Economy of the United States

Economy of United States

Currency	United States dollar (USD)
Fiscal year	1 October - 30 September
Trade organisations	NAFTA, WTO, OECD and others
Statistics
GDP	$13.3 trillion (2006)
GDP growth	3.0% (Q3 2005-Q2 2006)
GDP per capita	$43,768 (2006 est.)
GDP by sector	agriculture (0.9%), industry (19.7%), services (79.4%)
Inflation (CPI)	CPI 2.7% (Annual basis, September 2006)
Population below poverty line	12% (2004)
Labour force	151.8m(includes unemployed) (2006)
Labour force by occupation	managerial and professional (31.1%), technical, sales and administrative support (28.6%), services (14.1%), manufacturing, mining, transportation, and crafts (23.7%), farming, forestry, and fishing (2.5%) (excludes unemployed) (2002)
Unemployment	4.4%(October 2006) [1]
Main industries	petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining
External
Exports	$927.5bn (2005 est)
Export goods	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)
Main export partners	Canada 23%, Mexico 14%, Japan 6%, Mainland China 6%[2]
Imports	$1.727 trillion (2005 est)
Import goods	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)
Main import partners	Canada 17%, Mainland China 16%, Mexico 11%, Japan 8%
Public finances
Government debt	$8.6 trillion (65.4% of GDP) (2006)
Revenues	$2.119 trillion (2005 est.)
Expenses	$2.466 trillion (2005 est.)
Economic aid	$6.9 billion, ODA(0.08% of GDP) (1997)
All values, unless otherwise stated, are in US dollars.

The United States has the largest national economy in the world, with a GDP for 2006 of 13.3 trillion dollars. It is the world's foremost economic power. In this mixed economy, corporations and other private firms make the vast majority of microeconomic decisions, and governments prefer to take a minimal role in the domestic economy. Because of this, the U.S. has a small social safety net, and business firms in the U.S. face considerably less regulation than those in many other nations. The fiscal policy of the nation since the New Deal has followed the general ideals of Keynesian economics, which replaced Hamiltonian economics following the Great Depression. Neoliberal ideals have become more prominent since the presidency of Ronald Reagan. Since the early 1980s, the United States has transformed from being the world's largest creditor to world's largest debtor. As of 2006, the gross external debt has nearly $9 trillion dollars or 64% of GDP. The U.S. economy faces strains caused by record high trade deficits (see also current account) and federal budget deficits collectively termed twin deficits. Some economists are concerned that the U.S. economy is headed in the wrong direction and are calling for a change. Besides nearly $9 trillion in federal debt, the U.S. economy has nearly $9 trillion in mortgage debt, another $9 trillion in corporate debt as U.S. companies attempted to shore up pension and benefit funds which suffered from Stock Market drop following the September 11, 2001 attacks. Economists have blamed an undervalued U.S. equities market on the tight money policies of the Federal Reserve which some believe has led to lower saving rates and higher corporate debt levels to fund benefits and health care. Additionally, the U.S. economy faces an estimated $12 trillion in unfunded Social Security liability and an additional $32 trillion in unfunded Medicare liability. Collectively, these debts are far above what the U.S managed following World War II. After rising during the 1990's, the U.S. savings rate has fallen to the lowest among the developed nations. The middle class in the United States has seen millions of good paying jobs, such as those in information technology and manufacturing, sent overeas from offshore outsourcing to lower wage countries often replaced by lower wage service jobs at home. The growing influence of globalization has more recently seen a rise of a backlash movement of anti-globalization as the U.S struggles with its economic problems. While President Bush's administration cites low unemployment as a sign of an economic turnaround, some economists fault China's currency peg and Japan's large purchases of U.S. Treasuries in order to manipulate currency exchange rates for wage erosion of the U.S. middle class.

History

Main article: Economic history of the United States

U.S. unemployment rates, 1950-2005.

