, the main reasons for the economic recession lied in governments’ inability to construct a solid social infrastructure and in neglecting social and psychological needs of individuals.
The recession of signification financial institution led to deplorable situation in economic, political, and social spheres. In particular, the 2008 crisis had a considerable impact on cultural and psychological instability.
This issue was poorly addressed by economists and government that was more focused on considering the employment and poverty rates rather than providing changes to domestic economy. The research has proved that the main underpinning for deep economic and psychological depression in 2008 was a failure to meet the specific needs of concrete individuals.
In particular, a special consideration deserves cultural and historic issues that interpret the economic crisis as insufficient and inconsistent policy in 1930. Therefore, the consequences for the 2008 crisis were predetermined by the intrinsic cultural, historic, and social problems in society.
Goel, S. (2009). Crisis Management: Master the Skills to Prevent Disasters. India: Global India Publications, Ltd.
Guiliano, P., and Spilimbergo, A. (2009) The Long-lasting Effects of the Economic Crisis. Vox. Retrieved 8 November 2010 from http://www.voxeu.org/index.php?q=node/4019
Ravallion, M. (2009). Bailing out the World’s Poorest. Development Research Group, World Bank, 1818 H Street Washington DC 20433, USA. Retrieved 8 November 2010 from
Shaman, D. I. (2009). The World Bank Unveiled: Inside the Revolutionary Struggle for Transperancy. US: Parkhurst Brothers Publishers.