ECONOMY
INTRODUCTION
The economy of the United States is the largest national economy in the world.
Its gross domestic product (GDP) was estimated as $14.44 trillion in 2008.
The U.S. economy maintains a high level of output per person (nominal GDP per capita, $47,500 in 2008,
ranked at around number ten in the world). The U.S. economy has maintained a stable overall
GDP growth rate, a low unemployment rate, and high levels of research and capital investment
funded by both national and, because of decreasing saving rates, increasingly by foreign investors.
In 2008, seventy-two percent of the economic activity in the U.S. came from consumers.
The United States is the largest importer of goods and third largest exporter,
though exports per capita are relatively low. Canada, China, Mexico,
Japan, and Germany are its top trading partners. The leading export commodity is
electrical machinery, while vehicles constitute the leading import. The United States
tops the overall ranking in the Global Competitiveness Report. After an expansion
that lasted just over six years, the U.S. economy has been in recession since December 2007.
In 2009, the private sector is estimated to constitute 55.3%
of the economy, with federal government activity accounting for 24.1%
and state and local government activity (including federal transfers)
the remaining 20.6%. The economy is postindustrial, with the service
sector contributing 79.6% of GDP. The leading business field by
gross business receipts is wholesale and retail trade; by net income
it is finance and insurance. The United States remains an industrial power,
with chemical products the leading manufacturing field. The United States is the
third largest producer of oil in the world, as well as its largest importer. It is the world's
number one producer of electrical and nuclear energy, as well as liquid natural gas,
sulfur, phosphates, and salt. While agriculture accounts for just 1.2% of GDP, the
United States is the world's top producer of corn and soybeans. The New York Stock Exchange
is the world's largest by dollar volume. Coca-Cola and McDonald's are the two most
recognized brands in the world.
In 2005, 155 million persons were employed with earnings,
of whom 80% had full-time jobs. The majority, 79%, were employed in the service sector.
With about 15.5 million people, health care and social assistance is the leading field
of employment. About 12% of workers are unionized, compared to 30%
in Western Europe. The World Bank ranks the United States first in the ease
of hiring and firing workers. Between 1973 and 2003, a year's work for the average
American grew by 199 hours. Partly as a result, the United States maintains the
highest labor productivity in the world. However, it no longer leads in productivity
per hour as it did from the 1950s through the early 1990s; workers in Norway,
France, Belgium, and Luxembourg are now more productive per hour. Compared to Europe,
U.S. property and corporate income tax rates are generally higher, while labor and,
particularly, consumption tax rates are lower.
Major economic concerns in the U.S. include external debt, entitlement
liabilities for retiring baby boomers who have already begun withdrawing
from their Social Security accounts, corporate debt, mortgage debt, a low savings rate,
falling house prices, and a large current account deficit. As of September 2008, the gross U.S.
external debt was over $13.6 trillion, the most external debt of any country in the world. The 2008
estimate of the United States public debt was 73% of GDP. As of June 2009,
the total U.S. federal debt was approximately $11.4 trillion, about $37,348 per capita.
BASIC INGREDIENTS OF THE U.S. ECONOMY
The first ingredient of a nation's economic system is its natural
resources (coal, copper, lead, molybdenum, phosphates, uranium,
bauxite, gold, iron, mercury, nickel, potash, silver, tungsten,
zinc, petroleum, natural gas, timber). The United States is rich
in mineral resources and fertile farm soil, and it is fortunate
to have a moderate climate. It also has extensive coastlines on
both the Atlantic and Pacific Oceans, as well as on the Gulf of
Mexico. Rivers flow from far within the continent, and the Great
Lakes - five large, inland lakes along the U.S. border with
Canada - provide additional shipping access. These extensive
waterways have helped shape the country's economic growth over
the years and helped bind America's 50 individual states together
in a single economic unit.