With President Harding's post–World War I "Return to Normalcy", the United States enjoyed a period of great prosperity during the 1920s. The stock market grew by leaps and bounds, fueled by the inflationary policies of the Federal Reserve, and the economy was considered invincible. However, the Great Depression shattered that belief. President Franklin D. Roosevelt introduced an array of social programs and public works, known collectively as the New Deal. The New Deal included a new social safety net involving relief programs like the WPA and the Social Security system. In 1941, the U.S. entered World War II. The homefront saw enormous prosperity, as labor shortages brought millions of housewives, students, farmers and African Americans into the labor force. Millions moved to industrial centers in the North and West. Military spending accounted for over 40% of GDP at the peak, driving debt up to record levels.

The post–World War II years were a time of great prosperity in the United States. The economy remained stable until the 1970s, when the U.S. suffered stagflation. Richard Nixon took the United States off the Bretton Woods system, and further government attempts to revive the economy failed. As the decade progressed, the situation worsened. In November 1980, Robert G. Anderson wrote, "the death knell is finally sounding for the Keynesian Revolution." Ronald Reagan was elected President in 1980, and was of the opinion that "government is not the solution to our problem, government is the problem." Reagan advocated a program of 'supply-side economics', and in 1981 Congress cut taxes and spending, and reduced regulations. Although the Gross Domestic Product (GDP) declined by 2% in 1982, it proceeded to rebound, and by 1988 had enjoyed a total of 31% growth since Reagan's election. Under Bill Clinton's eight years of presidency, the GDP expanded by 38%. By the end of his tenure the United States had a Gross National Income (GNI) of $9.7 trillion , and the lowest unemployment rates in 30 years. A recession began during 2000 in connection to the end of the dot-com bubble. Throughout, housing starts and purchases remained high, and the economy as of 2005 is considered by many to be strong in general. Some fear high government spending (such as in the Iraq War) as well as high oil prices may accelerate inflation. There are also warnings that the Federal Government needs to re-balance the budget to avoid potential default. While default does not appear a probable outcome, it is highly likely that persistent high budget deficits will drag down the economy in the future. This applies even more so to the current account deficit and external debt. U.S. liabilities to foreigners are estimated at $15 trillion in 2005, and continue to grow.

Basic ingredients of the U.S. economy

The main reason the economy of the United States became immensely prosperous and innovative was because it was predominantly free. The Founding Fathers established a political system which recognized the right of the individual to think and produce without government interference. The result was an upward surge of development that created the industrial and financial empire known around the world today.

In addition to this essential fact, there are three important ingredients that characterize the United States economy.

The first ingredient of a nation's economic system is its natural resources. 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 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. The American government has 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.

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. 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.

Social Regulations: 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. [3]

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

Overall, federal, state, and local spending accounted for almost 28 percent of gross domestic product in 1998.[4]

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

Main article: United States public 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.

The borrowing cap debt ceiling as of 2005 stood at 8.18 trillion. [5]. In March of 2006, Congress raised that ceiling an additional .79 trillion to $8.97 trillion. [6]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. [7]

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, a more accurate measure is that of its size relative to the nation's GDP. When the national debt is put into this perspective it appears considerably less today than in past years, particularly during World War II. By this measure, it is also considerably less than those of other industrialized nations such as Japan and roughly equivalent to those of several Western European nations.[8]

Private income

Main articles: Household income in the United States and Personal income in the United States

File:American Income.png

Poverty

File:American Society.jpg

This graphic shows the distribution of gross annual household income. The building's thirty exposed floors are easily divded into quintiles, each income quintile is thereby represented by six floors. Each floor represents the tenth of a third (3.33%) of households in the US and each section of 10 floors represent roughly one third of American society. The floors above the top black line represent those households with incomes of or exceeding $100,000. The floors below the bottom black line, however, represent those households who fell below the poverty threshold. In order to live on the top floor of the American income strata, a household's annual gross income must exceed $200,000.

Main article: Poverty in the United States

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 that (a) the United States has eliminated poverty over the last century[9]; or (b) it has such a severe poverty crisis that it ought to devote significantly more resources to the problem.

The two preceding definitions of poverty are very different because one group defines poverty as a lack of basic resources. Even with over 300 million people, The United States has a very low number of people who lack basic necessities (e.g., food, shelter, clothing). The other group argue that income inequality is providing the richest 10% with a much better standard of living than the poorest 10%.

