The economy of the United States is a highly advanced, market-based economy. It is the world's largest economy in terms of both nominal GDP and total wealth (net worth), and the second largest in terms of GDP measured by purchasing power parity (PPP). In 2021, the US economy ranked fifth in terms of nominal GDP per capita and seventh in terms of GDP measured by purchasing power parity (PPP). The United States has the world's most technologically powerful and innovative economy, with strengths particularly evident in the fields of artificial intelligence, computing, pharmaceuticals, medicine, aerospace, and military technology. The US dollar is the most widely used currency in international trade and the principal currency in the currency reserves held by banks and governments. It is backed by the US economy and armed forces, petrodollar recycling, dollar-denominated futures deposits outside US banks, and the US Treasury. The US dollar is also the official currency of several other countries and the de facto dominant currency in others. China, the European Union, Canada, Mexico, India, Japan, South Korea, the United Kingdom, and Taiwan are the United States' largest trading partners. The United States ranks first in imports and second in exports globally. The United States has signed free trade agreements with several countries, including the United States-Mexico-Canada Agreement, and agreements with Australia, South Korea, and Israel. Other countries are negotiating or already in effect free trade agreements with the United States.
The United States surpassed the British Empire as the world's most productive economy by 1890. The United States is the world's largest producer of oil and natural gas. In 2016, the United States was the world's most traded nation and ranked third in manufacturing, with American industries accounting for one-fifth of global industrial output. The United States not only has the largest domestic market for goods but also dominates trade in services. The value of U.S. trade reached $5.6 trillion in 2018. The United States is home to 121 of the world's 500 largest companies, according to the Fortune Global 500. The United States has the largest number of billionaires, with a combined wealth of $3 trillion. Commercial banks in the United States held $20 trillion in assets as of August 2020. The United States has more than $30 trillion in global assets under management.
The New York Stock Exchange and the NASDAQ are the world's two largest stock markets in terms of market capitalization and trading volume. Foreign investment in the United States amounts to $4 trillion, while US investment in foreign countries exceeds $2.6 trillion. The US economy ranks first in the world in venture capital and global R&D funding. Consumer spending accounted for 68% of the US economy in 2018, and the employee share of income reached 43% in 2017. The United States boasts the world's largest consumer market. The national labor market has attracted immigration from around the world, and the US has the highest net migration rate in the world. The US economy has performed best according to economic studies, such as the Ease of Doing Business Index and the Global Competitiveness Report, among others.
The US economy experienced a critical contraction during the 2008 Great Recession, which lasted from December 2007 to June 2009. However, real GDP recovered to its pre-crisis peak (late 2007) in 2011, household net income returned to its pre-crisis level by the second quarter of 2012, nonfarm payrolls reached their pre-recession level by May 2014, and the unemployment rate returned to its pre-recession level by September 2015. These shifts in the post-recession record remained unchanged, and the US economy's recovery time was the second-longest in the world by April 2018. In the first two quarters of 2020, the US economy entered a recession due to the spread of the COVID-19 virus. The economic recession resulting from the COVID-19 pandemic has caused the most severe contraction in the global economy since the Great Depression, and its impact has been far worse than the 2008 Great Recession. The United States was ranked 41st out of 156 countries in 2017 for economic inequality, and the wealth gap in the United States was higher than in the rest of the Western world.
History
Colonial Period and the 18th Century
The history of the United States economy began with the establishment of British settlements on the East Coast in the 17th and 18th centuries. The 13 states gained independence from the British Empire in the late 18th century, and their economies immediately evolved from a colonial economy to an agricultural one.
19th Century
The United States economy expanded in size over the course of 180 years, becoming more integrated and industrialized, accounting for one-fifth of the global economy. As a result of the above factors, the United States economy approached and eventually surpassed that of the British Empire, as well as a number of other economically backward nations. The economy provided high wages, attracting millions of immigrants from around the world.
In the early 1800s, the United States was largely an agricultural country, with 80% of its population employed in agriculture. Most industries focused on the early stages of raw material processing, with lumber, sawmills, textiles, boots, and shoes leading the way. The vast wealth of resources contributed to the rapid expansion of the economy in the 19th century. The availability of spacious land allowed for a steady growth in the number of farmers, but industrial, service, transportation, and other sectors grew even more rapidly. Thus, by 1860, the rural population of the United States had declined from 80% to 50%.
In the 19th century, recessions frequently coincided with financial crises. A five-year depression followed the Panic of 1837, when banking failures and unprecedented levels of unemployment occurred. It is difficult to compare the severity of current recessions with previous ones due to the major changes in the economy over the centuries. The recessions following World War II were less severe than earlier recessions, but the reason for this remains unknown.