The second ingredient is labor (the labor force was estimated at
155 million in 2008). The number of available workers and, more
importantly, their productivity help determine the health of an
economy. Throughout its history, the United States has
experienced steady growth in the labor force, and that, in turn,
has helped fuel almost constant economic expansion. Until shortly
after World War I, most workers were immigrants from Europe,
their immediate descendants, or African Americans who were mostly
slaves taken from Africa, or slave descendants. Beginning in the
early 20th century, many Latin Americans immigrated; followed by
large numbers of Asians following removal of nation-origin based
immigration quotas. The promise of high wages brings many highly
skilled workers from around the world to the United States.
Labor mobility has also been important to the capacity of the
American economy to adapt to changing conditions. When immigrants
flooded labor markets on the East Coast, many workers moved
inland, often to farmland waiting to be tilled. Similarly,
economic opportunities in industrial, northern cities attracted
black Americans from southern farms in the first half of the 20th
century.
Third, there is manufacturing and investment. In the United
States, the corporation has emerged as an association of owners,
known as stockholders, who form a business enterprise governed by
a complex set of rules and customs. Brought on by the process of
mass production, corporations such as General Electric have been
instrumental in shaping the United States. Through the stock
market, American banks and investors have grown their economy by
investing and withdrawing capital from profitable corporations.
Today in the era of globalization American investors and
corporations have influence all over the world. American
governments have also been instrumental in investing in the
economy, in areas such as providing cheap electricity (such as
the Hoover Dam), and military contracts in times of war.
The United States is said to have a mixed economy because
privately owned businesses and government both play important
roles. Indeed, some of the most enduring debates of American
economic history focus on the relative roles of the public and
private sectors.
The American free enterprise system emphasizes private ownership.
Private businesses produce most goods and services, and almost
two-thirds of the nation's total economic output goes to
individuals for personal use (the remaining one-third is bought
by government and business). The consumer role is so great, in
fact, that the nation is sometimes characterized as having a
"consumer economy."
However, like in all modern economies, there are limits to free
enterprise and private ownership. Americans generally agree that
some services are better performed by public rather than private
enterprise. For instance, in the United States, government is
primarily responsible for the administration of justice,
education (although there are many private schools and training
centers), the road system, social statistical reporting, and
national defense. In addition, government often is asked to
intervene in the economy to correct situations in which the price
system does not work. It regulates "natural monopolies," for
example, and it uses antitrust laws to control or break up other
business combinations that it claims have become so powerful that
they can surmount market forces.
Government also addresses issues beyond the reach of market
forces. It provides welfare and unemployment benefits to people
who cannot support themselves, either because they encounter
problems in their personal lives or lose their jobs as a result
of economic upheaval; it pays much of the cost of medical care
for the aged and those who live in poverty; it regulates private
industry to limit air and water pollution; it provides low-cost
loans to people who suffer losses as a result of natural
disasters; and it has played the leading role in the exploration
of space, which is too expensive for any private enterprise to
handle. All of this is paid for by a system of progressive
taxation.
In this mixed economy, individuals can help guide the economy not
only through the choices they make as consumers but through the
votes they cast for officials who shape economic policy. In
recent years, consumers have voiced concerns about product
safety, environmental threats posed by certain industrial
practices, and potential health risks citizens may face;
government has responded by creating agencies which aim to
protect consumer interests and promote the general public
welfare.
The U.S. economy has changed in other ways as well. The
population and the labor force have shifted dramatically away
from farms to cities, from fields to factories, and, above all,
to service industries. In today's economy, the providers of
personal and public services far outnumber producers of
agricultural and manufactured goods. As the economy has grown
more complex, statistics also reveal over the last century a
sharp long-term trend away from self-employment toward working
for others.
GOVERNMENT'S ROLE IN THE ECONOMY
While consumers and producers make most decisions that mold the
economy, government activities have a powerful effect on the U.S.
economy in at least four areas. Strong government regulation in
the U.S. economy started in the early 1900s with the rise of the
progressive movement; prior to this the government promoted
economic growth through protective tariffs and subsidies to
industry, built infrastructure, and established banking policies,
including the gold standard, to encourage savings and investment
in productive enterprises.
