US Economy

The United States economy has the world's largest gross domestic product (GDP)

The US economy maintains a high per capita GDP, which although not the world's highest, compares favorably to that of all other major economies. The economy also has a reasonably high GDP growth rate, a low unemployment rate, and high levels of research and development investment. Economic concerns include national debt, external debt, entitlement liabilities, consumer debt, a low savings rate, and a large current account deficit.

As at June 30, 2007, the gross external debt was $12 trillion or 88% of GDP,[1] (see List of countries by external debt).[2] The gross public debt is 65% of GDP (also known as national debt and refers to what is owed by the combined public sector to both domestic and foreign creditors; see List of countries by public debt and global debt). The national debt includes the amount of the cumulative government deficits and interest.

History
Main article: Economic history of the United States

U.S. unemployment rates.With President Warren G. 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 easier access to stocks. However, the Great Depression ended that period. 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 Works Progress Administration (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. Unfortunately as one might expect, cutting spending proved more difficult than cutting taxes, so there was a substantial increase of public debt. 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. But economic policy did not correspond readily with any particular theory. The massive fiscal deficits of the Reagan era, like those of the later presidency of George W. Bush, had a predictable "Keynesian stimulus." On the other hand, in Reagan's first term, the Federal Reserve, trying to contain the stagflation of the 1970s that was linked in part to increases in the price of oil, raised interest rates to record levels, leading to a brief spike of the worst unemployment since the Great Depression.

In spite of the monetarist trend at the Federal Reserve, Keynesian income stabilization and redistribution programs, such as unemployment insurance and social security, have remained in effect, even though two decades of only partial minimum wage increases, adjusting for inflation, have left the lowest paid sector of the work force struggling to keep up. In sum, monetarists have been unable to dislodge the great "Keynesian institutions" of social security, unemployment insurance, Medicaid, and welfare payments, even though efforts have been made to curtail all of these programs (most notably welfare). These programs greatly exceed even military spending in the overall impact on the economy, a situation very different from the concluding years of World War II and into the 1950s, when Keynesian deficits were seen by some left-wing critics (e.g., Baran, Sweezy) as the economic policy of a nation that desperately needed military expenditure to keep unemployment down.

Notwithstanding the normative monetarist and "anti-big-government" themes associated with his Republican Party, President George W. Bush and both houses of the Republican-controlled Congress pushed through a massive expansion of the Medicaid entitlement program by extending coverage to prescription drugs. However the bulk of income redistribution and stabilization programs date from the New Deal of President Franklin Roosevelt and the Great Society of President Lyndon Johnson. 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,[3] and the lowest unemployment rates in 30 years. A recession began during 2001 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.


[edit] Fundamental elements of the U.S. economy
A central feature of the U.S. economy is a reliance on private decision-making ("economic freedom") in economic decision-making. [4] This is enhanced by relatively low levels of regulation, taxation, and government involvement,[5] as well as a court system that generally protects property rights and enforces contracts. A large population, a large land area, numerous natural resources, a stable government and a highly developed system of post-secondary education are almost universally regarded as substantial contributors to U.S. economic performance.[citation needed]

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.[citation needed]

The number of available workers and, more importantly, their productivity help determine the health of the U.S. 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.

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 from 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.