20th Century
At the beginning of the 20th century, new innovations and improvements paved the way for an improvement in the standard of living of American consumers. Many companies grew in size by exploiting economies of scale and improving communication to conduct operations nationwide. The clustering of these industries led to growing fears of monopoly, which would in turn lead to higher prices and lower output. However, most companies quickly cut costs, and trends toward lower prices and higher output emerged in these industries. Large corporations shared their success with many workers, offering the highest wages in the nation.
Crises
The American economy went through several crises, the first and largest of which was the Great Depression of 1929, which lasted until 1933. On October 24, 1929, after a single sale of 19 million shares, the stock market went into free fall. As a result of speculation, supply exceeded demand, and stock values collapsed. Capitalists were unable to repay their debts, so banks went bankrupt and several industrial establishments closed their doors. Farmers were also unable to repay their loans and were forced to migrate to cities. This day became known as Black Thursday. The Dow Jones Index lost nearly 50% of its value and did not recover for more than 20 years. In October 1987, the stock market collapsed again, with the Dow Jones Index falling by 22.6%, becoming known as Black Tuesday. The events of September 11, 2001, also caused the collapse of several companies and turmoil in the global economy.
The most recent crisis occurred in August 2008, following a mortgage crisis, a decline in home prices, and the collapse of major financial institutions, most notably Bear Stearns, which led to its acquisition by JPMorgan Chase. Institutions and banks such as Freddie Mac, Fannie Mae, and Lehman Brothers collapsed, leading to the US government intervening to rescue them. The dollar also fell to its lowest levels in history, inflation rates rose to their highest level in 17 years, and the price of oil rose to record levels, reaching $147 a barrel. After a period, it fell back to below $50. The dollar exchange rate rose, and the US economy resumed growth. However, the crisis remains serious and threatens the global economy. Experts expect it to end in mid-2010. The US government developed a US rescue plan, but Congress rejected it the first time. After that, some amendments were added, and Congress approved it. However, the crisis continued, and the markets continued their sharp decline, and metals and oil prices continued to decline.
The American Economy and Terms of Administration
The American economy changes from one president to the next, from Democrat to Republican. Democrats' terms of office are characterized by stability and economic prosperity, while Republicans' terms of office often experience economic collapses. The two most prominent examples are Presidents Bill Clinton and George Bush:
Bill Clinton (Democrat):
From 1992 to 2000, his term in office was considered the most prosperous economic era in the history of the United States. He assumed office after George H.W. Bush, and America's debt was a record $290 billion. However, during his term in office, he was able to reduce the debt and turn it into a trade surplus in 1998. He also succeeded in reducing the percentage of Americans living in poverty, stimulating a recovery in the American stock market, reducing the number of unemployed, and increasing wages. Americans call this the golden age of the American economy. President Clinton's popularity rating reached 65%, the highest for any American president.
George Bush (Republican):
From 2001 to 2009, his presidency witnessed the most severe recession in nearly a century. In 2007, the subprime mortgage crisis began and developed into a global economic crisis, not just a financial one. It also witnessed the collapse of the largest American and international institutions, a significant increase in the number of unemployed, with unemployment reaching over 6.1%, the highest level in decades, and a record-breaking increase in the American debt, exceeding $500 billion, after a similar surplus during the Clinton administration. The economic situation, the Iraq War, and the American casualties also affected his popularity rating as president, which is estimated at 22%, the lowest for any American president.
Manifestations of the Strength of the American Economy
The Strength of Agriculture
Agriculture is considered a secondary sector of the American economy, contributing a small percentage of the gross domestic product and employing a small percentage of the labor force. However, the strength of this sector is evident in its many aspects, including:
- It is considered the world's leading agricultural sector in production and export.
- It occupies leading positions in several products, such as corn, soybeans, and wheat.
- It controls a large share of global agricultural production.
- The vast and diverse production, especially grain and livestock production.
The United States is divided into three major agricultural regions: the Eastern Agricultural Region, the Central Agricultural Region, and the Western Agricultural Region.
Industrial Strength
Industry is a key sector of the American economy. The United States ranks first globally in several industrial products and controls a large share of global production across several industrial products. Industrial production is characterized by its diversity and scale. Although some older industries (automotives, steel, and textiles) have declined due to strong foreign competition, they still hold global leadership. Meanwhile, advanced and high-tech industries (electronics, aerospace, and electrical) have flourished. The United States is divided into three major industrial regions:
- The Northeast: This is the oldest industrial region in the country, and despite its declining industrial importance, it remains the country's premier industrial region. Older industries predominate. This region also includes two industrial regions: Mesa and Great Lakes.