Much of the debate about poverty comes from groups who either support welfare programs and government regulation of the market or a market which is regulation free and not bound by a big social safety net. Measures of poverty can be either absolute or relative. Absolute poverty is defined in real dollar values, whereas relative poverty is a comparison of the highest to the lowest standard of living at a particular time period.

Income inequality

The United Nations Development Programme Report 2006 ranks income distribution in the United States as tied for 73rd most equal out of 126 countries, as measured by the Gini coefficient. The richest 10% make 15.9 times as much as the poorest 10%, and the richest 20% make 8.4 times as much as the poorest 20%. (See List of countries by income equality.) This does not take into account absolute income levels. If, for instance, one country's poorest are richer than another country's average, then the inequality comparison becomes less meaningful.

Other statistics

Industrial production growth rate: 3.2% (2005 est.)

Electricity:

• production: 3,892 TWh (2003)
• consumption: 3,656 TWh (2003)
• exports: 23.97 TWh (2003)
• imports: 30.39 TWh (2003)

Electricity - production by source:

• fossil fuel: 71.4%
• hydro: 5.6%
• nuclear: 20.7%
• other: 2.3% (2001)

Oil:

• production: 7.61 million barrel/day (2005 est.)
• consumption: 20.03 million barrel/day (2003 est.)
• exports: 1.048 million barrel/day (2004 est.)
• imports: 13.15 million barrel/day (2004 est.)
• net imports: 12.097 million barrel/day (2004 est.)
• proved reserves: 22.45 billion barrel (1 January 2002)

Natural gas:

• production: 539 billion m³ (2003 est.)
• consumption: 633.6 billion m³ (2003 est.)
• exports: 24.19 billion m³ (2004 est.)
• imports: 114.1 billion m³ (2004 est.)
• proved reserves: 5.353 trillion m³ (1 January 2002)

Agriculture - products: wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish

Exports - commodities: capital goods, automobiles, industrial supplies and raw materials, consumer goods, agricultural products

Imports - commodities: crude oil and refined petroleum products, machinery, automobiles, consumer goods, industrial raw materials, food and beverages

Historic exchange rates:

	Jan 2002	2001	2000	1999	1998	1997
British pounds per U.S. dollar	0.6981	0.6944	0.6596	0.6180	0.6037	0.6106
Canadian dollars per U.S. dollar	1.6003	1.5488	1.4851	1.4857	1.4835	1.3846
French francs per U.S. dollar	—	—	—	5.65	5.8995	5.8367
Italian lire per U.S. dollar	—	—	—	1,668.7	1,763.2	1,703.1
Japanese yen per U.S. dollar	132.66	121.53	107.77	113.91	130.91	120.99
German deutsche marks per U.S. dollar	—	—	—	1.69	1.9692	1.7341
Euros per US dollar	1.1324	1.1175	1.08540	0.93863
Note: financial institutions in France, Italy, Germany, and eight other European countries started using the euro on 1 January 1999, with the euro replacing the local currency for all transactions in 2002. Their 1999 figures are for January.

See also

• Household income in the United States
• Personal income in the United States
• Affluence in the United States
• American Dream
• Balance of payments
• Economy of Puerto Rico
• American trade
• List of United States companies

References

Other references

• Bureau of Economic Analysis Historical Gross Domestic Product Estimates
• US Bureau of Labor Statistics Employment status of the civilian noninstitutional population, 1940 to date

External links

• CIA - The World Factbook - United States
• Details on Important US Economic Indicators
• Outline of the U.S. Economy
• U.S. Census Bureau
• U.S. Dept of Labor - Bureau of Labor Statistics
• U.S. Dept of Commerce - Bureau of Economic Analysis
• FRB: Z.1 Release-- Flow of Funds Accounts of the United States, Release Dates
• OECD's United States country Web site and OECD Economic Survey of the United States
• U.S. Energy Information Administration
• U.S. Dept of Labor - Bureau of Labor Statistics - Table 4. third quarter 2005(2)
• The Heritage Foundation: Understanding Poverty in America
• The Possible Collapse of the American Economy at 2007