STABILIZATION AND GROWTH
Perhaps most importantly, the federal government guides the
overall pace of economic activity, attempting to maintain steady
growth, high levels of employment, and price stability. By
adjusting spending and tax rates (fiscal policy) or managing the
money supply and controlling the use of credit (monetary policy),
it can slow down or speed up the economy's rate of growth - in
the process, affecting the level of prices and employment.
For many years following the Great Depression of the 1930s,
recessions - periods of slow economic growth and high
unemployment - were viewed as the greatest of economic threats.
When the danger of recession appeared most serious, government
sought to strengthen the economy by spending heavily itself or
cutting taxes so that consumers would spend more, and by
fostering rapid growth in the money supply, which also encouraged
more spending. In the 1970s, major price increases, particularly
for energy, created a strong fear of inflation - increases in the
overall level of prices. As a result, government leaders came to
concentrate more on controlling inflation than on combating
recession by limiting spending, resisting tax cuts, and reining
in growth in the money supply.
Ideas about the best tools for stabilizing the economy changed
substantially between the 1960s and the 1990s. In the 1960s,
government had great faith in fiscal policy - manipulation of
government revenues to influence the economy. Since spending and
taxes are controlled by the president and the U.S. Congress,
these elected officials played a leading role in directing the
economy. A period of high inflation, high unemployment, and huge
government deficits weakened confidence in fiscal policy as a
tool for regulating the overall pace of economic activity.
Instead, monetary policy - controlling the nation's money supply
through such devices as interest rates - assumed growing
prominence. Monetary policy is directed by the nation's central
bank, known as the Federal Reserve Board, with considerable
independence from the president and the Congress.
REGULATION AND CONTROL
The U.S. federal government regulates private enterprise in
numerous ways. Regulation falls into two general categories.
Economic regulation seeks, either directly or indirectly, to
control prices. Traditionally, the government has sought to
prevent monopolies such as electric utilities from raising prices
beyond the level that would ensure them reasonable profits. At
times, the government has extended economic control to other
kinds of industries as well. In the years following the Great
Depression, it devised a complex system to stabilize prices for
agricultural goods, which tend to fluctuate wildly in response to
rapidly changing supply and demand. A number of other industries
- trucking and, later, airlines - successfully sought regulation
themselves to limit what they considered as harmful price
cutting.
Another form of economic regulation, antitrust law, seeks to
strengthen market forces so that direct regulation is
unnecessary. The government - and, sometimes, private parties -
have used antitrust law to prohibit practices or mergers that
would unduly limit competition.
In 1933, Congress created the Federal Deposit Insurance
Corporation (FDIC) which presently guarantees checking and
savings deposits in member banks up to $100,000 per depositor to
prevent bank failures. This was in response to the widespread
bank runs of the early 1930s during the Great Depression.
Since the 1970s, government has also exercised control over
private companies to achieve social goals, such as protecting the
public's health and safety or maintaining a clean and healthy
environment. The U.S. Food and Drug Administration tightly
regulates what drugs may reach the market. For example, the
Occupational Safety and Health Administration protects workers
from hazards they may encounter at their workplace and the
Environmental Protection Agency seeks to control water and air
pollution. Such agencies draw heavy criticism from conservatives,
who question the agencies' efficiency and necessity.
American attitudes about regulation changed substantially during
the final three decades of the 20th century. Beginning in the
1970s, policy makers grew increasingly concerned that economic
regulation protected inefficient companies at the expense of
consumers in industries such as airlines and trucking. At the
same time, technological changes spawned new competitors in some
industries, such as telecommunications, that once were considered
natural monopolies. Both developments led to a succession of laws
easing regulation.
