Institutional economics is a theoretical approach within economics that focuses on the fundamental role of institutions in the configuration and functioning of economic systems.

It is based on the fact that institutions govern economic and social interactions. They have a significant impact on the economic behavior, change and performance of an economy.

The concept of institutional economics was developed to understand how institutions influence economic decision-making, resource allocation and the dynamics of change in economies.

In the context of the United States and the European economy, institutional economics has shed light on how political, legal and social institutions have shaped their respective economic systems. For example, in the United States, institutions, the legal system, banking regulations and fiscal policies have impacted the economy, including the functioning of national banks and the mortgage industry.

Crises are an example of how institutional analysis can shed light on economic events.

Research in institutional economics has examined how banking practices, regulation and lack of supervision contributed to crises and how subsequent institutional reforms attempted to address these problems.

The 2008 crisis was a major problem in the economy of many countries, especially in the United States. This economic imbalance was caused by the high demand for mortgage loans, which later could not be repaid.

Many people were able to borrow easily due to a number of factors that created an environment conducive to indebtedness:

1. Relaxation of Credit Standards: Banks and other financial institutions loosened their mortgage lending requirements. This meant that people who would not normally qualify for a loan were able to access them.
2. Housing Demand: There was a high demand for housing during this period. House prices were rising, which led many people to believe that buying a house was a good investment.
3. Subprime lending: Complex financial products were created, such as subprime mortgages, which allowed people with less solid credit histories to obtain loans. These loans were much riskier.
4. Expectations of Continually Rising Prices: Many believed that home prices would always rise, leading to gains if they decided to sell their homes later. This led to a “buy now, sell later” mentality.

This caused banks to lose a lot of money and since banks are very important for money to move in society, it affected everything. It was a very difficult time for a lot of people and it taught us that both financial rules and how banks work are really important.

In short, institutional economics focuses on how institutions shape economic behavior and performance in different contexts.

The economies that most interfere with the global economy include the U.S. and European economies. Institutional change is critical to understanding how economies evolve over time and how institutional reforms can influence a country’s financial path.

The institutional economy will always drag down the majority of the population, but you can prepare yourself to prevent these difficult times by investing. You have many alternatives such as mutual funds, gold, stocks, trading…