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.
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
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.
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.
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.
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%.
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.
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%.
Inflation rate (consumer prices): 3.2% (2005 est.) / 3.8% (2008 est.)
Industrial production growth rate: 3.2% (2005 est.) / -2.0% (2008 est.)
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%
other: 3.3% (2008)
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.)
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).