While leaders of America's two most influential political parties
generally favored economic deregulation during the 1970s, 1980s,
and 1990s, there was less agreement concerning regulations
designed to achieve social goals. Social regulation had assumed
growing importance in the years following the Depression and
World War II, and again in the 1960s and 1970s. But during the
presidency of Ronald Reagan in the 1980s, the government relaxed
rules intended to protect workers, consumers, and the
environment, arguing that regulation interfered with free
enterprise, increased the costs of doing business, and thus
contributed to inflation. Still, many Americans continued to
voice concerns about specific events or trends, prompting the
government to issue new regulations in some areas, including
environmental protection. As of March 2005, it is estimated that
compliance with government regulation costs the U.S. economy $1.4
trillion a year.
Some citizens, meanwhile, have turned to the courts when they
feel their elected officials are not addressing certain issues
quickly or strongly enough. For instance, in the 1990s,
individuals, and eventually government itself, sued tobacco
companies over the health risks of cigarette smoking. A large
financial settlement provided states with long-term payments to
cover medical costs to treat smoking-related illnesses. The money
is mostly spent (or will be spent, as checks are often written in
anticipation of payments) for other purposes.
DIRECT SERVICES
Each level of government provides many direct services. The
federal government, for example, is responsible for national
defense, backs research that often leads to the development of
new products, conducts space exploration, and runs numerous
programs designed to help workers develop workplace skills and
find jobs. Government spending has a significant effect on local
and regional economies - and even on the overall pace of economic
activity.
State governments, meanwhile, are responsible for the
construction and maintenance of most highways. State, county, or
city governments play the leading role in financing and operating
public schools. Local governments are primarily responsible for
police and fire protection. Government spending in each of these
areas can also affect local and regional economies, although
federal decisions generally have the greatest economic impact
DIRECT ASSISTANCE
Government also provides many kinds of help to businesses and
individuals. It offers low-interest loans and technical
assistance to small businesses, and it provides loans to help
students attend college. Government-sponsored enterprises buy
home mortgages from lenders and turn them into securities that
can be bought and sold by investors, thereby encouraging home
lending. Government also actively promotes exports and seeks to
prevent foreign countries from maintaining trade barriers that
restrict imports.
Government supports individuals who cannot or will not adequately
care for themselves. Social Security, which is financed by a tax
on employers and employees, accounts for the largest portion of
Americans' retirement income. The Medicare program pays for many
of the medical costs of the elderly. The Medicaid program
finances medical care for low-income families. In many states,
government maintains institutions for the mentally ill or people
with severe disabilities. The federal government provides food
stamps to help poor families obtain food, and the federal and
state governments jointly provide welfare grants to support
low-income parents with children.
Many of these programs, including Social Security, trace their
roots to the "New Deal" programs of Franklin D. Roosevelt, who
served as the U.S. president from 1933 to 1945. Key to
Roosevelt's reforms was a belief that poverty usually resulted
from social and economic causes rather than from failed personal
morals. This view repudiated a common notion whose roots lay in
New England Puritanism that success was a sign of God's favor and
failure a sign of God's displeasure. This was an important
transformation in American social and economic thought. Even
today, however, echoes of the older notions are still heard in
debates around certain issues, especially welfare.
Many other assistance programs for individuals and families,
including Medicare and Medicaid, were begun in the 1960s during
President Lyndon Johnson's (1963-1969) "War on Poverty." Although
some of these programs encountered financial difficulties in the
1990s and various reforms were proposed, they continued to have
strong support from both of the United States' major political
parties. Critics argued, however, that providing welfare to
unemployed but healthy individuals actually created dependency
rather than solving problems. Welfare reform legislation enacted
in 1996 under President Bill Clinton (1993-2001) requires people
to work as a condition of receiving benefits and imposes limits
on how long individuals may receive payments.
NATIONAL DEBT
The national debt, also known as the U.S. public debt and the
gross federal debt, is the overall collective sum of yearly
federal budget deficits owed by the United States federal
government. The economic significance of this debt and its
potential ramifications for future generations of Americans are
controversial issues in the United States.
