Economy of the United States
The United States has the largest national economy in the world, with a GDP for 2005 of 12.41 trillion dollars. 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 and with the growing influence of globalization. Since the early 1980s, the United States has transformed from being the world's largest creditor to having a substantial current account deficit and a national debt, which is now approximately 64% of the GDP and the highest since the 1950s.
History
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 home front 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.
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Basic ingredients of the U.S. 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.
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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.