How do you explain economic shock therapy?

Answer 1

· Economic shock therapy is an idea that has been attributed to Jeffery Sachs, the American Economist. He is said to be unhappy with the tie, largely due to the turmoil during the USSR-Russia transition for which the phenomenon has been blamed.

Simply, it is the sudden implementation of free market policies where previously the market had been characterised by government interference. Principally, this would include privatisation of publicly run institutions - such as utilities and public transport; removal, or more realistically reduction, of trade barriers; and a removal of government imposed artificial market constraints - such as price fixing and production limitations.

The idea is that free markets govern themselves, so prices and production quantities should settle to equilibrium by themselves mediated by the natural forces of supply and demand in any community. The 'shock' comes from the termination of an old system in order to make way for the new, and the inevitable rocketing of unemployment rates that accompanies the sudden deterioration in economic activity. Ideally, free market stimulations would awaken the new system quickly enough that people could switch from one job to another without a gap so big in the middle that permanent damage is caused to consumption/production levels. This has proven to not always work, with the notable example of Russia, where thousands have died of starvation and production has plummeted as a result of job-losses that have not been replaced.

Yeah, but-*Depression can hurt, and I will never bring up Russia again because of this article. Certainly it is illegal in this county. But....that's becasue I asked my local professional and she said that Theyy can't do that from Here.