The Economy of the USA

 
 
 

 

CONTENT

Introduction

1.1. Economy of the USA

1.2. History

1.2.1. After a Great Depression

1.3. Overview

1.4. Sectors

1.5. International trade

1.6. Currency and central bank

1.7. Government involvement

1.7.1. Regulations

1.7.2. Taxation

1.7.3. Expenditure

1.8. Income in the USA

1.9. Household income

1.9.1. Quintiles

1.9.2. Race

1.9.3. Education and Gender

1.9.3. Age of householder

1.9.4. Social class

1.10. United States Federal budget

1.10.1. Federal Budget data

1.10.2. Mandatory spending and entitlements

1.10.3. Social security

1.10.4 Medicare and Medicaid

1.10.5. Military spending

1.11. Labor unions in the USA

1.11.1. Labor unions today

1.12. Social class in the USA

1.12.1. Upper class

1.12.2. Corporate elite

1.12.3. Upper middle

1.12.4. Middle class

1.12.5. Traditional middle

1.12.6. Lower middle class

1.12.7. Lower class

1.13. Poverty

1.13.1. Factors of poverty

1.13.2. Understanding poverty

1.13.3. Overstating poverty

1.14. Business oligarch

1.14.1. American oligarch

1.15. American dream

Conclusion

Literature

Appendix    
 
 

Introduction 
 

     I would like to tell about economy in the USA. I consider that it is one of the most important and exciting themes nowadays. The economy of the United States has transferred many shocks, but continues to remain one of the most powerful in the world.

     The modern USA represents an interesting object of researches for economists of the whole world. The country that has managed for a rather short period of time to become the world’s economic leader should cause interest. Besides, nowadays America shows significant success in carrying out social programs: in supporting the poorest layers of the population, in solving the problems of unemployment, racial discrimination, criminality, etc. Certainly, a number of problems still remains, but the general dynamics of development are evident. The 1920s were called the New Era in American life. This decade was the time of unprecedented social, economic and political change. It was the time when America was becoming a modern nation. It was a period of almost uninterrupted prosperity and economic expansion. In 1928 Herbert Hoover, President of the country, proclaimed,” We in America are nearer to the final triumph over poverty that ever before in the history of any land. The poorhouse is vanishing from among us”. Only fifteen months later, the nation plunged into the severest and most prolonged economic depression in its history-a depression that continued in one form or another for a full decade. The Depression was a traumatic experience for individual Americans, who faced unemployment, the loss of land and other property, and in some cases homelessness and starvation. But the country had been able to survive and recover.

     There are a lot of problems in the national economy of Russia and Ukraine nowadays: the industrial production is decreasing, the prices are constantly rising, and the rate of inflation is very high. People are losing their jobs because many factories and plants are being closed.  This process reminds the period of the Great Depression in the USA.  I got interested in this theme for my research because I would like to understand the processes taking place in my country better.

     So, the main aim of this research paper is to understand how America being influenced so much by the Depression in the first half of the century was able to become a super power again in the second half of the XX century. Also I want to understand why this depression began in the beginning of the XX century despite positive social and economic development in the country at that period of time.

     In my research I would like to find out: how the life of America changed after the Civil War of 1861-1865; how America, being such a young country has become a super nation; regulations of government; different kinds of the social class; where the federal budget is directed; factors of poverty; The richest people of America; what does the American dream means and etc.

1.1. Economy of the United States

The economy of the United States is the largest national economy in the world in both nominal value and by purchasing power parity. Its nominal gross domestic product (GDP) was estimated as $14.4 trillion in 2008, which is about three times that of the world's second largest economy, Japan Its GDP by PPP is almost twice that of the second largest, China.                                                                          

     The U.S. economy maintains a very high level of output per person (GDP per capita, $47,422 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, consumer spending made seventy-two percent of the economic activity in the U.S.                                                                                                                    

     Since the 1970s, the United States economy has absorbed savings from the rest of the world. The phenomenon is subject to discussion among economists. Like other developed countries, the United States faces retiring baby boomers that have already begun withdrawing from their Social Security accounts; however, the American population is young and growing when compared to Europe or Japan. The 2008 estimates of the United States public debt by the CIA Fact book and the International Monetary Fund were 61% of GDP, about the same as major European countries. The United States has been one of the best-performing developed countries, consistently outperforming European countries. The American labor market has attracted immigrants from all over the world and has one of the world's highest migration rates. Americans have the highest income per hour worked. The United States is ranked second, down from first in 2008-2009 due to the economic crisis, in the Global Competitiveness Report. 
 

1.2. History

     The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries. The American colonies went from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a quarter of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. In addition, the U.S. was able to exploit these resources due to a unique set of institutions designed to encourage exploration and extraction. As a result, the U.S.'s GDP per capita converged on that of the U.K., as well as other nations that it previously trailed economically. The economy has maintained high wages, attracting immigrants by the millions from all over the world. 

