How is history related to economics with example?

Answer 1

History is related to economics because the economic systems people have chosen in the past and their wants affected their decisions. By understanding how economic incentives and factors influenced our ancestors, we will understand how history operated and the events in history made sense.

A good example, although lengthy, is what's been occurring in United States' economics through 2010-2011. First, every time government's elected officials change, there is an opportunity and risk that economics change: Most economists say Republicans favor tighter controls on spending, while (they say), Democrats and Liberals spend more "for the common good". For many years, government, businesses, and private citizens spent more money than they brought in. People overused credit and put themselves into debt-- eventually, they had to quit spending, especially as conditions deteriorated. Economics and Wall Street investments "corrects" itself -- eventually. States which had become burdened with budget deficits began to change policies (examples: California; Ohio; to name two). At the same time, Congress and the President came up with new "Health Care" bills which alarmed business owners and citizens. Businesses and citizens feared and rejected many new policies of government leaders. While the US had experienced favorable employment conditions for many years, new changes in policies made business owners hold back on new hiring. Major companies (which also had overspent) faced decreasing sales-- BUT-- if they used layoffs to balance their deficits, these companies would then contribute to rising unemployment. The President used "bail outs" to major banks and manufacturers (such as GM) in an attempt to stabilize a weak buying market and retain jobs. But few citizens went out to buy the products--such as GMs new vehicles. So the President tried a "Stimulus Package" which sent $250 to each citizen. But the results were mixed with most people NOT spending, and instead saving some or part of that money. At the same time, many large banks and other financiers were finally investigated for increasing credit card interest charged and for financial "misbehaviors" (like the ponzi scam on Wall Street); politicians have tried to impose limits on foreclosures and improper financing banks/companies. But interest rates have climbed from 7% for very "good credit" to over 35% in interest for paying customers. At the same time, banks that offered credit cards were guilty of offering limited free interest credit cards to unemployed--such as college students--who then defaulted and never paid those debts. Again, the government (finally!) stepped in with new regulations that make it harder for college students to get unsecured, free interest credit cards. But... in the meantime.... unemployment is at record highs across the country; people are losing their homes; banks are greedily hounding people who don't pay their mortgages on time every month; companies who bought mortgages from banks are reportedly trying to foreclose even when they've lost or misplaced the mortgage documents; Wall Street has seen some of the biggest dives in recent memory; citizens continue to fear their financial futures especially as more people lose their jobs and US companies farm out work to overseas locations, who ask for less in salaries; States are trying to become solvent through major cuts to health, education, and 'the welfare' of citizens; fire departments, police departments, school districts, and even whole cities are either cutting employees or services or both; some State Attorney General Offices have filed objections to the President's Health Care Law that's to take effect in 2012 saying that parts are unconstitutional and most citizens reject the law.... US Economics right now are a big mess! It hasn't helped that many trillions of dollars have been spent on a 10-year "war" (under many names and objectives). The role of economics in 2010-2011, with the first-ever threat of default by the US to pay it's debts, can have worldwide effects on other countries' economies. HOW all of these economic problems will play out will be of great concern in the next US Presidential election (citizens typically flip to the other party when one party has been in charge during a crisis), but the economics of today will also be studied long into the future. Historians will use many pieces of the current economic problems as examples for and against particular policies. But it won't just be "economic historians" who study the factors of today. Historical experts and students from areas such as Public Health, Public Safety, Public Welfare, Employment/Unemployment, Economics, Business, etc. will likely use 2010-2011 examples in research and commentary as historians search for specific factors which contributed to today's crises, and as historians pinpoint better methods to balance "public needs" with "governmental needs".

Unfortunately, the 2010-2011 economic picture is not the first crisis in the USA. We had a mini Depression in the 1880s; a major Depression in the 1920s; and we've had multiple Recessions throughout history, especially in the 1900s & 2000s. It seems some segments of government and society did not learn from the historical mistakes we've already made.