As of January 20, 2009, the total U.S. federal debt was $10.627 trillion
(an increase of 85.5 percent over the previous eight years).
The borrowing cap debt ceiling as of 2005 stood at $8.18 trillion.
In March 2006, Congress raised that ceiling an additional $0.79 trillion
to $8.97 trillion, which is approximately 68% of GDP. Congress has used this method
to deal with an encroaching debt ceiling in previous years, as the federal
borrowing limit was raised in 2002 and 2003. As of October 4, 2008, the
"The Emergency Economic Stabilization Act of 2008" raised the current debt ceiling
to US$ 11.3 trillion.
The size of the debt is in the trillions and consequently it has
been part of popular culture to parody the growing debt with some
type of doomsday clock, graphically showing the growing
indebtedness every second.
While the U.S. national debt is the world's largest in absolute size,
another measure is its size relative to the nation's GDP.
As of January 20, 2009, the debt was 73 percent of GDP, a level not
seen in the U.S. since 1955 when the country was recovering from World War II.
This debt is still less than the debt of other industrialized nations such as
Japan and roughly equivalent to those of several western European nations.
COMPANIES IN THE UNITED STATES
Many international companies decide to establish foreign direct
investment companies in the United States based on lower
corporate tax rates, negotiable land fees, and the absence of
political instability common in some developing countries. Other
reasons include the mentality and experience of the staff, as
well as a low level of unionization in certain parts of the U.S.,
particularly in the Southeast region.
POVERTY
There is significant disagreement about poverty in the United
States; particularly over how poverty ought to be defined. Using
radically different definitions, two major groups of advocates
have claimed variously (a) that the United States has eliminated
poverty over the last century; or (b) that it has such a severe
crisis of poverty that it ought to devote significantly more
resources to the problem.
Much of the debate about poverty focuses on (a) statistical
measures of poverty and (b) the clash between advocates and
opponents of welfare programs and government regulation of the
market. Measures of poverty can be either absolute or
relative.
Poverty in the United States refers to the condition of people
whose annual family income is less than a "poverty line" set by
the U.S. government. An absolute poverty measure was developed in
the midsixties as part on the "War on poverty." Based on this
measure, the poverty line is set at approximately three times the
annual cost of a nutritionally adequate diet. It varies by family
size and is updated yearly to reflect changes in the consumer
price index. As of 2008, 12.5% of the U.S.
population fall below the federal poverty threshold.
INCOME INEQUALITY
The United Nations Development Programme Report 2006 on
income equality ranks the United States as tied for 73rd out of 126 countries,
as measured by the Gini coefficient. The Gini coefficient for the U.S. was 45
in 2007, according to the CIA. The richest 10% make 16 times as much as the poorest 10%,
and the richest 20% make 8 times as much as the poorest 20%.
MINIMUM WAGE
The U.S. Federal Minimum Wage, originally created by the Fair Labor Standards Act in 1938,
has risen in nominal terms over time. Originally $0.25 per hour,
the federal minimum hourly wage for nonfarm workers rose accordingly (selected years):
30 cents in 1939, 40 cents in 1939, 75 cents in 1950, $1.00 in 1956, $2.00 in 1975,
$3.10 in 1980, $3.80 in 1990, $4.75 in 1996, $5.85 in 2007.
As of July 24, 2008, the federal minimum wage in the United States
is $6.55 per hour. The last increase on July 24, 2008 was the second of three steps of the Fair
Minimum Wage Act of 2007. It was signed into law on May 25, 2007 as a
rider to the U.S. Troop Readiness, Veterans' Care, Katrina Recovery, and Iraq
Accountability Appropriations Act, 2007. The act will raise the federal minimum wage once more:
to $7.25 per hour on July 24, 2009. The bill also contains almost
$5 billion in tax cuts for small businesses.
Many states and municipalities have minimum wages
higher than the federal minimum wage, but some U.S. territories (such as American Samoa) are exempt.