1.2.1. After the Great Depression

     For many years following the Great Depression of the 1930s, 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, economic woes brought on by the costs of the Vietnam conflict, major price increases, particularly for energy, created a strong fear of inflation. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending. 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 assumed growing prominence. Since the stagflation of the 1970s, the U.S. economy has been characterized by somewhat slower growth.                                                                                                                                         

     The worst recession in recent decades, in terms of lost output, occurred in the 1973-75 period of oil shocks, when GDP fell by 3.1 percent, followed by the 1981-82 recession, when GDP dropped by 2.9 percent. Since the 1970s the US has sustained trade deficits with other nations. Output fell by 1.3 percent in the 1990-91 downturn, and a tiny 0.3 percent in the 2001 recession. The 2001 downturn lasted just eight months. In recent years, the primary economic concerns have centered on: high household debt ($14 trillion) including $2.5 trillion in consumer debt, high national debt ($9 trillion), high corporate debt ($9 trillion), high mortgage debt (over $10 trillion as of 2005 year-end), high unfunded Medicare liability ($30 trillion), high unfunded Social Security liability ($12 trillion), high external debt (amount owed to foreign lenders), high trade deficits, and a serious deterioration in the United States net international investment position (NIIP) (-24% of GDP). In 2006, the U.S economy had its lowest saving rate since 1933. These issues have raised concerns among economists and national politicians. The U.S. economy maintains a relatively high GDP per capita, with the caveat that it may be elevated by borrowing, a low to moderate GDP growth rate, and a low unemployment rate, making it attractive to immigrants worldwide.                                                                             

     The United States entered 2008 during a housing market correction, a sub prime mortgage crisis and a declining dollar value. On December 1, 2008, the NBER declared that the United States entered a recession in December 2007, citing employment and production figures as well as the third quarter decline in GDP.  
 
 

1.3. Overview (1) (2) 

     A central feature of the U.S. economy is the economic freedom afforded to the private sector by allowing the private sector to make the majority of economic decisions in determining the direction and scale of what the U.S. economy produces.] This is enhanced by relatively low levels of regulation and government involvement, as well as a court system that generally protects property rights and enforces contracts.                                                                            

     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 number of 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, a phenomenon that is both cause and effect of 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 is also included among major the investors in the American economy. Government investments have been directed towards public works of scale (such as from the Hoover Dam), military-industrial contracts, and the financial industry.

     While consumers and producers make most decisions that mold the economy, government has a powerful effect on the U.S. economy in at least four areas, as the government uses a capitalist system. 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. On June 26, 2009, Jeff Immelt, the CEO of General Electric, called for the United States to increase its manufacturing base employment to 20% of the workforce, commenting that the U.S. has outsourced too much in some areas and can no longer rely on the financial sector and consumer spending to drive demand.  
 

Sectors 

Energy

     The United States is the largest energy consumer in terms of total use, using 100 quadrillion BTUs (105 exajoules, or 29000 TWh) in 2005. The U.S. ranks seventh in energy consumption per-capita after Canada and a number of small countries. The majority of this energy is derived from fossil fuels: in 2005, it was estimated that 40% of the nation's energy came from petroleum, 23% from coal, and 23% from natural gas. Nuclear power supplied 8.4% and renewable energy supplied 6.8%, which was mainly from hydroelectric dams although other renewable are included such as geothermal and solar energy.

Agriculture

     Agriculture is a major industry in the United States and the country is a net exporter of food.

     Products include wheat, corn, other grains, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish.

Manufacturing 

USA is the leading manufacturer in the world with a 2007 industrial output of US$2,696,880 millions. Main industries are petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining.

Finance

     The New York Stock Exchange is a stock exchange located at 11 Wall Street in lower Manhattan, New York City, New York, USA. It is the largest stock exchange in the world by United States dollar value of its listed companies' securities. As of October 2008, the combined capitalization of all domestic NYSE listed companies was US$10.1 trillion.

     NASDAQ, is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,800 companies and corporations, it has more trading volume per hour than any other stock exchange in the world.

International trade

     The United States is the most significant nation in the world when it comes to international trade. For decades, it has led the world in imports while simultaneously remaining one of the top three exporters of the world.

     As the major epicenter of world trade, the United States enjoys leverage that many other nations do not. For one, since it is the world's leading consumer, it is the number one customer of companies all around the world. Many businesses compete for a share of the U.S market. In addition, the United States occasionally uses its economic leverage to impose economic sanctions in different regions of the world. The U.S. is the top export market for almost 60 trading nations worldwide.

     Since it is the world's leading importer, there are many U.S. dollars in circulation all around the planet. The historically stable American economy and effective monetary policy led to faith in the U.S. dollar. 2009 has seen government policy that is weakening the US dollar. Large foreign economies own huge dollar reserves (especially as the US is more in debt) so there is a fear that they will move away from the dollar.

     In order to fund the national debt (also known as public debt), the United States relies on selling U.S. treasury bonds to people both inside and outside the country, and in recent times a growing percent of buyers are international. 
 

Currency and central bank 

     The United States dollar is the unit of currency of the United States. The U.S. dollar is the currency most used in international transactions. Several countries use it as their official currency, and in many others it is the de facto currency.

     The federal government attempts to use both monetary policy (control of the money supply through mechanisms such as changes in interest rates) and fiscal policy (taxes and spending) to maintain low inflation, high economic growth, and low unemployment. A relatively independent central bank, known as the Federal Reserve, was formed in 1913 to provide a stable currency and monetary policy. The U.S. dollar has been regarded as one of the most stable currencies in the world and many nations back their own currency with U.S. dollar reserves.

     During the last few years, the U.S. dollar has gradually depreciated in value and its reserve currency status is no longer as high as previously. With increased US debt, policy that's weakening the dollar and the EU signing the Lisbon Treaty, the dollar is less of a global currency standard.

The dollar used gold standard and/or silver standard from 1785 until 1975, when it became a fiat currency.