- The South: This is a modern industrial region, home to advanced and petroleum industries.
- The West: This is a developed industrial region, home to high-tech industries, including Silicon Valley (the world's largest cluster of companies specializing in electronics and information technology).
Trade Strength
Manufactured products dominate American exports and imports, including equipment, consumer goods, automobiles, and information technology. The United States trades with several countries, particularly Canada, Japan, the European Union, Southeast Asian countries, and Latin American countries. The United States also boasts strong transportation and ports (such as the Port of Seattle, the largest port on the Pacific Ocean). However, despite these trade strengths, the value of American imports exceeds the value of exports, meaning it suffers from a trade deficit.
Other Aspects
Investment Strength
The United States is one of the largest foreign investors, and these investments are characterized by their massive size.
American companies also represent a large percentage of the top 100 multinational corporations. The United States attracts massive foreign investment due to its large consumer market and political stability. Most investments come from Japan, China, Canada, and the European Union.
The strength of the services sector
This sector accounts for a significant percentage of the gross domestic product (GDP), and the United States ranks first in the world in this sector, which is rapidly developing.
Qualities Explaining the Strength of the American Economy
Qualities Explaining the Strength of Agriculture
Natural Qualities
These natural qualities include:
- A vast agricultural area, with more than half of the country's area comprising the Great Plains, especially in the eastern half and west, including California.
- Diverse climate: humid oceanic in the north and west, temperate Mediterranean in the south, and mountainous in the western half, including the Rocky Mountains, and the eastern Appalachian Mountains. This contributes to a variety of crops and abundant rainfall.
The importance of water resources, which contribute to the strength of irrigated agriculture. Prominent among these resources are the Great Lakes, as well as rivers with strong flows, such as the Mississippi and Missouri Rivers.
Organizational Qualifications
Agriculture enters into capitalist relationships with other economic sectors, including industry, trade, and services, within an organizational framework. It supplies hotels, restaurants, and factories with agricultural products, while industries supply them with machinery, fertilizers, and pesticides. The service sector, meanwhile, provides loans and scientific research. This new organization is called acrobusiness.
Technical Qualifications
American agriculture benefits from machinery, fertilizers, selected seeds, and pesticides, along with the use of the latest technological means in the production process, including satellites to monitor soil quality and the amount of fertilizer used. This sector also benefits from the machinery necessary to market its products.
Multinational Corporations
Multinational corporations are a major contributor to the strength of the American economy, employing large numbers of workers and generating significant sales, placing them among the world's leading corporations.
Unemployment
As of December 2017, the U.S. unemployment rate was 4.1%, or 6.6 million people. The government's broader unemployment rate for those under 6 years old, which includes part-time unemployed, was 8.1%, or 8.2 million people. These figures were calculated using a civilian labor force of approximately 160.6 million people, compared to a U.S. population of approximately 327 million.
Between 2009 and 2010, in the wake of the Great Recession, the emerging problem of unemployment recovery led to record levels of long-term unemployment, with more than six million workers looking for work for more than six months as of January 2010. This particularly affected older workers. A year after the recession ended in June 2009, immigrants had gained 656,000 jobs in the United States, while native-born workers had lost more than 1 million jobs, due in part to the nation's aging population (relatively more white retirees) and demographic shifts. In April 2010, the official unemployment rate was 9.9%, but the government's broader unemployment rate for those under 6 was 17.1%. Between February 2008 and February 2010, the number of people working part-time for economic reasons (i.e., preferring full-time work) increased by 4.0 million to 8.8 million, an 83% increase in part-time workers over the two-year period.
Income Inequality
Income inequality has become a hotly debated topic worldwide. According to the CIA World Factbook, the United States ranked 41st among 156 countries in 2017 in income inequality (meaning that 74% of countries have a more equal income distribution).
According to the Congressional Budget Office, households in the top 1% of incomes received about 9% of pre-tax income in 1979, compared to 19% in 2007 and 17% in 2014. For after-tax income, these figures were 7%, 17%, and 13%, respectively. These figures indicate that the share of income received by the top earners more than doubled between 1979 and 2007, then declined somewhat following the Great Recession, the tax increases, and the redistribution policies implemented by President Barack Obama in 2013 (i.e., the end of the recession). Bush tax cuts for the top 1% and subsidies for low-income individuals through the Affordable Care Act. Recasting 2012 income using the 1979 income distribution (the most equal period between 1950 and 1980), the poorest 99% of households would have received an additional income of about $7,100 on average. Income inequality in the United States widened between 2005 and 2012 in more than two of the three metropolitan areas.