Currently, Washington ($8.55) has the highest minimum wages of all 50 states,
followed by Oregon ($8.40) and Vermont ($8.06). Kansas for many years had the lowest
state approved minimum wage, set at $2.65, but that will change to $7.25 starting on January 1, 2010.
Only 20,000 workers in Kansas are currently paid less than the federal minimum wage.
Five states have no minimum wage enacted under state law. In these states, the current federal
minimum wage applies for most jobs. Out of the entire country, states or cities,
Santa Fe has the highest minimum wage at $9.92 as of January 1, 2009.
Some types of labor are exempt, and tipped labor must be paid a minimum of $2.13 per hour,
as long as the hourly wage plus tipped income result in a minimum of $6.55 per hour.
Among those paid by the hour in 2007, 267,000 were reported as earning exactly the prevailing
Federal minimum wage. Nearly 1.5 million were reported as earning wages below the minimum.
Together, these 1.7 million workers with wages at or below the minimum made up 2.3 percent
of all hourly-paid workers, or 0.56 percent of the population of the United States.
UNEMPLOYMENT
In November, both the number of unemployed persons, at 15.4 million, and the
unemployment rate, at 10.0 percent, edged down. At the start of the recession
in December 2007, the number of unemployed persons was 7.5 million.
Female unemployment continued to be significantly lower than male unemployment
(7.9% vs. 10.5%). Black unemployment continues to be much higher than white
unemployment almost double at 15.6% compared to 9.3%.
OTHER STATISTICS
Inflation rate (consumer prices): 3.2% (2005 est.) / 3.8% (2008 est.)
Industrial production growth rate: 3.2% (2005 est.) / -2.0% (2008 est.)
Electricity:
production: 4.11 trillion kWh (2008 est.)
consumption: 3.873 trillion kWh (2008 est.)
exports: 24.08 billion kWh (2008 est.)
imports: 57.02 billion kWh (2008 est.)
Electricity - production by source:
fossil fuel: 69%
hydro: 6.4%
nuclear: 19.4%
other: 3.3% (2008)
Oil:
production: 8.514 million barrel/day (2008 est.)
consumption: 19.50 million barrel/day (2008 est.)
exports: 1.433 million barrel/day (2008 est.)
imports: 13.47 million barrel/day (2008 est.)
proved reserves: 21.32 billion bbl (1 January 2009 est.)
Natural gas:
production: 582.2 billion cu m (2008 est.)
consumption: 657.2 billion cu m (2008 est.)
exports: 28.49 billion cu m (2008 est.)
imports: 112.7 billion cu m (2008 est.)
proved reserves: 6.731 trillion cubic meters (1 January 2009 est.)
Agriculture and forestry - products: wheat, corn, other grains,
fruits, vegetables, cotton; beef, pork, poultry, dairy products;
fish; forest products.
Industries (mineral extraction and manufacturing): leading
industrial power in the world, highly diversified and
technologically advanced; petroleum, steel, motor vehicles,
aerospace, telecommunications, chemicals, electronics, food
processing, consumer goods, lumber, mining.
Exports - commodities: agricultural products (soybeans, fruit,
corn) 9.2%, industrial supplies (organic chemicals) 26.8%,
capital goods (transistors, aircraft, motor vehicle parts,
computers, telecommunications equipment) 49.0%, consumer goods
(automobiles, medicines) 15.0% (2003).
Exports - partners: Canada 20.1%, Mexico 11.7%, China 5.5%, Japan 5.1%, Germany 4.2%, UK 4.1% (2008).
Imports - commodities: agricultural products 4.9%, industrial
supplies 32.9% (crude oil 8.2%), capital goods 30.4% (computers,
telecommunications equipment, motor vehicle parts, office
machines, electric power machinery), consumer goods 31.8%
(automobiles, clothing, medicines, furniture, toys) (2003).
Imports - partners: China 16.5%, Canada 15.7%, Mexico 10.1%, Japan 6.6%, Germany 4.6% (2008).