Remembering the First Great Recession of the Twenty First-Century

The great recession—capitalism’s little slip-up that led to a socialist makeover

The great recession of 2007-2009 did something rear to a capitalist economy; it turned part of the private sector into state-owned businesses.

Photo byTim MossholderonUnsplash

Just like death and taxes, one thing is also certain: in a capitalist economy, there will always be recessions. The Great Recession of 2008 was an event that fundamentally changed capitalism. One of the most remarkable outcomes was how it transformed part of the private sector into state-owned enterprises—at least temporarily. This was something rare for a capitalist economy, where the private sector is independet from the government.

Capitalism, by its very nature, is cyclical. It thrives on consumer spending, which fuels growth. But when consumers spend less, growth slows down drastically and a recession is almost inevitable.

Recessions are like the storms of capitalism—sometimes you can see them coming, other times they hit without warning. The Great Recession, however, was one that few anticipated with the severity that it brought. It was triggered by a perfect storm of events: a housing bubble that burst, risky financial products that turned toxic, and a banking system that was suddenly on the brink of collapse.

Companies that had been riding high on the boom times suddenly found themselves facing declining sales and mounting debts. They needed to cut costs fast. Workers were the first to feel the pinch of the recession. There were huge layoffs, and wages were slashed. It was devastating for millions of people who suddenly found themselves out of work or facing foreclosure on their homes.

Trying to stop it from becoming a full-blown depression, the U.S. government stepped in. The government essentially became the largest shareholder in the private sector. While stepping in was controversial, it was necessary to prevent the collapse of the entire financial system. The Troubled Asset Relief Program (TARP) was implemented to tackle the recession. It authorized up to $700 billion to buy up toxic assets and stabilize the banks. Many other private sector companies, from automakers to insurance firms, were forced to accept government bailouts to stay afloat.

What happened next was something that doesn’t happen in a capitalist economy: a significant chunk of the private sector became nationalized assets. The government took ownership stakes in these companies, not because it wanted to take them over, but because it was the only way to save them from total collapse. The goal was to stabilize the economy, protect jobs, and prevent a complete financial meltdown. But in doing so, the U.S. government found itself in a role that was more akin to a socialist state. The government effectively became the largest shareholder in the private sector.

The government, too, wasn’t immune from the effects of the great recession. Tax revenues fell, and the demand for social services like unemployment benefits and food assistance skyrocketed. The effects were felt around the world, as the crisis in the U.S. quickly spread to other countries.

The recession showed just how fragile the global economy was. The housing market, which had been red-hot for years, was the epicenter of the crisis. When it collapsed, it sent the entire financial system up in flames.

The cyclical nature of capitalism means that recessions are inevitable. No matter how well the economy is doing, there will always be fluctuations in growth that lead to downturns.

The Great Recession is considered one of the worst economic downturns in the twenty-first century—so far. The massive government intervention during this period was necessary to prevent a complete collapse of the economy. It also marked a significant shift in the relationship between the private sector and the state.

Learning from the Great Depression of the 1930s, the U.S. government poured hundreds of billions of dollars into the economy. It bought up huge shares of many of the country’s financial institutions.

Despite the government’s controversial intervention, it helped prevent an even greater economic catastrophe. The economy eventually stabilized, and many of the companies that were bailed out have since returned to profitability.